Editorial: The need for cuts [NGW Magazine]
Two regular but unrelated intergovernmental meetings coincided in early December, with one topic on the agenda of both: the urgent need for output cuts. Opec ministers met in Vienna; and the UN’s Conference of the Parties (COP24) on climate change took place in Katowice. Both seemed a little out of kilter with the reality of daily life.
Opec and the UN are keen to implement cuts: oil in the first case and carbon dioxide in the second. The work of Opec is blamed for much of the emissions and Opec would also dearly like to see less oil on the market, thus restoring prices.
Gas is connected both with oil and with emissions. On one hand it is cleaner than all other fossil fuels; but for purists it is still an emitter of carbon dioxide, and anyway it needs to leave the energy mix as soon as possible on the precautionary principle, just in case the forecasts about greenhouse gas emissions are accurate.
And it often comes out of the same reservoir as oil; and much of it is still priced off oil, in long-term gas sales and purchase agreements whether delivered as LNG or by pipeline and often both are sold by the same companies.
Will either meeting have the intended effect? The oil price has been falling sharply this autumn after a period of stability, showing that no one country, or organisation of countries, has the determination or ability to keep it up for long. A small recovery after Opec suggests that the market is giving it the benefit of the doubt for now.
Perhaps it was not coincidental that it was shortly before the Opec meeting that Qatar announced its withdrawal with effect from January. Never mind its blockade by key Gulf Cooperation Council fellow-members: a minor oil producer anyway, for a long time its real business has been gas exports, and Opec membership confers political disadvantages as well as financial benefits on its members.
The OECD dislikes cartels and Qatar’s biggest partners with some or all of whom it might embark on a series of major plant expansions – Total, Shell, ExxonMobil, ConocoPhillips – are all firmly rooted in the OECD world, while still having of course much to do with Middle Eastern governments. Abu Dhabi announced a string of deals this year with international oil companies that mean more oil but also more gas output.
The world has also changed beyond recognition since Opec was set up and, seldom as cohesive as it appeared, its reason for existence now is less obvious as its share of energy output falls and the share of oil in the mix also falls. Oil may still be (economically) irreplaceable in some applications, such as air travel and petrochemicals, but now other sources of energy have been found, and so have other oil producers, crucially the US.
Replacing oil or slapping environmental taxes on it to limit its use does come with a political cost, as the French president, Emmanuel Macron, has found out. More than they love a clean environment, people like to get on with their lives as cheaply as possible.
This is the conflict at the heart of the debate: there is a price for cleaning up the environment when it is done by politicians, rather than market forces. The US is a case in point: it overachieved its emissions cuts because it could replace coal with gas in the power sector. Europe, lacking shale gas on the scale needed, is not able to replicate that and so either the emissions rise or taxes go up, or in the case of Germany, both.
But gas does cut not merely emissions but also particulates – which is a real and present cause of early death – and it is paradoxical that lignite, however cheap, should be burned for power generation while there is still affordable gas in the ground. Countries like Germany already have enough gas-fired generation capacity to switch away from dirtier coal and lignite.
Qatar’s enthusiasm for gas is by no means opportunist: while he may have been talking up his book at oil and gas conferences this year too, the CEO of Qatar Petroleum Saad al-Kaabi believes that gas is the destination fuel, and so far nothing has come along in the sphere of technology to disprove him. Plans in North America, Russia, the Middle East generally and east Africa to develop LNG, with which Qatar will compete, all suggest a healthy appetite for it.
Nuclear fission is extremely expensive and takes ages to build, leaving behind dangerous waste; nuclear fusion is, as always, a decade away; the minerals needed for batteries have their own cost and are, so far as one can tell, thinly distributed in OECD countries; and sun and wind do not arrive at the drop of a hat. For dispatchable back-up and with limited political risk, gas is essential.
It is, as always, the emissions that spoil the picture, and so the sooner that workable carbon capture and storage solutions can be developed, the better. News from the UK was, surprisingly, encouraging this week with two plans afoot to collect and store the emissions offshore. Finding suitable reservoirs will be the hard part. As producers have discovered while trying to raise reservoir pressure, CO2 cannot necessarily be injected into reservoirs that once held non-acidic gas.
It is tempting to attribute greater significance to the end of a year, let alone a century, on purely symbolic grounds. Still, here’s hoping that 2019 removes the obstacles to a cleaner climate; and if gas plays a part in that, then so much the better.