In coming years, large financial write offs in the Liquid Natural Gas (LNG) industry are inevitable. The picture won’t be pretty. What follows will be, however.
By 2035, natural gas will be supplanted by hydrogen as an energy source. This begs the question: why would anyone now invest in natural gas?
In Asia alone, a quarter trillion dollars has been wasted to date building LNG export infrastructure to transport natural gas. The carbon emissions involved are high: from the methane produced in natural gas extraction to the compression and decompression of the natural gas into LNG for shipment.
The life cycle emissions of natural gas shipped to market as LNG is worse than coal. In coming years, carbon pricing and better energy technologies will expose and price these inefficiencies. LNG’s replacement will be hydrogen.
Asia at present has only a small and fragmented natural gas pipeline system but a large LNG infrastructure. Over time (to 2050) this LNG infrastructure will be replaced by pipeline and ocean shipping of hydrogen. This will occur through a retasked natural gas pipeline network coupled with sea-going hydrogen tankers.
This process is already underway. Constructive funding from the Asian Development Bank and the newly-created Asian Infrastructure Investment Bank can speed the process.
The place to see the future is Japan. Japan is the world’s largest LNG importer.
Japan’s moving away from long-term import contracts of LNG and toward spot trading of the commodity. This is shifting billions of dollars of price risk to LNG suppliers, hastening the end of the LNG import era.
The main impact will be a rapid end to the ‘Age of Gas,’ a nickname for a series of misguided forecasts that natural gas will become coal’s replacement as the dominant energy fuel through mid-century.
The place to see the future is Japan. Following the disastrous Fukushima nuclear accident, Japan is moving toward cleaner, safer energy alternatives. Japan now holds a global technology lead in the shift toward a hydrogen economy.
In hosting the 2020 Olympics, the city of Tokyo plans to power much of the games by hydrogen. Tokyo’s Metropolitan Government already runs one of the world’s most successful, well-designed carbon markets. It yields roughly US$80 million a year through pricing municipal carbon emissions at about US$38 per tonne.
These carbon levies will help pay nearly a quarter of the costs of building the Games’ hydrogen infrastructure, demonstrating the synergistic benefits of using both taxation and investment to make the shift to a clean energy future.
Separately, Japan’s Kawasaki Heavy Industries aims to begin importing hydrogen by tanker from Australia sometime in the mid 2020s.
The hydrogen will be produced by carbon capture and storage-equipped coal fired power plants in the southern state of Victoria. Hydrogen exports made from solar energy in Australia’s Northwest may follow.
In the regional city of Kobe, Japan has a sewage plant producing hydrogen from human sewage. Japan’s also engaged in world-leading research creating hydrogen from green algae.
All this hydrogen can (among other things) serve an expanding fleet of hydrogen vehicles, which Japan’s also developing. Over time investment in large-scale, combined hydrogen and electricity infrastructure will simultaneously increase global economic growth and reduce destructive climate change.
As this occurs, development of hydrogen supply and demand will begin reinforce each other and the technology will rapidly spread. China, for instance, is now building railway lines from the southern Chinese city of Kunming to Singapore. Electricity power lines and hydrogen gas pipelines can be laid alongside.
Over time, Singapore can become a hydrogen market clearing center for the region. Hydrogen stored up and down the region can eliminate shortages and maintain stable pricing.
As the world grapples with slow growth, an aging population, big ideas are needed. China has a $4 trillion hoard of US dollar reserves earning low interest. China can recycle this money into export infrastructure projects for hydrogen production and delivery.
Chinese-funded large infrastructure projects in Asia would create a ‘locomotive’ effect, helping pull the global economy out of a slow growth phase, benefiting everyone through creating a ‘virtuous circle’ of investment, lower greenhouse gas emissions, improved health and reduced disaster losses from big storms.
Surplus could over time be invested in funding looming actuarial needs as the global population ages, particularly in China.