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

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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.”

*

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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Surprise: “Gas is as bad as diesel – for the climate and for air quality”

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EXPRESS #2 - October 30, 2018

Surprise: “Gas is as bad as diesel – for the climate and for air quality”

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Italy has favourable tax rates for CNG vehicles

The “future of gas” remains a hot topic in the European energy debate.

One of the applications (albeit a minor one) that the industry promotes is the use of gas in transport.

However, according to the influential Brussels-based NGO Transport & Environment (T&E), “using natural gas is is as bad for the climate as using petrol, diesel or conventional marine fuels.”

What is more, T&E claims that gas is not even of benefit to local air quality. In its new report it finds that “burning gas in cars also emits as much air pollution as petrol and the limited advantage over compliant diesel cars could be eliminated by planned new standards.”

Source: Transport & Environment

Those are pretty strong and surprising claims. What is behind them?

With regard to greenhouse gas (GHG) emissions, methane leakage is an important reason why gas does not do better than oil, according to T&E.

“When taking into account the effects of leakage of methane – a very potent greenhouse gas – fossil gas could increase GHG emissions by up to 9% or decrease them by a maximum of 12% across all transport modes”, notes T&E. “In cars, the GHG impact of compressed natural gas (CNG) ranges is similar to diesel, while in trucks it mirrors closely that of best-in-class diesel lorries. In shipping, the impact of liquified natural gas (LNG) is close to that of marine gas oil, but these figures are highly dependent on engine methane slip and upstream leakage.”

When it comes to local air quality, T&E finds that when methane-powered vehicles are compared to new petrol or diesel cars, which conform to Euro 6standards, the air pollution benefits of methane are virtually non-existent or “very limited in the best case scenario”.

This not only goes for fossil methane, writes T&E, but also for renewable methane! The best alternative to oil-powered transport, both when it comes to climate and to local air pollution, is battery-electric transport, the NGO claims.

Source: Transport & Environment

Jori Sihvonen, clean fuels officer at T&E, concludes that “[Natural] Gas cars, trucks and ships have no benefits for the climate and they’re a distraction from our real objective, zero-emission transport. Governments should resist the gas lobby’s offensive and stop wasting precious public money on gas infrastructure and tax breaks for fossil gas.”

In the EU, on average, gas is taxed at rates 76% lower than diesel, writes T&E. In countries with high sales of CNG and LNG vehicles, such as Italy, fossil gas enjoys even lower tax rates. Italy consumes 60% of the methane used in European transport and accounts for 68% of CNG car sales.

The NGO says “lawmakers must accept that fossil gas cannot help clean up transport and should start taxing it at the same rate as diesel and petrol.”

As to biomethane, that is not an option either, according to T&E. “Governments pinning their hopes for decarbonisation on biomethane from waste must recognise that it could only supply, at maximum, 9.5% of transport’s needs”, says the report. “This would also mean no biomethane would be left to decarbonise the other sectors already using gas – residential, heating and power – where the infrastructure already exists. Renewable gas based on electricity (power-to-gas) is very energy intensive and costly to produce.”

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Power-to-gas: costly – but not doing it is costly too

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ENERGY WATCH #4 - October 16, 2018

Power-to-gas: costly – but not doing it is costly too

by Karel Beckman

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Audi has built a power-to-gas facility for its g-tron natural gas vehicle

For those of you who have been following developments in power-to-gas in Europe, the new report by Martin Lambert of the Oxford Institute for Energy Studies, Power-to-gas: linking electricity and gas in a decarbonizing world?”, will probably not contain much news.

But for those of you who have not been paying much attention and who would like to catch up, it presents an excellent overview of the projects that are taking place across Europe and of their economic potential, as far as current knowledge goes (which is not that far).

As Lambert reminds us, natural gas demand will “need to decline at an accelerating rate” after 2030 “if carbon reduction targets are to be met” in Europe.

“If existing natural gas infrastructure is to avoid becoming stranded assets, plans to decarbonise the gas system need to be developed as a matter of urgency in the next three to five years, given the typical life expectancy of such assets of 20 years or more”, notes Lambert.

There are three alternatives to natural gas being developed by industry at this moment:

Large scale conversion of the gas network to hydrogen, with hydrogen production by methane reforming with carbon capture utilisation and storage (for example, the UK’s Leeds H21 project4 ).

Greater use of biogas and/or biomethane (discussed in an earlier OIES report).

Production of hydrogen or renewable methane via power-to-gas.

