Natural gas and oil in the global energy landscape
Natural gas and oil are key fuels in providing energy to communities around the world and major drivers of productivity and economic growth. Natural gas provided 23.3% of the world’s primary energy consumption in 2023, while oil accounted for 31.7% of global share. Combined with coal (26.47%), these fossil fuels account for more than 80% of the world’s energy.
Oil and natural gas are both formed underground from the decomposition of ancient organisms. The energy they hold traces back to sunlight that was stored by these organisms millions of years ago. Gas and oil (and the petroleum products produced from the latter) have a range of similar uses, including household heating, as feedstock in petrochemical processes and as a fuel to generate electricity.
What is oil and what is it used for?
Natural gas is mostly composed of methane (CH4), while crude oil – as it is referred to in unprocessed form – consists of complex hydrocarbon compounds, along with smaller amounts of sulfur, nitrogen, oxygen and trace elements.
Extraction & Production
Like natural gas, oil is extracted from under the earth’s surface by drilling wells into the reservoirs it is stored in. Oil extraction can take place onshore or in marine environments and – also like gas – the ability to produce oil has been greatly enhanced by the development of hydraulic fracturing (fracking) technology that facilitates extraction from shale rock formations that would otherwise by impermeable. The injection of fracking fluid into the shale at high pressure creates cracks in the rocks through which oil (or gas) can then flow.
Refining of crude oil starts with separation, a process which involves the oil being piped through hot furnaces and discharged into distillation units, where the liquids and vapors separate into fractions based on their boiling points. These are butane and lighter products, gasoline blending components, naptha, kerosene and jet fuel, distillate (diesel and heating oil), heavy gas oil and residual fuel oil. After distillation, heavy, lower-value fractions are processed into lighter, higher-value products such as gasoline using processes like cracking – which typically involves the application of heat, pressure and catalysts to convert heavy hydrocarbon modules into lighter ones.
Common daily fuels produced from oil include gasoline (petrol), diesel and kerosene. Oil products are used in domestic cooking, lighting and heating, to power motor vehicles, ships and aeroplanes, industrial processes and, in some instances, to generate electricity. Oil made up more than a quarter of Asia’s primary energy consumption in 2023, down from 40% at the turn of the century.
What is natural gas and what is it used for?
Natural gas – often simply described as ‘gas’ – is widely used around the world for a range of essential purposes. Gas serves as a domestic fuel for cooking and heating, as a fuel to generate electricity and as a key ingredient in chemical manufacturing processes, such as fertiliser production.
Natural gas is highly valued as a fuel for power generation because it is reliable, flexible, efficient and produces far fewer CO2 emissions than alternatives such as coal and oil. Gas is highly regarded a complementary source of power generation alongside renewable energy, one that can be quickly ramped up or down in response to intermittency issues and which supports emerging nations in Asia as they seek to expand their renewables portfolios.
Comparing gas and oil in electricity generation
Over the past 40 years, oil has largely been phased out of electricity production in Asia. In 1985, nearly a quarter of Asia’s power came from oil – but in 2023 oil’s share of electricity production in the region was less than 3%. Major economies like Japan, South Korea and Singapore no longer rely on oil for significant portions of their electricity generation. Singapore has transitioned from having 80% of its power provided by oil in 2000 to a share of less than 2% in 2023, with natural gas (93%) now the dominant fuel.
Where oil has retained a role in Asian power generation is in emerging economies especially in more remote locations and where natural gas is either unavailable or affordable. Gas-fired power plants can sometimes use diesel as a substitute fuel when gas is unavailable. For instance, Bangladesh typically gets more than 80% of its power from gas but that figure has dropped below 70% in recent years, with oil’s share jumping to more than 25% in 2022.
Having to fall back on oil-based power in emergency situations decreases the ability of nations to reduce CO2 emissions. Oil produces around 30 per cent more emissions than natural gas in the production of electricity. This highlights the need for liquefied natural gas-exporting countries around the world to continue to produce gas in sufficient volumes that it is affordably priced for emerging Asia. Many countries in Asia lack significant gas resources of their own and regional resources fall a long way short of meeting demand. According to a 2024 Wood Mackenzie study, Asia’s LNG demand is set to nearly double to more than 510 million tonnes per annum in 2050.
