The crucial role of LNG in the energy transition and the path forward

In the rapidly evolving landscape of global energy, Liquefied Natural Gas (LNG) has emerged as a pivotal player. Its role in bridging the gap between traditional fossil fuels and renewable energy sources is undeniable.

As nations grapple with the urgent need for cleaner energy while ensuring economic stability and growth, LNG offers a feasible solution. However, this transition is not just about one energy source replacing another; it is about a comprehensive overhaul of our energy infrastructure and policies. Investments in renewable energy, batteries, and electric vehicles are crucial and reassuring indicators of a broader commitment to sustainability.

Just as Europe embarked on a quest for alternative gas sources in the aftermath of geopolitical conflicts, Asian economies also face the pressing need for LNG and cleaner fuels to support their rapid economic growth in the coming decades. The prevailing sentiment in the financial sector today, however, suggests that a longer timeframe for the energy transition might be necessary. Energy security remains a top priority globally, and this reality cannot be ignored.

The discussion on the energy trilemma—balancing energy security, sustainability, and affordability—is ever-present. For instance, regional power grid connectivity is a fascinating subject. Europe is actively developing grid connectivity to enhance energy security, which also boosts sustainability by enlarging the market and mitigating the intermittency of solar and wind energy. A larger market can fill gaps and provide more affordable energy, a model that Asia can learn from. Of course, overcoming the divergent interests of individual countries is a challenge, but Europe’s experiences in balancing affordability, security, and sustainability offer valuable lessons for the Asian energy market.

Understanding the broader context of the energy transition is crucial. Renowned scholar and professor Vaclav Smil emphasises that each iteration of the energy transition takes longer than the last. From coal replacing wood, to oil replacing coal, and then natural gas replacing oil and other sources, each shift slows down progressively. Now, the challenge is to increase the share of renewables in the energy mix at an unprecedented speed. The nuclear sector, which Prof. Smil terms a “successful failure,” is expected to play a complementary role. But can we realistically achieve this accelerated transition? And can the planet afford to wait?

Extending the timeframe for the energy transition and aiming for net zero within the next decade could facilitate a smoother transformation of the energy sector. However, this extension comes with risks. We must not become complacent. Innovation and investment in necessary areas must be pursued with urgency. Balancing technology advancement, supply-side considerations, and emission reductions requires a multifaceted approach. Governments must create an enabling environment, with regulation and carbon pricing being two critical pillars.

Japan serves as a noteworthy example. The country aims to be net zero by 2050 and has recently introduced carbon pricing, with plans for a carbon surcharge for utilities and importers. This mirrors Japan›s earlier success with LNG. Fifty years ago, when Japan started importing LNG from Alaska, the costs were high, and few believed in its viability as an alternative to pipeline gas. Today, LNG is a prized commodity, thanks to a regulated market.

The future of the energy transition hinges on scaling up and financing existing technologies. The technologies likely to be commercialised in the next decade—hydrogen, transportation, storage, batteries, and small modular reactors—are already available. The challenge lies in deploying these technologies at scale. While governments are keen to fund research and development for innovative technologies, they must now focus on providing substantial financial support for deployment, which requires much more than R&D investment.

The potential of direct air capture (DAC) is exciting. If DAC costs become low enough, it could simplify the decarbonisation of heavy industries like steel and cement. Additionally, nuclear fusion holds promise. With numerous small commercial fusion ventures emerging in the US, Europe, Japan, and elsewhere, there is hope that one of them will succeed. A successful fusion project in the coming decades would revolutionise power generation and redefine our energy paradigm.

While LNG plays a critical role in the energy transition, a balanced approach that includes significant investments in renewable energy and innovative technologies is essential. The path forward requires collaboration, innovation, and a steadfast commitment to sustainability.