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The gas industry’s future looks bright over next five years

MD Staff

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Strong demand growth from China, greater industrial demand, and rising supplies from the United States, will transform global natural gas markets over the next five years according to the International Energy Agency’s latest market forecast.

Global gas demand will grow at an average rate of 1.6% a year, reaching just over 4,100 billion cubic meters (bcm) in 2023, up from 3,740 bcm in 2017, according to the IEA’s latest annual gas market report, Gas 2018, which was released today.

“In the next five years, global gas markets are being re-shaped by three major structural shifts,” said Dr Fatih Birol, the IEA’s Executive Director. “China is set to become the world’s largest gas importer within two-to-three years, US production and exports will rise dramatically strongly and industry is replacing power generation as the leading growth sector. While gas has a bright future, the industry faces tough challenges. These include the need for gas prices to remain affordable relative to other fuels in emerging markets and for industry to curb methane leaks along the value chain.”

Chinese gas demand is forecast to grow by 60 % between 2017-2023, underpinned by policies aimed at reducing local air pollution by switching from coal to gas. China alone accounts for 37% of the growth in global demand in the next five years and becomes the largest natural gas importer by 2019, overtaking Japan. The IEA also forecasts strong growth in gas use in other parts of Asia, including in South and Southeast Asia, driven by strong economic growth and efforts to improve air quality.

For end-use sectors, industry will become the largest contributor to the increase in global gas demand to 2023, taking the lead from power generation, which had historically held this role. The change is especially marked in Asia and other emerging markets thanks to higher gas use in industrial processes and as feedstock for chemicals and fertilizers. Overall, industry accounts for over 40% of growth in global gas demand to 2023, according to the IEA, followed by 26% for power generation.

Major changes are also evident on the supply side, with the United States leading gas production growth worldwide to 2023, thanks to the on-going US shale revolution. Most new US supplies will be geared to export markets as LNG or through pipelines. The development of destination-free and gas-indexed US LNG exports will provide additional flexibility to the expanding global water-borne traded market.

LNG is progressively taking a larger share in global gas trade, especially in Asia. LNG trade as a share of total gas trade is forecast to rise from a third in 2017 to almost 40% in 2023. Emerging Asian markets will account for about half of global LNG imports by 2023. This continued rise in the LNG market will have significant impacts on trade flows, pricing structures and global gas security.

The current wave of LNG export projects will increase liquefaction capacity by 30% by 2023. This will be led by an increase in output from the United States, which accounts for nearly three-quarters of the growth in total global LNG exports in the period, followed by Australia and Russia. However, a lack of new LNG projects after 2020 could lead to a tightening of LNG markets. Given the long-lead time of such projects, investment decisions will need to be taken in the next few years to ensure adequate LNG supply beyond 2023.

Price competitiveness will be crucial for gas to gain a firm foothold in emerging markets. This requires market evolutions and reforms, such as the development of trading hubs, opening up of the downstream to competition and fair access to infrastructure. Improving air pollution will be a key driver of gas demand, especially in emerging markets, and industry’s ability to improve its environmental footprint, including by reducing methane emissions and expanding the deployment of carbon, capture, utilization and storage technology, will be critical for gas prospects.

IEA

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Four Things You Should Know About Battery Storage

MD Staff

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The global energy landscape is undergoing a major transformation. This year’s Innovate4Climate (I4C) will have a priority focus on battery storage, helping to identify ways to overcome the technology, policy and financing barriers to deploy batteries widely and close the global energy storage gap.

Here are four things about battery storage that are worth knowing.

First, energy storage is key to realizing the potential of clean energy

Renewable sources of energy, mainly solar and wind, are getting cheaper and easier to deploy in developing countries, helping expand energy access, aiding global efforts to reach the Sustainable Development Goal on Energy (SDG7) and to mitigate climate change. But solar and wind energy are variable by nature, making it necessary to have an at-scale, tailored solution to store the electricity they produce and use it when it is needed most.

