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“Germany needs gas – but it does not need new gas infrastructure”

November 13, 2018 by Express Editor

EXPRESS #3 - November 13, 2018

“Germany needs gas – but it does not need new gas infrastructure”

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Germany may not need new gas pipelines any longer

The “long-term relevance of gas” in the German energy market is “vastly underrated by many”, according to a new report from German research institute EWIcommissioned by the Gas Value Chain Company. The latter is a one-man consultancy founded in 2014 by German energy expert Wolfgang Peters, who makes no secret of the fact that he is a “gas advocate”. Peters co-wrote the report with Harald Hecking of EWI.

What Peters and Hecking did was “to compare a scenario labelled “Electrons” – implying high electrification and lower use of gas – with a scenario labelled “Molecules”, the latter implying a higher degree of direct gas use in all sectors.”

Their main findings:

  • Gaseous molecules as energy carrier will be indispensable in both the Electrons and the Molecules scenarios all the way towards 2050.
  • (Fossil) natural gas demand can remain at current levels up to CO2 reduction targets of 65% to 70%. For deeper decarbonization beyond 70%, gas has to become ‘green’, i.e. nonfossil. In the Molecules scenario, demand for green gas reaches ~800 TWh in 2050 in order to achieve a -95% CO2 reduction.
  • There are various options presently known for ‘greening’ gas. Bio-methane is the obvious first, but its growth potential is limited. Green hydrogen blending would be the next obvious step, but its use potential is limited due to gas quality constraints. This renders synthetic methane, produced by the power-to-methane process the most likely option for greening gas in large quantities. It is pivotal in either deep decarbonization scenario (e.g. -95%) towards 2050.
  • Gas and the existing gas infrastructure will be pivotal for ensuring the security of electricity supply: o Peak electricity demand will increase significantly towards ~160 GW in the ambitious -95% Electrons scenario mainly due to the high use of electric heat pumps. Also gas-fired power generation capacity will have to increase strongly, namely towards 107 GW in the same -95% scenario. Gas is the main contributor to meet peak electricity demand. In the Molecules scenario particularly the higher direct use of gas for space heating alleviates the surge in peak electricity demand.
  • In the Electrons scenario, a tremendous rise in power demand is seen (towards ~930 TWh of final energy demand in ‘EL95’). Since such (green) power is mostly furnished by intermittent wind and solar, gas performs a double role to ensure security of electricity supply: First, it acts as a ‘permanent synchronizer’ stabilizing the power grids. Moreover, it steps in the breach in the event of a protracted period of a “Kalte Dunkelflaute”, where a prevailing cold-snap causes massive power and power peak demand but there is neither wind nor sun.

Although the report looks like a lobby for gas, the authors do not shy away from some inconvenient truths for the gas sector.

They note that: “Peak gas demand will decline in both the Electrons and the Molecules scenario, so that existing gas infrastructure by and large suffices.”

They also conclude that “seasonal demand patterns as we presently know them will largely vanish but volatility stemming from renewables intermittency will rise substantially. This implies less future need for seasonal storage and more need for short- and midterm flexibility by line-pack and multiple-cycle peak storages.”

According to the authors, one big advantage of gas-based decarbonization strategies is that they are significantly less costly than electrification based ones: “The ‘Molecules’ scenario achieving 80% CO2 reduction in 2050 causes additional costs of € 1.2 trillion, while the Electrons scenario achieving 95% CO2 reduction causes costs of € 2.2 trillion.”

This is because “a gas-based decarbonization strategy requires less investment needs in buildings, power plants, industrial appliances and the infrastructure, an advantage that prevails even though costs for energy use are slightly higher.”

It is also “far cheaper to transport energy in the form of gas than in the form of electricity due to its higher energy density. Since the existing gas infrastructure is by and large ‘up to the task’ and can continue to be used, significant costs for expensive new-built power grid expansions can be saved.”

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Meanwhile, in the UK there are increasing worries about security of gas supply, in particular the adequacy of the country’s gas storage capacity. The Energy & Utilities Alliance (EUA) told the UK parliament on October 31 that the UK must urgently review the case for more gas storage in order to minimise the risk to supply and maintain flexibility, according to a report by William Powell for Natural Gas World.

“A parliamentary committee is investigating the adequacy of the UK storage portfolio, given the closure of the giant Rough asset, once one of the largest in Europe and previously used for balancing demand in winter”, writes Powell.

“With Rough gone, the UK can meet only a few percent of its annual demand from its storage facilities which are all now quick-response salt caverns, unlike Rough, which was a depleted gas field that depended on seasonal price differences. Those winter-summer price differences are too small to justify the major refitting that the offshore platform would need to be serviceable. Members of parliament are asking the Department for Business, Energy and Industrial Innovation what, if anything, needs to be done to replace it.”

“One question that the committee will consider is whether the government should intervene if the market will not; or whether the array of under-used LNG import terminals and interconnector pipelines are, by themselves, a sufficient resource.”

Roddy Monroe, the former head of the operator of Rough, Centrica Storage, “told the committee that there may be serious implications for UK energy security if policy makers rely solely on the market to deliver the right level of investment to meet broader government objectives, which include making the transition to a low carbon economy and providing access to affordable energy.”

Monroe said that “energy security is underpinned by long life, capital intensive investments which require long-term financial certainty and the government has felt it necessary to intervene in the electricity market to help deliver positive changes. He said that such intervention may now be necessary for the gas market in order to provide the right level of gas security.”

He said: “We urge government to look, in detail, at the issue of gas storage, such as they did in 2013. Since then we have seen a number of material changes to the energy market which have the potential to worsen energy security and, in particular, significantly increase the exposure to extreme price volatility.”

These include the winding down of Groningen, the major swing field in the Netherlands, which creates a gap in a number of northwest countries’ supply portfolio thereby pushing up demand for other gas during winter.

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Filed Under: Energy Post Express, locked Tagged With: climate change, electricity market, energy security, energy transition, EU energy policy, European gas market, financing, natural gas

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