The new report focuses on power-to-gas (i.e. production of hydrogen or methane on the basis of renewable energy), but Lambert warns that “the commercialisation of power-to-gas technology is at a very early stage of development, with a limited number of pilot and demonstration plants in operation or under development.”

Interestingly, “while there are some small scale developments elsewhere (for example in Japan and the US), most of these developments are taking place in Europe, with Germany taking the lead within Europe.”

The report also has a useful chart with a technical overview of power-to-gas options:

There are two key questions that Lambert discusses which policymakers will have to confront.

One, if hydrogen is produced, what will it be used for? There are three possibilities:

  • P2G, with standalone storage of hydrogen and subsequent generation of power from the stored hydrogen, could be considered merely as an additional tool to balance the electricity system, with no impact on the gas system. In this role, it performs a similar role to other forms of electricity storage like pumped hydro, compressed air and batteries.
  • Alternatively, P2G could be viewed as an additional source of supply (of either hydrogen or methane or both) to the gas grid, competing with (or supplementing) traditional natural gas, biomethane from anaerobic digestion or synthetic natural gas from gasification of waste.
  • As another alternative, P2G could be viewed as a source of hydrogen for a variety of applications, for example in transport or for industrial heat.

The second question is, if we look at use in the built environment, should we use hydrogen or should we convert hydrogen into methane? In the first case, an entirely new infrastructure will have to be built, as hydrogen can only be added to the gas grid to a very limited extent. If the hydrogen is converted into methane, this could be used without limitation in the existing gas grid. However, methanation is costly. According to Lambert, “In all case, the methanation step adds an additional €40-€5-/MWh to the cost.”

“It could be argued that conversion of the entire natural gas system to hydrogen is ultimately the ‘better’ solution, as it provides more flexibility of supply and, at the point of final consumption, use of hydrogen does not release any carbon dioxide to the atmosphere”, writes Lambert. “However, the issues around persuading consumers to change their gas-consuming equipment to hydrogen, and ensuring that the entire natural gas network can handle hydrogen safely remain significant.”

He notes that “One of the key arguments for decarbonising the gas network is to take advantage of the considerable investment in existing network infrastructure. An alternative route to decarbonise the energy system could be to convert nearly all applications (including the majority of the heat sector) to (low carbon) electricity. As well as requiring large scale change to end-user equipment, this would also require significant incremental investment in upgrading the electricity system, and it would leave the gas network largely idle.”

In other words, Lambert has no definitive answers at this stage. The only thing that is clear, he writes is that “switching from use of fossil-derived natural gas to low carbon alternatives will need some form of government support. The nature of that government support will be crucial in determining the path forward.”

So what about just giving up on power-to-gas altogether and simply focus on electrification? Wouldn’t that be much simpler and more efficient in the end?

It may be tempting, but it might not be a good idea, at least not for countries that already have a large gas infrastructure, according to Lambert. “In a 2016 report focused on the UK heat sector, KPMG concluded that, whichever route is chosen, a large investment (>£100bn) would be required to achieve 2050 decarbonisation targets, but an all electric alternative would cost more than double other alternatives which continued to use the gas network. Broadly similar conclusions were also reached by a 2018 DENA (Deutsche Energie-Agentur) study for Germany comparing all electric and technology mix scenarios.”

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Russia sees gas exports to Europe grow – but Europe boosts competition and renewables

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ENERGY WATCH #4 - October 9, 2018

Russia sees gas exports to Europe grow – but Europe boosts competition and renewables

by Karel Beckman

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Elena Burmistrova director-general Gazprom Export

While Europe is planning for the “decarbonisation” of its gas sector, and considering how to reduce its dependence on Russian gas supplies, the Russians themselves are enthusiastically planning for rising gas deliveries to Europe.

At the ONS oil conference in Norway recently, Elena Burmistrova, the head of Gazprom Export, said the Russian gas giant wants to increase its exports to Europe beyond record high levels seen last year.

“Last year we achieved the record figure of 197 bcm (billion cubic metres) and our ambitions are going much higher for the next year,” she said.

In her presentation to the conference, Burmistrova showed that Gazprom’s share of European gas use is on the rise:

Burmistrova said she expected European gas demand to grow by 80 bcm by 2030:

Russian energy minister Alexander Novak is equally bullish on the prospects of Russian gas exports, both to Europe and to China.