Batteries are a key part of the solution. However, the unique requirements of developing countries’ grids are not yet fully considered in the current market for battery storage – even though these countries may have the largest potential for battery deployment.

Today’s market for batteries is driven mainly by the electric vehicles industry and most mainstream technologies cannot provide long duration storage nor withstand harsh climatic conditions and have limited operation and maintenance capacity. Many developing countries also have limited access to other flexibility options such as natural gas generation or increased transmission capacity.

Second, boosting battery storage is a major opportunity

Global demand for battery storage is expected to reach 2,800 gigawatt hours (GWh) by 2040 – the equivalent of storing a little more than half of all the renewable energy generated [today] around the world in a day. Power systems around the world will need many exponentially more storage capacity by 2050 to integrate even more solar and wind energy into the electricity grid.

For battery storage to become an at-scale enabler for the storage and deployment of clean energy, it will be imperative to accelerate the innovation in and deployment of new technologies and their applications. It will also be important to foster the right regulatory and policy environments and procurement practices to drive down the cost of batteries at scale and to ensure financial arrangements that will create confidence in cost recovery for developers. It will also be essential to find ways to ensure sustainability in the battery value chain, safe working conditions and environmentally responsible recycling.

With the right enabling environment and the innovative use of batteries, it will be possible to help developing countries build the flexible energy systems of the future and deliver electricity to the 1 billion people who live without it even today.

Third, battery storage can be transformational for the clean energy landscape in developing countries

Today, battery technology is not widely deployed in large-scale energy projects in developing countries. The gap is particularly acute in Sub-Saharan Africa, where nearly 600 million people still live without access to reliable and affordable electricity, despite the region’s significant wind and solar power potential and burgeoning energy demand. Catalyzing new markets will be key to drive down costs for batteries and make it a viable energy storage solution in Africa.

Already, there is tremendous demand in the region today for energy solutions that do not just boost the uptake of clean energy, but also help stabilize and strengthen existing electricity grids and aid the global push to adopt more clean energy and fight against climate change.

Fourth, the World Bank is stepping up its catalytic role in boosting battery storage solutions

There is a clear need to catalyze a new market for batteries and other storage solutions that are suitable for electricity grids for a variety of applications and deployable on a large scale. The World Bank is already taking steps to address this challenge. In 2018, the World Bank Group announced a $1 billion global battery storage program, aiming to raise $4 billion more in private and public funds to create markets and help drive down prices for batteries, so it can be deployed as an affordable and at-scale solution in middle-income and developing countries.

By 2025, the World Bank expects to finance 17.5 GWh of battery storage – more than triple the 4-5 GWh currently installed in developing countries. With the right solutions, it can be possible to build large-scale renewable energy projects with significant energy storage components, deploy batteries to stabilize power grids in countries with weak infrastructure, and increase off-grid access to communities that are ready for clean energy with storage.

The World Bank has already financed over 15% of grid-related battery storage in various stages of deployment in developing countries to date.

In Haiti, a combined solar and battery storage project will ultimately provide electricity to 800,000 people and 10,000 schools, clinics and other institutions. An emergency solar and battery storage power plant is being built in the Gambia, as are mini-grids in several island states to boost their resilience.

In India, a joint WB-IFC team is developing one of the largest hybrid solar, wind and storage power plants in the world, while in South Africa, the World Bank is helping develop 1.44 gigawatt-hours of battery storage capacity, which is expected to be the largest project of its kind in Sub-Saharan Africa.

World Bank

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Driving a Smarter Future

MD Staff

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Today the average car runs on fossil fuels, but growing pressure for climate action, falling battery costs, and concerns about air pollution in cities, has given life to the once “over-priced” and neglected electric vehicle.

