Why natural gas increases share in global power mix?

Natural gas to gradually increase share in global power mix.The uptake of natural gas in the global power mix will increase over the coming decade as greater efforts are made to shift to lower carbon-intensive fuels, BMI Research has said in a report.
“We expect gas-fired power generation to grow by an annual average of 3.2% between 2017 and 2026, progressively growing its share in the global power mix to 25% by 2026,” the Fitch Group company has said in a report.  Ongoing efforts to decarbonise the global power sector and reduce emissions will support the uptake of gas in the global power mix over the coming decade and beyond.
While the deployment of renewable energy will take centre stage in the transition towards a low-carbon economy, the lower emissions profile of gas will mean that policymakers increasingly focus on gas as a more preferential thermal option to coal, notably in developed markets, according to the report.  This could involve the mandating of fuel switching, from diesel or coal to natural gas, or introducing carbon pricing to raise the cost of generation for thermal power producers, which would make gas a more attractive option, BMI said. ”We expect gas-fired power generation to grow by an annual average of 3.2% between 2017 and 2026, progressively growing its share in the global power mix to 25% by 2026. This compares to 23% in 2017,” BMI said.



The Asia and Mena regions are the main sources of growth, both for gas-fired generation and for electricity consumption overall.  In Asia, growth is being driven by China and its aggressive and policy-led shift to cleaner fuels, including gas. Policy support – along with infrastructural debottlenecking and wider availability of supply – will also allow for significant gas-fired generation growth in India.

In Mena (Middle East and North Africa), governments are pushing to reduce reliance on oil, freeing up domestically-produced crude for export. Higher domestic gas production will also support generation growth in a number of markets in the region, notably Egypt and Iran.  As a whole, the outlook for gas-fired generation in emerging markets (EMs) is bullish, supported by the rapidly rising demand for energy. Diversification of the power mix is also an important factor in some markets, such as a number of those in Latin America and Sub-Saharan Africa, which are heavily reliant on hydropower, which is vulnerable to drought. However, in EMs gas often struggles to compete with coal on a cost basis, given that coal tends to be cheaper and in most markets the policies are not in place to effectively disincentivise its use, according to the report.

Given the cost competitiveness issues, gas typically demands strong governmental support to grow its share in the overall power mix.  A common theme among many of the largest EM growth markets is the wide-ranging energy reforms underway to make gas more attractive, such as those in China, India, Mexico and Egypt. EM demand is offsetting relatively weaker gas-fired power generation growth in developed European markets, where renewables growth dominates and the profitability of gas is squeezed.  To this end, the gas-fired power generation model in Europe has been hit hard by structural changes to the way that electricity is generated and consumed.
Strong growth in subsidised renewables-based electricity supply, at a time when demand for electricity has stagnated, has depressed wholesale electricity prices and pushed gas power generators out of the electricity markets.  The UK is emerging as an outlier, as the shuttering of coal-fired capacity and the higher carbon pricing is stacking the deck in favour of gas, BMI said.

Sources: QGN, Gulf Agency News, Bloomberg, POWERGLOBE – QFC energy report, BMI research, Reuters.