At the St Petersburg Gas Forum, on October 4, he said he expected Russian gas exports to grow by 6-7% per year to 2035, while global gas demand would grow – according to Novak – by 2.6% per year.

In addition to pipeline gas, Russia is increasingly getting active in the LNG market. Russia exported 205.4bn m3 pipeline gas and 15.5mn mt LNG (21bn m³ of pipeline gas equivalent) last year, according to the BP Statistical Review of World Energy. Novak said that by 2035, Russia could export 80-115mn mt/yr of LNG.

“Gas demand in China will increase by 447 bcm, in the US by 446 bcm; in the rest of Asia by 197 bcm, and in Europe, we expect growth of about 70 bcm by 2035,” Novak said.

Russia is making a lot of money with its gas exports: gas prices rose by a fifth last year in Europe.

At the same conference, Gazprom CEO Alexei Miller noted that the Nord Stream pipeline was working at 7% above its design capacity of 55 bcm, year, “further proof that Nord Stream 2 is needed”, according to a report in Natural Gas World.

Millers said he expected Nord Stream 2, which also has a capacity of 55 bcm, to become operational on 1 January 2020.

Gazprom is also building a 33 bcm pipeline to Turkey, Turkstream, which is expected to be completed in two months, and a 38 bcm pipeline to China, the Power of Siberia, which should be ready in 2020.

***

There are essentially two ways in which Europe can reduce its reliance on Russian gas: it can try to increase competition in the EU gas market or it can replace gas by alternatives.

ACER – the European Agency for the Cooperation of Energy Regulators – on 3 October published a new edition of its Market Monitoring Report (MMR), which on the whole is positive about the competition in the EU gas market. ACER said that “gas wholesale market integration continues”.

However, it also noted that “the situation is diverse geographically. Important barriers remain in some Member States, in particular in South-East Europe, negatively affecting market functioning and liquidity.”

In addition, ACER reported that “Europe is becoming more dependent on gas imports. Demand for gas in the EU rose by 5% in 2017 compared to the previous year. The increase was mainly driven by increased gas-fired electricity generation. The EU imported 76% of the gas it needed, most from Russia, Norway and Algeria. LNG imports were 12% higher in 2017 than in 2016. Domestic production continued to decline and stood at 24% of EU consumption.”

Nevertheless, according to ACER, “the European gas system is characterised by high overall levels of Security of Supply (SoS).On average, only 25% of the available capacity of LNG facilities was used in 2017. Underground Gas Storage (UGS) facilities’ utilisation rate was 57%. The utilisation rate of cross-border Interconnection Points (IPs) measured by the yearly average ratio of nominations over booked capacity in 2017 was estimated at 57%.”

“Investments in infrastructure and regulatory measures (like the application of reverse flows) to alleviate bottlenecks appear to be effective”, noted ACER. “However, in some regions, mainly in South South-East (SSE), bottlenecks remain.”

The EU gas system also “showed high levels of resilience in the face of accidents (e.g. Baumgarten IP accident) and climatic conditions (colder winter than usual) in 2017. Year-on-year changes in gas flows were smoothly accommodated when market circumstances dictated it. This shows that many markets have improved in terms of flexibility and liquidity and that the infrastructure can guarantee gas supply even during unexpected events. Markets in the North-West Europe region tend to be the most competitive and resilient. A few Member States (MSs) still depend on a single source, which hinders the development of a competitive gas wholesale market.”

More positive news is that “European gas wholesale markets continued to show increasing levels of convergence in 2017, in terms of both supply sourcing costs and of gas hub prices…”

***

Europe is trying to improve gas market competition in South East Europe in various ways, in particular in the form of four projects: three pipelines and one LNG terminal, Krk in Croatia.

The pipelines are TAP (Trans Adriatic pipeline), BRUA (Bulgaria, Romania, Hungary, Austria) and IAP (Ionic-Adriatic Pipeline).

Analyst John M. Roberts wrote an article recently for the Atlantic Council in which he discusses where those four projects stand today. The publication is part of what is called the “Three Seas Initiative”, which was adopted at a summit in Dubrovnik in 2016 by twelve European member states.