With many new electric vehicles (EV) now out-performing their fossil-powered counterparts’ capabilities on the road, energy planners are looking to bring innovation to the garage — 95% of a car’s time is spent parked. The result is that with careful planning and the right infrastructure in place, parked and plugged-in EVs could be the battery banks of the future, stabilising electric grids powered by wind and solar energy.

Today the average car runs on fossil fuels, but growing pressure for climate action, falling battery costs, and concerns about air pollution in cities, has given life to the once “over-priced” and neglected electric vehicle.

With many new electric vehicles (EV) now out-performing their fossil-powered counterparts’ capabilities on the road, energy planners are looking to bring innovation to the garage — 95% of a car’s time is spent parked. The result is that with careful planning and the right infrastructure in place, parked and plugged-in EVs could be the battery banks of the future, stabilising electric grids powered by wind and solar energy.

Advanced forms of smart charging

An advanced smart charging approach, called Vehicle-to-Grid (V2G), allows EVs not to just withdraw electricity from the grid, but to also inject electricity back to the grid. V2G technology may create a business case for car owners, via aggregators (PDF), to provide ancillary services to the grid. However, to be attractive for car owners, smart charging must satisfy the mobility needs, meaning cars should be charged when needed, at the lowest cost, and owners should possibly be remunerated for providing services to the grid. Policy instruments, such as rebates for the installation of smart charging points as well as time-of-use tariffs (PDF), may incentivise a wide deployment of smart charging.

“We’ve seen this tested in the UK, Netherlands and Denmark,” Boshell says. “For example, since 2016, Nissan, Enel and Nuvve have partnered and worked on an energy management solution that allows vehicle owners and energy users to operate as individual energy hubs. Their two pilot projects in Denmark and the UK have allowed owners of Nissan EVs to earn money by sending power to the grid through Enel’s bidirectional chargers.”

Perfect solution?

While EVs have a lot to offer towards accelerating variable renewable energy deployment, their uptake also brings technical challenges that need to be overcome.

IRENA analysis suggests uncontrolled and simultaneous charging of EVs could significantly increase congestion in power systems and peak load. Resulting in limitations to increase the share of solar PV and wind in power systems, and the need for additional investment costs in electrical infrastructure in form of replacing and additional cables, transformers, switchgears, etc., respectively.

An increase in autonomous and ‘mobility-as-a-service’ driving — i.e. innovations for car-sharing or those that would allow your car to taxi strangers when you are not using it — could disrupt the potential availability of grid-stabilising plugged-in EVs, as batteries will be connected and available to the grid less often.

Impact of charging according to type

It has also become clear that fast and ultra-fast charging are a priority for the mobility sector, however, slow charging is actually better suited for smart charging, as batteries are connected and available to the grid longer. For slow charging, locating charging infrastructure at home and at the workplace is critical, an aspect to be considered during infrastructure planning. Fast and ultra-fast charging may increase the peak demand stress on local grids. Solutions such as battery swapping, charging stations with buffer storage, and night EV fleet charging, might become necessary, in combination with fast and ultra-fast charging, to avoid high infrastructure investments.

To learn more about smart charging, read IRENA’s Innovation Outlook: smart charging for electric vehicles. The report explores the degree of complementarity potential between variable renewable energy sources and EVs, and considers how this potential could be tapped through smart charging between now and mid-century, and the possible impact of the expected mobility disruptions in the coming two to three decades.

IRENA

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Energy

What may cause Oil prices to fall?

Osama Rizvi

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Oil prices have rallied a whopping 30 percent this year. Among other factors, OPEC’s commitment to reduce output, geopolitical flash-points like the brewing war in Libya, slowdown in shale production and optimism in U.S. and China trade war have all added to the increase. The recent rally being sparked by cancellation of waivers granted to countries importing oil form Iran has taken prices to new highs.

However, one might question the sustainability of this rally by pointing out few bearish factors that might cause a correction, or possibly, a fall in oil prices. The recent sharp slide shows the presence of tail-risks!

