While some in the gas industry might call today’s situation the “demise of the golden age,” others propose that we instead are in a kind of tug of war, as suggested by some speakers at the European Autumn Gas Conference in Geneva 17-19 November, 2015.
According to Stephen Murray, Partner at Herbert Smith Freehills, the European Union energy policy has traditionally been seen as a Trilemma between affordability, sustainability and security of supply. As EU member states have the right to make different choices between energy options, this can serve as a point of tension for many in the industry. Today, however, it can be said that the gas industry is facing The Quadrilemma, which incorporates social license into the affordability, sustainability and security of supply, which can have political implications. Furthermore, the gas market has been feeling the impact of sustainability policies within Europe as there has been a significant increase in renewable energy output displacing fossil fuel generation. There have been multiple initiatives within the EU Sustainability Policy Portfolio, which includes the 20/20/20 targets for greenhouse gas emission reductions as well as the 2030 Framework, both of which will have an impact on the future of gas in Europe.
There is a silver lining to this story though as gas does have a competitive advantage over coal as a cleaner “bridge fuel,” which has not been fully realized yet. The representative of Herbet Smith Freehills posited the question: “So is gas then being squeezed between renewable energy and cheap coal?” In terms of the security of gas supply, gas does indeed play a key role in the EU energy system, accounting for around a quarter of final energy consumption, according to the consultation on an EU strategy for liquefied natural gas and gas storage 2014. At the same time, we are seeing the emergence of capacity remuneration mechanisms in recognition of the need for gas-fired power generation. At the end of the day, this all comes down to affordability.
In conclusion, the EU’s long term commitment to a low carbon future inevitably will have a profound effect on the fossil fuel industry. The key thing to keep in mind here is that the impacts will vary across European states as each country is entitled to make its own choices about what energy mix it wishes to have as well as how to structure its supply of energy. In the medium term, this current paradigm is not necessarily a renaissance but actually some ground for optimism to see how best to position gas within the EU market, given these new dynamics of change.
“So is gas then being squeezed between renewable energy and cheap coal?” Leave your comments below.
This article was written by our guest reporter.
European Autumn Gas Conference – Connecting European gas markets with new global opportunities
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