Step Off the Gas: International public finance, natural gas and clean alternatives in the Global South

The gas industry increasingly sees its future growth potential in the Global South. Gas advocates are calling on governments, especially in Asia and Africa, to pave the way for gas expansion. New liquefied natural gas (LNG) exporters such as the United States and Australia are seeking new markets, while gas companies look for new resources to extract and export. Efforts to expand gas are underpinned by international public finance from multilateral development banks (MDBs) and G20 bilateral financial institutions such as bilateral development banks and export credit agencies.

This report finds that:

• Gas projects in low- and middle-income countries are receiving more international public finance than any other energy source: four times as much as wind or solar.
• This finance risks driving a new dash for gas that locks countries into a high-carbon pathway, imperilling their economic future and the global climate. 1.5°C scenarios published by the Intergovernmental Panel on Climate Change see global gas consumption declining by 55% between 2020 and 2050 and unabated gas power generation by 87%.
• Gas is not needed as, for most of its uses, renewable-based alternatives are either already cheaper or are expected to be within a few years.
• Renewable electricity is an increasingly cost-competitive and effective means to provide clean cooking, helped by improvements in the efficiency of electric stoves and devices.
• Countries in the Global South need greater international support to finance clean energy projects, including to help integrate renewables into often weak or unstable electricity grids.

This report examines the challenges in more depth in three case study countries:

• Argentina today relies heavily on gas consumption and remains trapped between high subsidies and debt. While renewable energy is cheaper over its full life cycle, the higher upfront capital costs have been prohibitive, especially with unfavourable borrowing terms.
• Egypt has put renewable energy development on hold in order to prioritize gas; it aims to become a gas trading hub, but this strategy depends on European gas demand, which may not be sustained as climate pressures increase.
• India is a fast-growing importer of gas but has already experienced asset stranding once, with more than half of installed gas power capacity sitting idle due to the high cost of imported gas. The current expansion of import and distribution infrastructure threatens a second phase of redundancy as energy economics transform and renewables grow ever cheaper.

The COVID-19 pandemic has exposed how rapid global change can affect countries in deeply inequitable ways and re-emphasizes the importance of building resilient and socially just economies. As economic resources remain constrained in the coming years, it will be vital that scarce public funds are devoted to building back better.

This report recommends that international public finance should no longer support fossil fuels and should instead focus on creating the enabling conditions for countries to build energy systems based on renewable energy.