Some of his conclusions:

  • “It is absolutely crucial for European and national institutions to view commercial and energy security considerations on a truly European basis, rather than through a narrow national lens.”
  • “There needs to be a great deal of grant aid or highly concessional funding to secure the development of such infrastructure. In this context, the Three Seas Initiative can play a crucial role, since its focus is as much on the need to ensure regional energy security as on the commerciality of the links required to connect the countries of the Baltic, Adriatic, and Black Seas.”
  • “If BRUA, IAP, and Krk all proceed as they should, this will go a long way toward securing the gasification of the Balkans, particularly the western Balkans. The completion of these three projects in or around 2020 will also contribute significantly to the goal of various EU member states, notably Poland, of ensuring that gas can flow freely between the Three Seas. And, if problems concerning Hungary are resolved, they will go a long way toward achieving the goal of substantial gas-pipeline interconnections between the Three Seas.”
  • “That said, more will still need to be done. The IAP is required not only for gasification in the western Balkans, but also to serve as a backup system for regional energy security, particularly if the problems concerning TAP’s landfall in Italy are not resolved. There is still a need to ensure that existing and planned pipeline systems and interconnectors in Central Europe are capable of ensuring that, if necessary, Caspian gas can flow north from TAP into Central and Northern Europe, and that liquefied or piped gas entering Poland can flow south to the Balkans via BRUA and, ideally, the IAP.”
  • “Once the Three Seas are connected with bidirectional pipelines, that will leave only one major regional gas-security issue still to be resolved: the use of the major trunk pipelines developed by Gazprom’s antecedents in the Soviet era, once Gazprom implements its policy to halt gas transit via Ukraine in or after 2019. The answer will largely depend on events in Ukraine itself, including whether the reform movement there— epitomized by the new generation currently managing Naftogaz Ukraine—wins out against a corrupt, but entrenched, establishment. But that is another story.”

***

There is a second way of reducing reliance on Russian gas – and that is just using less gas.

As a matter of fact, whether European gas demand will really grow as much as Gazprom thinks it will, is very uncertain. Elena Burmistrova in her presentation based herself on what she called a “consensus forecast”. But she also showed a chart demonstrating that projections of European gas demand vary hugely, so that there really is no “consensus” on any forecast:

Note also that these projections go only to 2040, while Europe has great ambitions of course for 2050.

In an analysis of a recent gas conference in Barcelona, Henning Gloystein of Reuters noted that the “global gas industry, boosted by a host of new projects to feed booming demand, is in better shape than at any point in the last five years but analysts warn it is getting ahead of itself, pointing to the rise of renewable energy as a threat.”

“The oil and gas industry are undergoing major disruption from electrification and renewables,” said Bernadette Cullinane, of Deloitte Consulting. “LNG producers must lower costs to compete with solar plus storage,” she said, warning that projects vying for investment, but unable to reduce costs enough to compete with renewables, were likely fail.

“We are an industry in flux. There are public policies in place around the world and technology developments that fundamentally challenge the gas industry outlook,” said Deepa Poduval, senior managing director for oil and gas at U.S. engineering, procurement and construction firm Black & Veatch.

The gas industry is growing by just 1 to 2 percent annually, said Dumitru Dediu, who leads the global gas and LNG group at consultancy McKinsey & Company.

Judging by sales of large gas turbines, growth may slow further, writes Reuters, “with orders down from the equivalent of 70 GW sold at the start of the decade, to less than 30 GW this year, according to GE, one of the major turbine makers.”

Siemens, another leading turbine maker, said growth of renewables was the main reason for a 56 percent fall in profits from its power and gas division in the third quarter.

News agency Bloomberg also noted in a recent article that “Natural gas-fired power plants will be facing more price competition from solar farms in some parts of the U.S. as falling battery costs make it possible to deliver electricity produced from sunshine even after dark.”

“Solar projects that incorporate storage are becoming cheaper to build per megawatt-hour in parts of the U.S. Southwest than new gas-fired generation”, according to Bloomberg New Energy Finance.

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The future of gas: the start of a new debate in Brussels

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BRUSSELS INSIDER #1 - October 2, 2018

The future of gas: the start of a new debate in Brussels

by Sonja van Renssen

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The panel at last week's Energy Post debate in Brussels: (l-r) Paul Corcoran, Nord Stream 2, Simon Blakey, IHS Markit, Jonathan Gaventa, E3G, Valentin Höhn, IFIEC and Martin Lambert, OIES

What role is there for gas in the European energy system over the next decades? Some believe the EU must give priority to coal-to-gas switching. Others see no role for natural gas at all in the long run and argue that EU policy must promote only “renewable” gas. An Energy Post panel debate in Brussels, sponsored by Nord Stream 2, saw conflicting views sound off against each other. Meanwhile, a new “Gas for Climate” initiative proposes a 10% renewable gas target for 2030. Sonja van Renssen reports on the start of a new debate in Brussels.

