August 26, 2016
New: Energy Security without shenanigans
August 26, 2016
Our narrow focus on geopolitics when it comes to Ukraine (see previous item) is not an isolated phenomenon. There is a whole energy security industry that perceives energy markets primarily in geopolitical terms.
This was justified no doubt when oil and gas ruled the world. A lot of the world’s recent history is tied up with wars and other shenanigans around oil, gas and other raw materials. For those who love to read about this type of intrigue, in which the Churchills and the Shells of this world colonize and plot to thwart the bad guys, there is still no better place to go than Daniel Yergin’s The Prize.
But the world is moving on. Oil and gas are slowly becoming less important, renewables are becoming bigger. And that will turn the energy security picture completely on its head. Who needs Saudi Arabia when they have the sun? Who needs Russia when they have the wind?
Not only that, but there is also the increase of unconventional oil and gas of course that’s leading to a wider geographical distribution of fossil fuel resources.
If you are still doubtful, then listen to this from the horse’s mouth: Sir John Scarlett, the former head of UK Secret Intelligence Service MI6, frankly notes in an interview with Energy Post that “the role of geopolitics will become less important in energy”. According to Sir John, once a “Station Head” in Moscow in the 1990s, new technologies (renewables and unconventionals), market trends and (pro-market) policies are all reducing the potential for energy to be use for political purposes.
Christoph Frei, the Secretary General of the World Energy Council, the UN-accredited global energy network which has more than 3,000 member organisations in over 90 countries, shares this view. The energy sector is going through a “grand transition” that will radically change the way energy security should be approached, he says, in another Energy Post interview.
According to Frei, the world is going through a “triple transition”, which will fundamentally change the global and European energy security equation. This transition consists of: one, decarbonisation, two, a radical change in energy business models and market designs, and three, new challenges to the resilience of energy companies in the form of extreme weather events, cybersecurity threats and water shortages. It’s how we manage this transition that will will determine how well we will be able to ensure secure energy supplies, says Frei.
He also notes that the role of gas in Europe is changing. First, it is becoming more of a provider of systems services than pure energy. Second, it is becoming much more widely available thanks to the shale revolution. Both these trends will help to make gas less of a political issue.
Frei and Sir John will both speak at a Summit on energy security in Stavanger, Norway, on August 28-29, hosted by the Munich Security Conference and the ONS Foundation. The debate there will be moderated by none other than Daniel Yergin. It will be interesting for the attendants to hear what he has to say.
The pipeline Gazprom does NOT want to build
August 26, 2016
Any new pipeline that Gazprom wants to built to the EU is by definition controversial. But you would think that EU Member States would jump at the opportunity to build new gas pipelines within the EU – to improve interconnections and thereby the resilience and competition in the EU market.
Brussels is certainly trying to promote this kind of activity, with its “projects of common interest” and interconnections targets. One area of concern (both in electricity and gas) has long been the connection between France and Spain. As can be seen in this graphic, France and Spain barely have gas connections at the moment:
So there has long been a plan to build a new interconnector, called the MidCat. Both Madrid and Brussels would like to see this pipeline built, and indeed the project has been approved in 2015 by the presidents of France, Portugal, Spain and the EU. However, to the consternation of many, particularly in Spain, just recently the French regulator, the Commission de Regulation de l’Energie (CRE), has declared that the MidCat is not necessary.
The CRE says that “in light of stable demand and overcapacity in recent years, such a costly project” (€3 billion) would create excessive risk for consumers. The CRE also said gas grid operators should establish whether there is a need for new infrastructure capacity, which it said is unlikely given the current market environment. CRE president Philippe de Ladoucette told Reuters that in the past five years Spain had not exported one single cubic metre of gas to France.
In response Juan Vila, President of the Spanish company GasIndustrial, has written an angry rebuttal in Natural Gas Europe, which we have published on Energy Post. Vila calls the views of the CRE short-sighted. He says the CRE exaggerates the costs and argues there is a public interest in increasing the connection between Spain, with its many LNG terminals, to the North-West of Europe.
Who is right? That will depend partly or even largely on how the European gas market will evolve. How important will gas be in the European energy mix? The CRE may be right there is too little demand. Or maybe cause and effect work two ways: new infrastructure can lead to more demand. Gazprom knows this all too well.
It’s an ironic situation. Here is a pipeline that Gazprom does not want to build – and it may not get built. Didn’t the same happen with that other famous project that did NOT involve Gazprom, Nabucco?
So how is the global shale gas revolution coming along?
