The European Commission sees natural gas play a critical role in the energy transition to 2035, but beyond that its views on the role of gas are much less clear. Simon Blakey, analyst at IHS Markit, does not believe that renewables can be ramped up quickly enough to replace coal generation. Jonathan Gaventa of think tank E3G argues gas has no place in the energy mix by then, unless it is decarbonized. Energy Post editor Jason Deign spoke to both of them.
It is one of the big question marks in EU energy policy today – if not the biggest. What role for natural gas in the low-carbon energy system of the future?
The EU’s 2050 energy strategy aims to reduce greenhouse gas emissions by between 80% and 95% when compared to 1990. In its Energy Roadmap 2050, published in 2012, the European Commission says it views natural gas as a key factor in achieving this reduction, at least in the medium term.
“Gas will be critical for the transformation of the energy system,” it says. “Substitution of coal (and oil) with gas in the short to medium term could help to reduce emissions with existing technologies until at least 2030 or 2035.”
Few market watchers would argue with that. But what about the period beyond 2030? This is a hugely important issue for the European energy industry, which has to make investment decisions today that will affect its business decades ahead. So far, the industry has promoted itself as “the bridge” to a low-carbon energy system, but it is not clear what the landscape will look like on the other side of the bridge.
At this moment, the gas industry has strong arguments in favour of its product. Natural gas combustion emits up to 60% less carbon dioxide than coal. Thus, gas advocates say, a wholesale move from coal to gas-based electricity generation could provide a quick win for decarbonisation.
“Gas-for-coal substitution offers you immediate reductions on a large scale,” says Simon Blakey, senior associate at the global analyst firm IHS Markit and a former advisor to industry body Eurogas. “The capacity exists already in combined-cycle gas turbines that were built a few years ago and never used,” he says.
Blakey points out that a substantial amount of the greenhouse gas reduction seen so far in the energy sector has been as a result of gas-for-coal substitution. This has been shown in the U.S., where cheap gas replaced coal in power generation, contributing to a substantial decline in CO2 emissions.
“In Europe, gas had been in long-term decline but has been picking back up again, and this is a contributor to the fact that emissions rose last year rather than fell”
The U.S.-based non-profit Center for Climate and Energy Solutions said in a 2013 study that “Expanded use of gas in the power sector … has already led to a decrease in U.S. greenhouse gas emissions because of the substitution of gas for coal.”
However, the Center added: “Substitution of natural gas for other fossil fuels cannot be the sole basis for long-term U.S. efforts to address climate change because natural gas is a fossil fuel and its combustion emits greenhouse gases.”
There’s the rub. Environmentalists are quite blunt about what role they see for gas as a fossil fuel in the long term: none. “The latest science tells us that if we want to avoid some of the worst and most destructive impacts of climate change, we need to be looking at full decarbonisation,” says Jonathan Gaventa, director of the influential London-based think tank E3G. “For Europe, that probably means by 2050.”
The gas sector, he says, represents around 20% of global energy-related emissions and is one of the fastest-growing fossil fuels globally. “In Europe, gas had been in long-term decline but has been picking back up again, and this is a contributor to the fact that emissions rose last year rather than fell.”
Dent in emissions
Until recently, gas advocates had other arguments to support their case. Renewables were relatively expensive. However, that is increasingly no longer the case. Solar and wind prices have tumbled around the world. Germany and the Netherlands have even seen zero-subsidy bids for offshore wind projects.
Gas advocates counter that solar and wind power cannot match gas for dispatchability. However, energy storage is helping to plug the intermittency issue, at least for short-term variations in output. And storage, too, is coming down rapidly in price.
Rory McCarthy, an energy storage analyst for Wood Mackenzie Power & Renewables, told audiences at the Gastech industry show in Barcelona on 18 September that lithium-ion batteries have seen a 75% reduction in installed cost over the last 10 years. This price reduction is allowing renewables developers to overcome short-term intermittency at a highly competitive cost.
“It’s fine building wind and solar, but you only get two or three thousand hours a year out of wind and considerably less for solar”
In the U.S., for example, a tender this year by the Colorado utility Xcel drew solar-plus-storage bids with a price range of between $30 and $32 per MWh. For comparison, the financial advisory and asset management firm Lazard estimates combined-cycle gas has a levelized cost of electricity ranging from $42 to $78 per MWh.