“Even three or four years ago, the answer of how gas contributes [to decarbonisation] would have been easy: just stop burning coal, start burning gas and you’ll be fine,” said Martin Lambert, a researcher at the Oxford Institute of Energy Studies (OIES) and former Shell manager in a keynote speech at Energy Post’s debate on the future of gas in Brussels on 27 September. “In Shell at the time we spoke about the three “A’s” – gas was good because it was affordable, available and acceptable.”

 “Recently, that’s all changed,” he continued. “Post-COP21 the world needs to decarbonise.”

That Europe needs to “decarbonise” by 2050 is not being disputed. But how? How fast? And what is the role of gas during this period?

At the debate, Jonathan Gaventa, senior associate from independent climate and energy think tank E3G, put it bluntly: “If we’re aiming for zero emissions, there can be no emissions from unabated gas.” (Unabated gas meaning fossil gas without CCS.)

In other words, Gaventa suggested that EU policy should focus on phasing out natural gas at some time in the future. 

Simon Blakey, a Senior Fellow at IHS Markit (formerly CERA) and ex-Special Envoy for Eurogas, disagreed strongly. He argued that switching from coal to gas in the power sector is what could really make a difference to climate change right now.

He drove this point home at the Energy Post debate with a striking example: if Germany were to switch its existing stock of lignite plants to gas, it could cut its CO2 emissions by 73 gigatonnes. That’s twice the emission reduction of the entire German power sector over the last 20 years delivered almost overnight, he said.

“We have seriously missed a trick by not doing a large coal to gas switch now.”

Blakey – and he’s far from alone on this – insists that only a coal-to-gas switch can deliver the fast, massive emission reductions that climate change demands. “The path we take to 2050 is as important or more important than the target itself,” Blakey explained. “The focus in European policy making has been far too much on flows [i.e. carbon emissions] and not enough on stocks [i.e. carbon budgets].”

Simon Blakey argued that Europe should take path B to a zero emission energy system in 2050, implying strong effort at coal to gas switching

Gaventa agreed that getting out of coal is the number one priority, but he was not convinced that gas is the answer. “In 2015, gas was responsible for around 800 million tonnes of CO2 emissions in Europe”, he pointed out. “That represents around 25% of all fossil-fuel related emissions in Europe. Coal is definitely the biggest villain and needs to be phased out the fastest. Oil is next on the list. But gas is already having climate impacts in Europe. It’s a problem for now and not just for after 2030.”

Very expensive

To replace gas by renewables, as Gaventa would like to see, is not always that simple, however.

The panellists were united in acknowledging that heating – especially at high-temperature – will be tricky to electrify.

Valentin Höhn, Chairman of the Working Party Gas of the International Federation of Industrial Energy Consumers (IFIEC), argued that electrification is all very well, but also very expensive. Höhn said that energy-intensive industries are exploring options like heat pumps, but “at the moment for high-temperature processes, we can’t use renewables”. 

Gas is also an indispensable feedstock for some processes, such as fertiliser production, he said. Meanwhile at low-temperatures, renewables are an option but a pricey one: “There are much higher system costs for electricity than for gas. In Germany in 2017, we paid €1.7 billion for redispatch [i.e. costs incurred by network operators to keep the system stable].”  

Höhn cited the billions Germany will need to spend on transmission and distribution networks – and maybe coal companies, to compensate them for a phase-out – as reasons why the power price is likely to stay high. His conclusion: “We have to make a bet on electricity or we could use gas. For now, we are looking more to gas.”

Paul Corcoran, CFO Nord Stream 2: “Demand for gas is growing, not shrinking”

Gas consumption has been on the rise in Europe in the last few years. After a low point in 2014, it has recovered to levels of the late 1990s (though it still remains far off its 2010 peak – see the Energy Post/Shell EUenergy App).

Paul Corcoran talking to Energy Post’s Sonja van Renssen

“The market demand is there. Over the past three years, with economic recovery, we’ve seen demand grow,” said Paul Corcoran, Chief Financial Officer for Nord Stream 2, which sponsored the Energy Post panel debate.

According to Corcoran, who said Nord Stream 1 is operating at virtually 100% capacity, Nord Stream 2 is on track to completion by the end of 2019.

