For the G7, natural gas is destiny. Let’s embrace it as the bridge to energy security

John Stackhouse is senior vice-president in the office of the chief executive at Royal Bank of Canada.

Robert Johnston is senior director of research at Columbia University’s Center on Global Energy Policy.

Kathleen Gnocato is a research analyst at the Munk School of Global Affairs & Public Policy, at the University of Toronto.

They are contributors to a recent report from RBC on natural gas.

The G7 was created in the 1970s in response to a worsening Cold War, global energy shock and ensuing economic crisis. More than 50 years later, the same group of leading liberal democracies are meeting this week in Canada to address an eerily similar set of conditions.

For Europe, North America and Japan, security is back. Energy security, especially.

This has become a decade of disruption for energy, especially for natural gas. We saw in the early days of the Ukraine war how Russia weaponized gas, signalling what aggression can do to markets. The enormous U.S. build-out of liquefied natural gas has created different distortions for a global gas market that is still evolving. And there’s an ongoing debate about the viability and structure of decarbonized gas markets and the role of gas in climate change. If gas is a bridge fuel to renewables, how long is that bridge?

Renewed conflict in the Middle East is adding to that insecurity, particularly as gas-rich Qatar, directly across the Persian Gulf from Iran, accounts for nearly 20 per cent of global LNG exports, and is aiming to double production by 2040.

As the G7 host, Canada is uniquely positioned to help resolve those challenges and set a new course for energy security, global stability, climate action – and the role of natural gas in all three.

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Natural gas is already among the world’s most strategically important energy sources, meeting roughly a quarter of today’s needs, and is widely seen as a critical source to power a global population of 9.2 billion by 2040, along with the energy-intensive needs of heavy manufacturing – think reshoring of entire industries – and even hungrier artificial intelligence projects.

Most energy forecasts suggest that in 2040 the world will require more gas, but how much? And what will be the economic and climate consequences?

To map out different pathways, RBC joined forces with Oslo-based Rystad Energy and a group of international researchers in modelling scenarios based on geopolitical forces, policy choices and economic conditions. In one of our scenarios – we call it “Dystopian” because it features shattered international co-operation and unmanaged energy demand – we found the world would need twice as much gas as it produces today. In contrast, another scenario, “Decarbonized,” plays out with rapid decarbonization, where world demand for gas shrinks by roughly a third from today.

The difference between those outcomes could be roughly 370 million tonnes a year of gas, the equivalent of today’s entire production capacity.

Such uncertainty risks volatile prices, uneven investment in both new and abated gas and insecurity for consumers and producers alike.

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The G7 can address that, as it represents some of the world’s biggest producers (the U.S. and Canada) and consumers (Europe and Japan). However, its members are not aligned on gas’s role. Canada and the U.S. need long-term contract security to build up infrastructure and strategic supply. Consumers such as France, Japan and Britain want contract flexibility and diversified energy sources such as hydrogen, nuclear and abated natural gas to hedge their risks and meet climate targets.

As for developing countries, they don’t have access to sufficient capital to build out the infrastructure needed to import, regasify, store and distribute LNG. And much of the world is still divided over the climate consequences of gas production and use, in particular the management of its methane emissions.

A concrete strategy for governments and industry begins with a G7 declaration of support for natural gas as an essential bridge fuel to a lower emissions economy, with clear timelines for the transition to a decarbonized gas market built around clean hydrogen, ammonia, methane abatement and the electrification of LNG production.

The G7 can further throw its weight behind the need to help fast-growing developing countries, especially in Asia and the Global South, as they seek financing and technologies to help switch from coal to gas to renewable energy sources. All of this must be anchored by stronger and more rapid monitoring, accounting and action on flaring, venting and fugitive emissions abatement.

This is not just about the G7. Other democratic allies – Australia and South Korea, in particular, but India, Mexico and a range of South American countries, too – can get behind a new approach to global gas that meets economic ambitions, energy security needs and meaningful climate ambitions.

Without such conviction, the world risks a future marked by energy insecurity for consumers and producers alike. In short, something like the dysfunctional decade that gave rise to the G7 in the first place.