Still, according to Blakey, given the low capacity factor of renewables (ranging from around 9% to 13% for solar and about 50% for wind), massive amounts of renewable infrastructure will have to be built before the technology can make a dent in emissions. “It’s fine building wind and solar, but you only get two or three thousand hours a year out of wind and considerably less for solar. You just don’t get enough carbon reduction quickly by substituting [coal for] wind and solar, whereas you do with gas.”
The problem with a straight-to-renewables transition from coal is that the time it would take to install all the generation capacity required would allow significant amounts of carbon dioxide to be locked into the atmosphere, he says. “The climate simply won’t take that delay. I’ve been looking at climate change issues since 1988, when concentration in the atmosphere was a mere 340 parts per million. It’s now 400, and it’s because we’ve been just too slow at doing anything of scale, for vague hopes of getting something perfect 40 years down the road. We need to do things quickly and at scale.”
If Europe were to set an emissions performance limit of, say, 400 or 450 parts per million, it would be possible to migrate virtually all of Europe’s coal generation onto gas within 18 months to two years, he suggests.
So what is the Commission’s view?
In its 2012 Energy Roadmap, the Commission says that by 2050 gas generation could play a similar role in power generation as it does today. “In the diversified supply technologies scenario, for example, gas-fired power generation accounts for roughly 800 TWh in 2050, slightly higher than current levels,” says the Commission in its roadmap document.
However, it is not clear if this refers to unabated gas. And the figure is likely to be revised soon anyway. The European Commission is currently developing a new 2050 climate strategy, says Gaventa, but it won’t be released until November. Separately, he says, the Commission’s Directorate-General for Energy has also been commissioning work on gas pathways, but this also hasn’t yet been published.
Energy Post Brussels debate: How can gas contribute to the achievement of the EU climate targets?
Jonathan Gaventa and Simon Blakey will be speaking at a panel debate in Brussels on 27 September hosted by Energy Post and sponsored by Nord Stream 2.
Other speakers will be Martin Lambert of the Oxford Institute for Energy Studies (OIES), Valentin Höhn of the International Federation of Industrial Energy Consumers (IFIEC) and Paul Corcoran, CFO of Nord Stream 2.
The debate will be moderated by Sonja van Renssen, EU correspondent of Energy Post. Attendance is free but registration is requested. You can register here.
The existing roadmap notes that gas could be considered a low-carbon technology if and when carbon capture and storage (CCS) “is available and applied on a large scale.”
But without CCS, it says, “the long-term role of gas may be limited to a flexible backup and balancing capacity where renewable energy supplies are variable.”
There could be another way in which the gas industry could evolve to play a bigger role in Europe’s 2050 energy system. That is if it can move from natural to renewable gas, such as hydrogen or methane produced from excess solar and wind output.
However, Blakey believes the timelines for such a transition could be hard to achieve in time to meet European targets. “Time is of the essence here,” he says. “The most advanced project for switching households to hydrogen is a project in Leeds in the UK, which involves developing four hydrogen facilities on Teeside, building pipelines through Yorkshire and converting 600,000 homes in Leeds.”
The final investment decision for this project is scheduled for 2021, with the households due to be converted by 2025 or 2026. “This is the most advanced in the world, and you get to 2035 before you’re getting a really significant impact on overall household demand,” he points out.
Europe’s 2050 energy strategy “does open up a really interesting opportunity for the gas industry to stop doing what it’s been doing for a long time, which is just saying gas is lower carbon than coal, and therefore we’re fine”
Furthermore, he says, the project will rely on CCS at the hydrogen facilities.
Even if the technology can be rolled out Europe-wide by 2050, a recent study by E3G suggests the amount of infrastructure needed for a renewable gas future would be no more than that in place today. On this basis, E3G concludes there is no need for further expansion of the gas network in Europe.
This outlook weakens the case for focusing on unabated gas in the runup to 2050. “Fundamentally, natural gas is a carbon-based fossil fuel,” says Gaventa. “When you combust it, it releases carbon dioxide. You can’t ‘decarbonise’ by burning more unabated fossil fuels. Increasing fossil fuel use in the short term will make decarbonisation even more expensive in the long run.”
According to Gaventa, Europe’s 2050 energy strategy “does open up a really interesting opportunity for the gas industry to stop doing what it’s been doing for a long time, which is just saying ‘gas is lower carbon than coal, and therefore we’re fine.’”
The gas industry, he says, now needs to explore how it can change to be in line with a fully decarbonised energy system. “There are a few individuals who are engaging in this conversation, but I don’t feel like it is yet something that is really being properly engaged with by the industry as a whole.”