Gas and Fuels

Natural gas is the least carbon-intensive of the fossil fuels and can act as a stepping stone to lower carbon energy systems. Gas has already partly displaced more carbon-intensive coal in the US and Europe, with markets in Asia set for coal-to-gas switching in the coming decades.

Higher gas prices in 2022 following Russia's invasion of Ukraine, however, dampened demand globally and accelerated the development of alternative energies.

Liquefied natural gas is an efficient way to supply energy to industrialized markets and demand centers. The process of chilling natural gas to a liquid that is loaded on ships for export has unlocked vast reserves.

Countries across Europe are rushing to secure new LNG import infrastructure to replace Russian pipeline imports, with plans being made to realize numerous projects -- both old and new -- in record time. Many of the terminals will also be future-proofed to import hydrogen and ammonia. Most of the plans are for floating LNG import facilities -- known as FSRUs (floating storage and regasification units) -- which can be installed more quickly than onshore, permanent import terminals.

Governments across Europe have begun deploying new FSRUs, including in Germany, the Netherlands, France, Italy, Greece, and Finland, while old plans have been dusted off in the UK and Estonia. The German state has chartered five FSRUs, while a sixth privately-backed FSRU has also been deployed. There are plans for five FSRUs in Greece as it looks to become a hub to serve the wider southeast European region. Two FSRUs have been deployed at Eemshaven in the Netherlands with a combined capacity of 8 Bcm/year, while Italy's Snam has agreed to buy two FSRUs to be deployed in the coming years. Poland, meanwhile, has pledged to speed work to install an FSRU in Gdansk Bay to increase its LNG import capacity, with interest in capacity from some of its land-locked neighbors.

The European Union sees increased LNG imports as critical to replacing Russian gas and is looking to trusted supply partners, notably the US, for increased supplies.

The US pledged to provide an additional 15 Bcm of LNG to the EU in 2022, with the European Commission saying it would look to guarantee longer-term demand for US LNG of some 50 Bcm/year to 2030. Europe, including Turkey, currently has an import capacity of around 184 million mt/year (254 Bcm/year).

LNG producers have begun to address their emissions via lower-carbon processes and the purchase of carbon offsets. A number of international energy companies have been supplying carbon-neutral LNG cargoes since 2020 while Qatar has pledged action on carbon emissions from its LNG supply via carbon capture and offsetting measures.

Methane emissions from upstream activity also pose a serious threat to climate goals. The European Commission proposed new methane emissions legislation in December 2021, while numerous voluntary initiatives by the oil and gas industry are expected to see a reduction in methane leakage in the coming years. Third-party methane emissions certification schemes are are being introduced, giving sellers and buyers a way to differentiate gas based on methane intensity.

From a peak in 2019, radiant heat produced in US shale plays has fallen as the industry cut output in response to the COVID-19 pandemic. Operators also captured a record percentage of associated gas in oil-rich US plays in 2020 as new infrastructure combined with lowered output.

The amount of radiant heat observed due to flaring in the US in 2020 equated to 110,759 watts. This was a dramatic decline from the 215,042 watts recorded in 2019.

Producers also need to eliminate gas flaring at upstream oil operations to cut direct emissions from owned or controlled sources. There is a commercial advantage in reducing flaring as producers can instead look to sell the gas and reduce the upstream carbon intensity of their crude.

S&P Global Commodity Insights is testing a series of models estimating field-level upstream carbon intensity alongside relevant public domain data. A selection of the results from this modelling are shown below.

Oil production is a highly complex process involving dozens of phases and emissions sources which vary widely from field to field. However, the majority of GHG emissions created by the production process can be narrowed down to a handful of process dynamics.

The most significant of these are flaring and venting of natural gas, and energy required for onsite drilling and pumping, which is typically generated by hydrocarbon combustion. 

This chart shows a selection of S&P Global Commodity Insights’ monthly upstream carbon intensity calculations for oilfields around the world, from well production to the storage terminal.

Oilfields with higher flaring or venting rates tend to fall on the higher end of the upstream carbon intensity range, but the method of extraction also plays a role.

Canada’s Cold Lake oilfield, for instance, has little to no associated gas to flare but its steam injection production process is energy intensive. Extracting the field’s heavy crude oil has a significant carbon footprint.

The Kirkuk oilfield in Iraq and the North Dakota Bakken field in the US, meanwhile, have strong gas-to-oil ratios, requiring producers to manage associated gas via wellhead flaring.

Some 16 of the 20 largest international oil companies (IOCs) based in Europe and North America—representing 17 million b/d of crude oil production—have announced targets to reduce either their upstream emissions or overall operational emissions. The chart below displays these companies' emissions reduction targets and target dates, with the icon size representing 2019 total oil production.

Traditional fuels can also be displaced in transportation by lower-carbon fuels such as biofuels and bio-jet fuel. Biofuels such as ethanol and biodiesel have been used to reduce greenhouse gas emissions for decades.

Some 87% of global biofuels demand is driven by legislation on blending. Global biofuels consumption displaced 2.0 million b/d of fossil fuels in 2021 with a blend rate reaching 6.3% of the total motor gasoline and diesel pool.

Factors limiting the use of biofuels include diminishing incentives to blend due to low oil prices, and an increasing market share for electric vehicles. Renewable diesel is set to be the fastest growing segment within biofuels as incentives in low carbon fuel markets attract investment.

The production of renewable gases, including biomethane and bio-LNG derived from agriculture and organic waste, is accelerating. Europe is looking to ramp up its biomethane production capacity from a modest start point. According to the EU's RePowerEU program, it is planned to increase biomethane production capacity to 35 billion cu m per year by 2030.