Ukraine invasion slowing energy transition as rocketing gas prices send customers back into coal and oil

Headshot of Sean Smith
Sean SmithThe West Australian
Europe is trying to wean itself off Russian gas.
Camera IconEurope is trying to wean itself off Russian gas. Credit: Supplied /TheWest

Soaring gas prices triggered by Russia’s invasion of Ukraine are pushing customers back into coal and oil, slowing the transition out of the dirtier fossil fuels, according to the International Energy Agency.

The IEA’s latest quarterly gas report says the price spike is prompting “fuel switching and demand destruction” as European nations try and wean themselves off Russian gas and coal.

“It also casts longer-term uncertainty on market prospects for natural gas, especially in developing markets where it was to play a central role in energy transitions,” the IEA said.

In contrast to the bullish forecasts relied on before the invasion, demand for gas is now expected to decline in 2022 and remain weak out until 2025.

The IEA sees global gas consumption rising by just 140 billion cubic metres between 2021 and 2025, or less less than half the 370 bcm increase seen in the previous five years and well short of the “exceptional” jump in demand of nearly 175 bcm seen last year.

But the fall won’t help a quicker transition to cleaner energy sources led by renewables.

The IEA said 40 per cent of its market revision was attributable “to a slowdown in switching to gas from other fossil fuels, as high gas prices delay conversion plans and investment or limit access to gas supply for newly built or converted infrastructure”.

Most of the balance relates to weaker economic growth in the forecast period as rampant inflation and supply chain disruptions bite.

“Additional energy transition policies would need to be implemented in the coming years to accelerate the decline in gas use among mature markets, to reduce the pressure on supply and prices, and to facilitate access to more price-sensitive emerging and developing economies, where natural gas can help to deliver shorter-term improvements in emissions and air quality and thus contribute to these countries’ transitions to cleaner energy supply,” the IEA said.

Europe is the most exposed, given its reliance on Russian energy. Its need for LNG alone is expected to outpace new supplies of the heating fuel this year and account for more than 60 per cent of the growth in LNG demand through to 2025.

Despite new projects such as Woodside Energy’s $16.5 billion Scarborough, approved last year, the IEA believes there insufficient new LNG to meet expected demand because of curtailed investment after gas prices collapsed in 2020 and construction delays stemming from COVID-19 lockdowns.

The Asia-Pacific region is seen accounting for nearly half of global gas consumption gains until 2025, followed by the Middle East at one-third. North America and Africa provide more modest contributions, while gas consumption is expected to broadly stagnate in Central and South America and Eurasia, and to decline more significantly in Europe.

Get the latest news from thewest.com.au in your inbox.

Sign up for our emails