From the Editor: COP26: rhetoric and reality [Gas in Transition]
The eagerly-awaited COP26 climate conference ended on November 12 with the first ever climate deal to explicitly plan to reduce coal, which emits considerably more greenhouse gases than any other hydrocarbon fuel.
While the agreement should be lauded as firm progress on emissions, it fell short of expectations. A commitment to phase out coal was included in earlier drafts of the deal, but the wording was later changed to “phase down” following opposition from India and China, the world’s biggest coal consumers. India’s climate minister Bhupender Yadav defended his government’s position, asking how developing countries could phase out coal when they “still have to deal with their development agendas and poverty eradication.”
Against the backdrop of COP26, a group of countries have banded together to commit to setting end dates for oil and gas production, and ceasing the issue of new licences. Yet for all its high ambitions, the Beyond Oil and Gas Alliance (BOGA) is yet to bring on board a producer that is larger than Denmark, which is leading the initiative and already ended licensing rounds and set a date for phasing out oil and gas production.
There had been speculation in the media that Scotland might join, although so far no commitment has been made. For the first time, Scottish first minister Nicola Sturgeon on November 16 said that the large Cambo oil project west of the Shetland Islands “should not get the green light,” even though the decision lies with the government in Westminster rather than in Edinburgh.
Generally at COP26, there was a lot of rhetoric about the need for the global economy to cut ties with hydrocarbons. But it seems that few countries are prepared to take any drastic steps in that direction, given the impact that doing so would have on economic prosperity and standards of living.
Gas developments in Europe
It would be remiss not to take note, in this issue of Gas in Transition, of the surprise decision by Germany’s energy regulator to suspend the certification of the Nord Stream 2 gas pipeline, until its holding company has set up a German subsidiary. It was already looking very doubtful that the pipeline would start up this year, as the regulator had said it might not take a draft decision on certification until January. Even then, the European Commission can take up to a further four months to review the decision and make its recommendation.
The regulator’s announcement caused a further spike in wholesale gas prices, as hopes were dashed that Nord Stream 2’s launch this winter would help ease the supply crunch. But it is unclear to what extent the current constraints in Gazprom’s supply relate more to transportation or production capacity.
It is true that Ukraine has been offering Gazprom very little firm transit capacity beyond the 110mn m3/day ship-or-pay amount. Instead it has been offering less favourable interruptible capacity, which is usually offered when a pipeline operator cannot guarantee that capacity is available. Gazprom is reluctant to enter into additional supply commitments relying on this interruptible capacity, as it runs the risk of violating contracts if indeed this capacity is interrupted. On the other hand, Gazprom’s production is typically running at peak capacity at this time of year, and it may not have many more spare wells to turn on.
In any case, the situation on the European gas market is looking bleak. Storage levels are falling at a concerning rate and temperatures are down. High carbon prices, which encourage more coal-to-gas switching in power and heating, have not helped matters.
The current crisis should be a reminder that modern life needs ample and stable energy supply. But Brussels has dismissed suggestions that more gas is the answer, calling instead for greater deployment of renewables, regardless of whether there are enough batteries and hydrogen to store the power from these intermittent sources. A hasty and mismanaged transition could mean that energy supply shocks like the one we are seeing now could become a regular occurrence.
Some member states are rebelling against this line of thinking, however. Poland and a number of other countries mostly in east Europe are calling for natural gas to be included in the EU taxonomy on what energy sources can be classified as sustainable. After many years of resisting EU calls to scale back coal-fired power generation, Poland has finally embraced gas as a replacement.
Poland is also part of another group led by France that wants to recognise nuclear power as sustainable. French president Emmanuel Macron has announced that France will resume construction of nuclear power plants to ensure it meets its climate goals while safeguarding its energy security.
This has put France on a collision course with Germany, which is leading another group of nations that see nuclear as too risky and too expensive. And while nuclear power is emissions free, these countries still insist that calling it sustainable is tantamount to greenwashing. Even so, Germany’s stance on natural gas is notably softer, and in general it seems that the response by individual states in Europe and elsewhere to the crisis has been to adopt a more pragmatic approach to the transition. Failing to recognise the need for reliable and abundant energy is dogmatic.