Natural Gas As a Bridge Fuel Faces 'Turbo Lag'

For years, natural gas has been hailed as a bridge fuel that will play a critical role in the transition to renewable energy and low-carbon fuels. While coal remains the most important fossil fuel in the power sector, accounting for 35% of global electricity generation in 2024, natural gas was second at 20%, with gas rapidly replacing coal-fired generation thanks to its lower emissions profile. Natural gas is gaining further prominence in the current era of surging power demand growth: Last year, Morgan Stanley predicted that the U.S. natural gas market is entering a new growth cycle thanks to the advent of AI data centers, clean energy manufacturing, and the cryptocurrency boom. According to the International Energy Agency (IEA) global electricity demand increased by 4.3% in 2024, up from 2.5% growth recorded in 2023.

However, the experts are now warning that gas-powered generation could soon face significant headwinds due to manufacturing constraints. 

According to Wood Mackenzie, the gas turbine market could face “turbo lag” from 2025-2040 due to rising costs, manufacturing constraints and competition from renewables. WoodMac notes that global orders of gas turbines jumped  32%Y/Y in 2025, driven by projections for a big load growth from AI. electrification and hydrogen production. However, the global data and analytics provider has warned that rising capital costs coupled with power prices below the cost of new gas generation could alter this trajectory, particularly in the United States. High costs of imported gas are likely to remain the main challenge for Asia, despite the region’s strong power demand growth while decarbonization goals will limit growth in Europe.

Related: Goldman Raises Oil Demand Outlook

”While power markets will require natural gas-fired power as part of the energy transition through 2040, gas’s role will have limits,” said David Brown, Director of Energy Transition Research at Wood Mackenzie. “High fuel costs in some regions, rising construction costs, and continued cost declines for renewables and energy storage will constrain gas’s growth potential.”

Nevertheless, WoodMac remains bullish about natural gas power generation, predicting that the global sector will add 890 GW of new gas-fired generation capacity through 2040. The U.S. and China are expected to lead the charge, accounting for a combined 47% of global annual additions, while India, Southeast Asia and the EU will account for the rest.

More Sanctions On Russian Gas

Previously, we reported that there are growing worries that potential talks between Ukraine and Russia might lead to a return of some Russian pipeline flows into the EU. However, that now looks unlikely after Russian President Vladimr Putin snubbed peace talks scheduled to be held in Turkey. Putin instead sent a lower-level delegation while Ukraine’s president Volodymyr Zelenskyy reciprocated by sending a Ukrainian negotiating contingent, but also failed to turn up. The Istanbul meeting was Putin’s idea, after Moscow failed to agree to a previous offer of a 30-day unconditional ceasefire by Ukraine and its allies.

And now Europe has threatened to slap Russia with even more sanctions on its natural gas exports if it does not agree to a ceasefire deal. According to Ursula von der Leyen, president of the European Commission, the EU will further restrict Russia’s access to battlefield technology, adding that the bloc has listed another 189 shadow fleet vessels to be sanctioned in a bid to further cripple Russia’s energy exports. This would mark the 17th sanction package by the EU against Russia.

“This war has to end. We will keep the pressure high on the Kremlin,” Leyen said.

Previously, the EU unveiled plans to prohibit the signing of any new Russian gas agreements by the end of this year and also terminate existing contracts by the end of 2027.

Commodity analysts at Standard Chartered have predicted that it’s highly unlikely that more Russian gas will find its way to Europe, even if Russia agrees to a peace pact. The analysts do not expect any significant additional non-transit pipeline flows over the next year beyond those that already come into the EU via the Turkstream pipeline, saying resumption of flows via the Yamal pipeline, Nordstream of through Ukraine is unlikely. Net Russian pipeline flows into the EU fell more than 90% from 2021 levels in April, averaging 42.5 million cubic metres per day (mcm/d). Factoring in LNG imports, net flows from Russia into the EU fell 44.2 mcm/d Y/Y to 105.1 mcm/d in April, 79% below 2021 levels.

By Alex Kimani for Oilprice.com

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