IEEJ：June 2021©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (537)June 16, 2021

Natural Gas/LNG in a Decarbonization Trend
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
In the first half of June, I had an opportunity to participate as a presenter in two webinars
sponsored by famed U.S. think tanks. Both dealt with the impact of global decarbonization on
natural gas and LNG. One was cosponsored by the Center on Global Energy Policy at the Columbia
University School of International and Public Affairs and the Belfer Center for Science andInternational Affairs at the Harvard University Kennedy School to discuss the geopolitics of energy
transition from the viewpoint of the impact on the natural gas market. The other was sponsored by
the Atlantic Council and led by the Energy Futures Initiative to discuss a study on the roles of natural
gas in global decarbonization. After the International Energy Agency released a report in May on ascenario for net-zero global greenhouse gas emissions in 2050 depicting the great impact on demandfor and production of fossil fuels including natural gas, the two webinars attracted high interests withparticipants being conscious of the IEA report (see “A Japanese Perspective on the International
Energy Landscape (533)” on how to read the IEA report).
Over more than a half century, natural gas supply and demand have expanded globally,smoothly, substantially and stably. According to BP statistics, global natural gas consumption
increased six-fold from 1965 to 2019. The consumption volume increase during the period was thelargest among energy resources, rivalling the oil consumption volume growth. Oil consumption has
substantially increased but widely fluctuated around the oil crises. In contrast, natural gas
consumption has increased almost persistently. Natural gas has differentiated itself from other fossil
fuels and from non-fossil energy sources like hydro, nuclear and renewable energy by featuring
substantial and stable consumption growth over a half century. Behind the remarkable consumption
growth, natural gas has continued to be chosen as a clean fossil fuel in the world, supported byabundant resources and robust supply. We should pay attention not only to the substantial natural gas
consumption expansion but also to a dramatic increase in international trade of natural gas while in
the early days of the world natural gas market had been rather self-sufficient. International naturalgas trade has been dominated by pipeline trade, but LNG trade has rapidly expanded in recent years
and is now expected to grow dominant in the future.
After its extremely smooth expansion, however, the global natural gas and LNG market is
now plagued with great uncertainties. Over the short term, natural gas consumption plunged under
the great impact of the COVID-19 pandemic in 2020. The plunge, which has yet to be specified by
the official statistics, might have been steeper than a 2% decline in 2009 amid the global financial
crisis. Since early 2021, however, natural gas and LNG demand has got on a recovery path in linewith a global economic rebound. The impact of the COVID-19 pandemic on natural gas and LNG
was great but short-lived. In contrast, the decarbonization trend is expected to exert a greater impact
on natural gas and LNG demand over the long term. If the world goes in the direction of carbon
neutrality or net-zero emissions, an extremely great or dramatic impact is expected to arise on how
to use natural gas and LNG, which is a fossil fuel though being cleaner than other fossil fuels.
1IEEJ：June 2021©IEEJ 2021
The abovementioned IEA report estimates that global natural gas consumption in 2050
would decrease by some 60% from 139 exajoules in 2019 to 60 EJ including consumption withcarbon capture, utilization and storage. However, the estimate represents one of various views. Even
if the world reaches net-zero emissions, there would be various potential pathways and energy mixes.
Nevertheless, we must take note of the possibility that a great impact could arise on natural gas
demand in any net-zero emissions scenario.
Participants in the two webinars discussed how global natural gas and LNG consumption
would change from the viewpoint of present realities, as well as the backcasting approach based on
the goal of net-zero emissions by 2050. A particular view presented in the webinars was that natural
gas and LNG demand would continue expanding over a considerably long term in Asian emerging
market and developing economies that are expected to become the center of global energy demand
growth and see a robust increase in natural gas and LNG demand. This is a traditionally mainstream
view that may be described as conventional wisdom. However, it could be positioned as a view
derived again from a reanalysis of natural gas and LNG demand for a world where thedecarbonization trend would accelerate.
Asia as well will make an energy transition. The transition will be undoubtedly to a cleaner
energy system seeking to reduce GHG emissions. Asia including China and India depends
structurally on coal resources that are abundant and cheap. A transition from conventional coalconsumption is one of the largest energy transition challenges in Asia. Then, a significant option
would be the expansion of natural gas and LNG consumption. While energy efficiency
improvements, renewable energy expansion and nuclear energy promotion are important, natural gasand LNG may play a key role in meeting growing energy demand in developing economies ataffordable prices. The role of natural gas and LNG will remain important until or beyond 2040. TheAsian situation after 2040 is more uncertain. It may be realistically difficult for Asian emerging
market and developing economies to realize net-zero emissions by 2050 along with advanced
economies including Japan, the United States and Europe. If they come closer to net-zero emissions,however, a great impact will be exerted on natural gas and LNG. If they position the net-zeroemissions as a longer-term challenge and seek to reach the goal by 2070 or later, however, naturalgas and LNG may remain important until the middle of this century.
Anyway, great changes and challenges will arise regarding Asian natural gas and LNG
consumption. Even as natural gas and LNG remain important, however, more appropriate climatechange countermeasures such as carbon-neutral LNG utilization and adequate measures to reduce
methane and other GHG emissions through natural gas and LNG development will be required.
Hydrogen/ammonia, methanation utilization and other innovative technologies or approaches willgrow important. As future rulemaking for such initiatives is important, it will become significant toreflect opinions in Asia as a major natural gas and LNG user or player in such rulemaking. As thefuture of the global natural gas and LNG market becomes uncertain, it will become important tosecure appropriate investment meeting future demand. As the future course is uncertain, natural gasand LNG market players in supply side may increasingly be limited to those who have financial
capacity and low-cost supply sources for investment decisions. The market may thus be occupied bya small number of players in supply side. As oil majors and other international companies areexposed to decarbonization requirements and pressure in politics, society, financing and stock
markets, they may be plagued with various challenges regarding fossil fuel business investment
decisions. This could become an important matter to be considered. In this respect, a key issue
would be how to position U.S. LNG that has offered diversity and flexibility as a new supply source
for the international market in the past decade.
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