Overview of the Week: Industry Debates Future of Gas
The good news for natural gas marketers is that Europe will need some 90 GW of dispatchable capacity to balance power demand with supply when renewables are not working. The bad news is that these plants will run for only 1000 hours each year, which is less than half as long as now.
But the news is worse for those companies who have built coal-fired plant over the last few years as they will not recover their costs, the Paris-based International Energy Agency’s new chief economist, Laszlo Varro, told GasNaturally’s Member States’ Gas Forum in Brussels, March 17.
Formerly head of the watchdog’s coal, gas and power markets division, he outlined a scenario in which gas moves to the top of the carbon pile in the power generation sector as coal is – eventually – forced out by policy measures; but gas is still fighting for market share nevertheless owing to its carbon content. Globally, carbon dioxide emissions may have stagnated for the last two years, he said, but drastic reduction is what is needed to limit the rise in global temperatures, according to most scientific studies. So minimizing its role in the power sector is seen as a relatively easy win, compared with the costs of decarbonizing transport or electrifying heating systems.
He believes that Europe is in a good position regarding its security of supply since there is a large amount of LNG on the way to global markets, for much of which Europe will be the main destination. There is also 100bn m³/yr of spare production capacity in Russia too, which could be produced at $1/mn Btu and delivered by pipelines that are a sunk cost. There have already been major declines in the price of coal, oil and gas, he said, although Europe had grown used to thinking that the price of energy is only going one way.
Policy gap
Some countries are going further than others in cleaner energy policy-making. The UK introduced a carbon price floor that was way above the price set by the EU’s emissions trading scheme, and this has been effective in reducing coal burn there. Gas as a result has been displacing coal in the UK power sector since last December, according to data collected and published by Argus Media. “Switching is happening,” said Uniper’s Sabin Augustin.
Transport is another area open to gas: vehicle batteries are not feasible, she said but the energy density of LNG makes it suitable as that would bring side-benefits of less nitrogen oxide (70%) and particulate matter (95%) as well as carbon dioxide (30%).
Speaking for Solar Power Europe, James Watson said that the right thing was for gas and renewables to work together in the power sector for “at least the next 15 years.” Coal has to go, but in a benign way; and it is down to the member states to take responsibility, he said.
Even if it was mandated anyway the UK announcement last autumn of the closure of its coal plant – with a ten-year deadline – was the model to follow, he said. Socially just, long-term plans like that give governments and industry the time to adjust to the new realities and avert large-scale unemployment – a problem the UK faced in the 1980s when the National Union of Miners went on strike.
Markets are key
ConocoPhillips’ Malcolm Rice-Jones, who chairs GasNaturally’s powergeneration task-force, said that markets were the way forward: “If we get the power market right, it will substantially help towards the targets. We need to incentivize coal off the system. Existing gas plant could replace all coal power output,” he said. He also queried the replacement of gas with electricity in heating systems – given that a unit of electricity costs three or four times that of gas – as well as major infrastructure works it would entail. And given the typical UK household derives a third of its energy from gas, a third from electricity and a third from diesel or petrol, their risk is reasonably well spread whereas electrifying everything would pose unnecessary risk.
Transport is another area open to gas: vehicle batteries are not feasible, she said but the energy density of LNG makes it suitable as that would bring side-benefits of less nitrogen oxide (70%) and particulate matter (95%) as well as carbon dioxide (30%).
This was echoed also by Varro who said that stop-go diesel delivery vehicles were what made the air in Paris so dirty. There are no coal-fired power plants for hundreds of kilometres, but trucks are very heavy polluters.
But some of the easiest ways of reducing energy demand are frustratingly out of reach: according to Britta van Boven of the Dutch transporter Gasunie, four fifths of the continent’s residential buildings will still be around by 2050 and many cannot be easily insulated. Delivering the peak energy demand only through electricity would require a power grid that was five times its present size, she said, but some renewable energy would be needed such as heat pumps, biomethane, and similar. “We must use the strong points of gas,” she said, identifying these as storage potential and existing networks.
Looking beyond Europe to demand-reducing solutions being sought in other countries, perhaps for other reasons than the purely environmental, Augustin hit on Japan as a country heavily dependent on energy imports that was doing something to reduce its needs by developing new technology. “They want fuel cells to be the computer chips of the 21st century,” she said, adding that the EU needed to invest in research and development or risk leaving the “energy future” to Japan. Uniper’s initiatives include renewable gas being made from excess power generation and injected into the grid. This is far from economic at the moment, she said, but costs will no doubt come down through further innovation.
Nord Stream 2
The forum took place on the day of a number of other European Union energy-related affairs, including a presentation given by vice-president Maros Sefcovic to energy ministers and other senior EU officials, on energy cooperation with the eastern neighbourhood and Central Asia where he made the point that reducing carbon emissions was a world-wide aim.
He said: “We understand even better the difficulty to ensure energy security when depending on too few sources of energy supply. Today we better understand the devastating effects of pollution and CO2 emissions but we have also found alternative sources. Today, we are committed by the legally binding Paris Agreement to reduce CO2 emissions. This applies to the EU as well as our partners in the eastern neighbourhood and central Asia; it applies to the whole world,” he said. He also said that Ukraine, whose energy minister Volodomyr Demchyshyn was present, needed to complete the reforms which are still pending. “I am hopeful we will see major progress on this front during the first half of this year,” he said.
Also this week, countries in the Visegrad Group – Poland, Hungary, Czech Republic and Slovakia – wrote to the president of the European Commission, Jean-Claude Juncker, requesting a rigorous assessment of the Nord Stream 2 pipeline project, which will bypass them and reduce the significance of Ukraine as a transit country. Partners in the 55bn m³/yr project are Gazprom (50%) and OMV, Uniper, BASF, Engie and Shell (all with 10%).
Speaking at the GasNaturally forum, Shell’s vice-president for global gas Roger Bounds said that the question of gas supply source should be left to the consumer rather than constraining a particular choice.
William Powell