Europe’s Natural Gas Supply: Weathering the Storm

In an atmosphere very much like a TV game show, delegates in attendance at the European Autumn Gas Conference in Paris, France were asked to cast their votes on a number of questions like which energy source would receive the greatest amount of investment.

Not natural gas. Not nuclear. Wind? 

Yes - over 52% of those who voted contended that wind would receive the most euros in the future. The conference moderator, Gas Strategies’ Director James Ball noted that it was the first time natural gas had not won at the conference.

“Natural gas people aren’t going to invest if you don’t give them clear policy incentives,” he added, before introducing a number of speakers who would participate in the session that followed: “Where will Europe get its gas? The Market’s View of the ‘Drivers of Supply’.”

Jean-Marie Dauger, Executive Vice President in charge of Global Gas & LNG Business Line at GDF Suez.

He said, “Gas is very well positioned for the time being because of the demand in Asia, the low price in US, and because of CO2 issues,” explained Mr. Dauger. “In Europe, the situation is much more contrasted and needs much more balance.”

According to him, Europe had natural gas too low on its agenda.

“There is a good basis for Europe for the future of natural gas. From the physical point of view, the difference between demand and supply is diminishing.

“There will be a need for new gas in Europe before the end of the decade,” he said. “LNG has entered into Europe very rapidly, and at over 30% and I think it is here to stay.

Mr. Dauger said he believed Russia’s South Stream natural gas pipeline project to go online by 2018, or 2020 at the latest.

He commented, “I believe unconventional gas will not play a role by that date, and I see a role for LNG in Europe until the end of the decade.”

Chairman James Ball added: “The US shale optimism could help produce a realism with European skepticism surrounding it. The clear message from the market is ‘you’re going to need more gas for Europe.’ 

“LNG is no longer a niche supplier to Europe according to the level it has reached,” he added.

“Uncertainties must be addressed and sorted out,” offered Erwin Van Bruysel, Executive Vice President, Long term Gas Supply at Eni Gas & Power. “The outlook for natural gas has been exposed to so many head winds. Clear policy decisions on the role of natural gas will play must be made considering the decline of nuclear.”

He said that all natural gas suppliers were struggling from this situation.

“If you want to maintain Europe – firm and unequivocal messages are necessary,” said Van Bruysel.

James Ball noted that the signals of natural gas demand had become even less clear in the last year, before introducing Hans-Peter Floren, Member of the Board of Management at E.ON Ruhrgas, who contended that the natural gas industry in Europe had a firm belief in the attractiveness of its product, but there were some obstacles to overcome.

Germany, where he and his company were from, he said, was taking Europe’s 20/20/20 climate targets very seriously, making for a less prominent role for gas in that country’s energy mix. He explained: “Natural gas is considered as a marginal, at best, supplemental fuel. Germany is somewhat extreme about this – it’s clearly a European issue.”

“As a bridge fuel, the question where will Europe get its gas might become a moot point,” he said, “depending on the length of the bridge.”

Mr. Floren mentioned possible new investments in new gas based appliances, natural gas as a fuel for road transport, and the promotion of gas technologies. 

“We must convince that the successful transfer of the energy system can occur only with natural gas. We continue to be committed to our contribution to this business,” he said.

In a Q&A session that followed, James Ball asked the speakers if they had notions of what one or two things would be able to buffet the gas industry through the headwinds. The concept of long-term gas contracts was one suggestion.

Mr. Ball noted that there was still a huge reluctance on the part of policy makers on Europe’s decarbonization agenda, that the role of gas as a backup was taken for granted. “Is the role of gas advocate going to have to be stepped up for bridge building?” he asked.

“There are good signals towards more realism,” answered Hans-Peter Floren. “After having stated tough CO2 abatement targets, more in-depth thinking about how to achieve that goal is on the agenda, the more gas comes into the picture. We are actively working on this by promoting the green image of natural gas, a complementary one for the change of the energy system of the future.”

He said that the aspect of affordability cropped up into the picture.

“Many political leaders have expressed much more open support for natural gas,” explained Mr. Floren, who said that it could join forces with CO2 reduction targets. “That economic viability combines with the big push for renewables.”