August 26, 2016
We all know about the US shale gas revolution. Most analysts – from institutions like the International Energy Agency (IEA), the US Energy Information Administration (EIA) and the World Energy Council – expect that shale gas (and oil) will eventually conquer the world. Although the US success depended on certain conditions that are not always applicable elsewhere – accessibility, the existence of a services industry, mineral rights for landowners, the availability of capital, no shortage of water – still, the “Prize” offered by the huge shale gas reserves that are believed to exist in other countries, will be too great to be resisted, these organisations believe.
Earlier this year, for example, the World Energy Council produced a report, Unconventional gas, a global phenomenon which argued that countries like China, Argentina, Australia, Saudi Arabia and Mexico might be expected to become big shale producers.
The IEA expects that by 2040 60% of global gas production will come from “unconventional” resources (which include coalbed methane).
The most recent data from the EIA show, however, that for now, the global shale gas revolution has not taken off yet. Only four countries – the US, Canada, China and Argentina – have commercial shale gas production, but as this chart shows, apart from the US only Canada produces shale gas in significant quantities:
In Europe the expected shale gas revolution seems to have fizzled out even before it began. France, known for its revolutions, Germany and other major European countries have all banned or at least stalled shale gas production. One of the few governments that is still actively promoting shale is that of the UK.
In fact, the UK government has proposed an innovative (some would say: desperate) measure to boost domestic production: to set up a Shale Wealth Fund which would distribute 10% of all shale gas tax revenues to local communities. Indeed, as Joseph Dutton, Research Fellow at the Energy Policy Group at the University of Exeter, writes, the government has even proposed that payments would be made directly to households in the affected areas rather than local governments.
The idea is that this would increase “public acceptance” of shale gas production. But according to Dutton, this is far from certain. He notes that the ultimate payouts are quite uncertain – they will depend a lot on the tax rates and the market prices for shale gas – and might be very small per household. In addition, many people feel the system is tantamount to bribery – they resist shale gas production at any price.
You can read Joseph Dutton’s article here.
The hydrogen economy: around the corner (no, really)
August 26, 2016
You know the idea: if we can store wind and solar power at the time they are excessive and use it when there is no wind or sun, the renewables revolution has taken a huge step forward. One intriguing way of storing renewable energy is in the form of gas: through electrolysis, it can be turned into hydrogen, which can then be added to the gas grid, or used for other purposes, in cars for example. If the hydrogen is mixed with carbon dioxide, it becomes methane, which can fully replace natural gas in the grid.
Until recently, energy journalist and author David Thorpe had no great faith in the feasibility of hydrogen production from renewables by electrolysis. Far too expensive, he thought, relying on “the most recent British source for the cost of producing hydrogen using this method”, namely the Energy Institute of University College London.
This Institute produced a report in April last year authored by Samuel L. Weeks about using hydrogen as a fuel source in internal combustion engines, writes Thorpe. This report states: “hydrogen produced by electrolysis of water is extremely expensive, around $1500/kWh”.
When David wrote about this in his blog, the editor of The Ecologist magazine, Oliver Tickell, observed that it struck him as being way too expensive. “Professor Weeks and the UCL Energy Institute were unable to give me the source for the $1500 figure”, writes Thorpe. “So I turned to a company which is already making hydrogen from renewable electricity for grid balancing and fuel cell powered cars: ITM Power. They provided me with another professor, Marcus Newborough, who is their Development Director. He gave me a much lower figure.”
How much lower? Much, much lower.
“Newborough said: ‘We are currently selling high purity hydrogen at our refuelling stations for fuel cell cars at £10/kg of hydrogen. Each kg contains 39.4kWh of energy, so that’s about 25 pence/kWh or $0.33/kWh. The ambition is to decrease the $/kWh value as more stations are manufactured and more fuel cell cars are in circulation. So yes the $1500/kWh number looks absurd to us’.”
Indeed it does, notes Thorpe. “It is 4,545 times larger, if we are comparing like with like. And I’m still mighty curious as to why UCL Energy Institute got it so wrong.”
Thorpe had a fascinating interview with professor Newborough, which led him to the conclusion that “the hydrogen economy is much nearer than we think”.
Key takeaway: “For over 30 years promoters of green energy have proclaimed the hydrogen economy is around the corner. Now this could finally become true. Companies like ITM in the UK are proving in the market that this technology is already competitive. They produce hydrogen for use in cars and in the form of power-to-gas to be used in the gas network.”
To read the full story on Energy Post, all you need to do is click here.