Libya produces just over 1 percent of world oil output at 1.1 million barrels, which is indeed not of such a magnitude as to dramatically affect global oil supplies. What is important is the market reaction to every geopolitical event that occurs in the Middle East given the intricate alliances and therefore the increasing chances of other countries jumping in with a national event climaxing into a regional affair.

Matters in Libya got serious as an airstrike was carried out on the only functioning airport in the country a few days ago. Khalifa Haftar who heads Libyan National Army has assumed responsibility for the strike. However, UN and G7 have urged to restore peace in Tripoli. Russia has categorically said to use “all available means” while U.S.’ Pompeo called for “an immediate halt” of atrocities in Libya.

The fighting has been far from locations that hold oil but the overall sentiment is that of fear which is understandable as this happens in parallel to a steep decline in Venezuelan production, touching multi-year low of 740,000 bpd.  However, as international forces play their part we might expect a de-escalation in the Libyan war — as it has happened before.

Besides the chances of an alleviation of hostilities in Libya, concerns pertaining to global economic growth, and thereof demand for oil, have still not disappeared. The U.S. treasury yield, one of the best measures to predict a future slowdown (recession),  inverted last month; first time since 2007. If this does not raise doubts over the global economic health then the very recent announcement by International Monetary Fund (IMF) who has slashed its outlook for world economic growth to its lowest since the last financial crisis. According to the Fund the global economy will grow 3.3 percent this year down from 3.5 percent that predicted three months ago.

image: Bloomberg

Then there is Trump, whose declaration of Iran’s IRGC as a terrorist organization might increase the likelihoods of yet another spate of heated rhetoric between the arch-rivals. But if he is genuinely irked by higher oil prices as his tweets at times show and if he thinks that higher gasoline prices can hurt his political capital then this will certainly have a bearish effect on the markets as observers take a sigh regarding the mounting, yet unsubstantiated,  concern over supply.

One of the factors that contributed most to the recent rally was OPEC’s unwavering commitment to its production cuts. The organization’s output fell to its lowest in a year at 30.23 million barrels per day in February 2019, its lowest in four years. But the question remains for how long can these cuts go on? Last month it was reported the Kingdom of Saudi Arabia had admitted that they need oil at $70 for a balanced budget while estimates from IMF claims that the level for a budget break-even are even higher: $80-$85. We should not forget Trump and his tweets in this regard as well. Whenever prices have inched up from a certain threshold POTUS’ tweet forced the market to correct themselves (save the last time). One of the key Russian officials who made the deal with OPEC possible recently signaled that Russia may urge others to increase production as they meet in the last week of June this year. While this is not a confirmation that others will agree but it certainly shows that one of the three largest oil producers in the world does feel that markets are now almost balanced and the cuts are not needed further.

Now with the recent cancellation of waivers we should expect U.S. to press KSA to increase production to offset the lost barrels and stabilize the prices.

Finally stoking fears of an impending supply crunch (a bullish factor) is the supposed slowdown in U.S. Shale production. But the facts might be a tad different. Few weeks ago U.S. added 15 oil rigs in one day, a very strong number indeed-this comes after a decline of streak of six consecutive weeks. According to different estimates the shale producers are fine with prices anywhere between $48 to $54 and the recent rise in prices has certainly helped. Well Fargo Investment Institute Laforge said that higher prices will result in “extra U.S. oil production in coming months”. Albeit, U.S.’ average daily production has decreased a bit but it doesn’t mean that the shale producers cannot bring back production online again. Prices are very conducive for it.

So if you think that prices will continue to head higher, think again. Following graph shows that oil had entered the overbought territory few days back–hence the recent slide.

Therefore, If the war in Libya settles down (and there is a strong possibility that it will); rumors of a production increase making its way into investors’ and traders’ mind (as it already have) and global economy continue to struggle in order to gain a strong footing — the chances are oil will fall again. The current rally might last for some-time but, like always, beware not to buy too high.

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