Do we need this new gas infrastructure, given the aim of reaching a zero-emission energy system in 2050? “We do”, said Corcoran. “2050 is still 30 years away. Society needs energy during that time. Demand is growing, not shrinking. And gas, with its relatively low CO2 emissions, is an important step in the transition.”

In particular the prospect of a coal to gas switch coupled with the continuing decline in domestic gas production in the EU, particularly in the Netherlands, creates a “significant opportunity” for new gas imports, said Corcoran.

What Blakey and others would like to see in the EU is something like an emission performance standard or carbon floor price to force coal out of the picture. France and Germany are supposedly in talks about the latter (and the EU carbon price somersaulted back up to over €20 a tonne over the summer in any case). An emission performance standard is under discussion for capacity markets as part of the EU’s current negotiations on a new power market design. And ten national coal phase-outs have been announced.

Sonja van Renssen

Yet even Blakey conceded that gas needs to be decarbonised by 2050. That only seems to be possible with the help of CCS (which very few people seem to be talking about in Europe at the moment) or by replacing it by “renewable gas”. 

This has become an increasingly hot topic in Brussels. On 26 September, the day before the Energy Post event, , a consortium of mainly gas grid operators presented a Gas for Climate Action Plan, backed by an Ecofys report on the potential of renewable gas published earlier this year.

The Gas for Climate members aim at increasing renewable gas production to 25 bcm (255 TWh) by 2030 and more than 120 bcm (1200 TWh) by 2050. This is about one-fourth of current natural gas consumption in Europe. 

To get there, they propose a 10% target for renewable gas in 2030 – which would count towards the EU’s overall 32% renewable energy target – as well as “support schemes” and “fair taxation”.

The 10% target should be in the EU’s gas market reform tentatively announced for 2020, the Gas for Climate consortium suggests. The financial support should be inspired by what renewable energies have enjoyed to date, e.g. “build on best practice in offshore wind”. The Action Plan has long lists of suggestions to increase the production, transport and trade, and use of renewable gas. It was presented to EU Climate and Energy Commissioner Miguel Arias Cañete himself. 

New debate

This is the start of a new debate in Brussels. Certainly the path toward renewable gas will not be easy, as Martin Lambert of OIES explained at the Energy Post debate.

There are four main routes to decarbonise gas, he said:

1) Biogas and biomethane, produced via anaerobic digestion. This is the only route that already has some “materiality”, Lambert said. There are about 20,000 biogas plants in Europe, half of those in Germany (even if biogas makes up just 1% of total primary energy consumption in Europe). Most of this gas doesn’t affect the grid since it’s used locally.

2) A similar end-product but produced using a fundamentally different route: gasification. This works at industrial scale, but unlike anaerobic digestion, hasn’t yet been widely rolled out. There are just a “handful” of pilot plants in for example Austria, Sweden and the UK. In other words, a technology that “shows good promise but hasn’t yet delivered”. 

3) Power-to-gas (P2G) is “really interesting”, said Lambert. This is sector coupling: you use electrolysis to make hydrogen for the gas grid, transport, power production (helping balance the grid), or methanisation (to produce (bio)methane).  Unlike for biogas, there is no feedstock constraint. P2G could be a big deal, Lambert believes, but is still in its infancy.

4) Hydrogen production through methane reforming with carbon capture and storage (CCS). This is what Brussels calls “blue” hydrogen. There are several UK projects (e.g. Liverpool/Manchester, Leeds) to do this, with CO2 storage in old oil and gas fields. The hydrogen is sold to industrial users and the grid. For Lambert this is quite a “UK-centric” phenomenon, also because of limited opportunities for CO2 storage elsewhere.

The Oxford researcher estimates that the long-term potential of biomethane is about 10% of current EU gas demand, or 50 bcm. The most optimistic forecasters predict twice that by 2050, Lambert added. P2G could ultimately supply more, he believes, but it’s hard to know with the technology still so early-stage today.

What’s clear is that we are a very long way from replacing all the natural gas with “green” gas in the European energy system. France’s vision for 100% green gas by 2050 – a third each of options 1, 2 and 3 above – is exactly that, “a vision rather than a plan”, in Lambert’s view. He sums up: “In a way we see too much choice at the moment and not yet a clear pathway of how that comes together.” 

What is more, not everyone is enthusiastic about renewable gas. A representative of NGO Friends of the Earth showed himself sceptical at the Energy Post debate: “Our concern is that the promise of renewable gas in the future would be used to justify investments in fossil fuel infrastructure today,” he said.

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