On Europe's road towards carbon-neutrality, natural gas will play an important role as a relatively low(er)-carbon fossil option. However, to solidify this position some hurdles need to be overcome, most notably methane emissions. This became clear during the European Annual Gas Conference in Paris.
At the EAGC 2019, a comprehensive two-day event held in the first week of November, various speakers from the public and private domain discussed the role of gas in a decarbonising European economy and society. And decarbonised it will be, according to the objective of the EU to reach 'climate neutrality' in 2050, aiming to keep global temperature increase well beneath the 2 degree-mark. Needless to say, other continents also have to make their contributions, most notably China and the USA as the main emitters of CO2 on a global scale. However, the EU as an entity also is among the highest emitters of CO2. Zooming in on natural gas, this emission rate not only applies to emissions from gas sourced within the EU, but also of imported gas either through pipes or LNG.
In a future fossil mix, natural gas seems to have gained a preferential position as a transitional hydrocarbon to provide a steady base to allow for renewable energy sources to develop. Wind and solar already have solidified more or less their position in the energy mix. However, these sources alone would not be sufficient to adequately respond to future energy demand. This especially applies to densely populated countries where public support only goes so far and as long as it's not in someone's backyard. Also, the issue of energy storage needs to be resolved, harnessing renewable energy to employ when needed. Hydrogen might be the solution, but this technology needs fine-tuning, especially in the conversion process.
Compared with oil and coal, natural gas is a relatively clean hydrocarbon. With the increase in supply from Africa, Russia, Azerbaijan, Qatar/Middle East, and the USA, there is also an abundance of supply. On the other hand, there has to be demand. For the energy sector, this is largely determined by government policies and - in the case of Europe - by the EU. It is interesting to see that at a national level there are various viewpoints or attitudes towards natural gas. In the Netherlands, the current government has decided to drastically cut the exploitation of the Groningen gas field as negative consequences, most notably damage to houses, were reported in national news media. It also spurred a political movement, fuelled by some NGO's, to radically decrease the dependency on natural gas and promote active alternatives such as heat pumps.
Gas on the map in Germany
Meanwhile, in Germany, the tables seem to have turned in favour of natural gas. A speaker from the German Ministry of Economic Affairs and Energy stated at the conference that natural gas has been included as the third pillar of the energy strategy to replace coal and nuclear energy. As a result, natural gas demand is expected to rise at least until 2030. Germany will apply carbon taxation on natural gas, initially at 15 euro/per tonne, gradually rising to 30 euro/per tonne.
Germany doesn't stand alone in this. Other countries have also recognized natural gas's potential in the energy transition. Statistics and projections from the IEA show that natural gas is on the up.
Demand for natural gas grew 4.6 per cent in 2018, its fastest annual pace since 2010, according to the IEA-report Gas 2019. Gas accounted for almost half the increase in primary energy consumption worldwide. Demand is expected to rise by more than 10 per cent over the next five years, reaching more than 4.3 trillion cubic metres in 2024.
So, is it all hunky-dory for the gas sector in Europe and the countries in- and outside the EU producing and selling it? For the time being it looks like it but in the mid to long term, changes are needed. Patrick Gorbin from the French Gas Association stated that natural gas in 2050 should be 100 per cent decarbonised which is “very challenging for the sector”. He also questioned whether such a step would be affordable for citizens/consumers. The economic impact has not been taken into account, Gorbin said. However, it might be fair to say that rising energy prices are not conducive to economic growth. More money spent on energy and oil-derived materials reduces consumption in other domains.
CCUS a no-brainer
In the quest for a zero-carbon economy in 2050, Carbon Capture Utilisation and Storage (CCUS) is sorely needed or – in the words of the Oil and Gas Climate Initiative (OGCI) – a no-brainer. CCUS is proven technology, it only needs to be scaled up, an OGCI-representative said. At the moment, several CCUS-projects are based on different technologies, for example, the Clean Gas Project in the UK or Wabash in the US (CO2-neutral ammonia). CCUS-projects could be initiated on a stand-alone basis but would be more effective and efficient in a cluster setting with other CO2-intensive industries such as cement and steel production. Apart from storage, CO2 can also be converted into chemicals and consumer products, for example, cyclic carbonates which can be used in petrochemicals and pharmaceuticals. CO2-conversion into CO - via various pathways - is also a promising step, paving the way for chemicals/products, but further research is needed to improve the efficiency and scaling up of enabling technologies.
Apart from the long-term challenge of decarbonising the natural gas supply chain, there is the short term challenge in tackling methane emissions in the gas supply chain. Methane, which gradually breaks down in CO2, is far more ‘potent’ than CO2. According to the Environmental Defense Fund (EDF), an NGO that advocates strong public and private action against methane emissions, too little is being done at the moment. Baroness Bryony Worthington, executive director of EDF, stated that methane emissions have been underreported for years and advocated action both from governments and companies. “Methane emissions need to be reduced for a gas supply chain to have a future. Europe - as a producer, but also as an importer – should tighten its grip on the sector. First of all, methane emissions need to be monitored more adequately to get better data. The second step is to actively reduce methane leaks. The EDF states that this is not rocket science and more or less cost-neutral, see the prevention of product loss. “There is no shortage of capital in the oil and gas sector to build an energy system fit for the 21st century and beyond.”
Adapt or perish
The oil and gas industry should prove its resilience to a changing energy landscape or face reduced funding from investors. Nick Stansbury, global equities fund manager at Legal & General Investment Management, stated that the sector, therefore, should take ownership of its emissions, set plausible targets and plan actions to bring these down to zero. “At the moment, I can’t detect any O&G company who has done so”, Stansbury stated. He also mentioned investment returns of renewable energy projects initiated by oil and gas companies that were subpar to fossil projects. In other words, it’ll be a huge challenge for the sector to maintain its profitability while at the same time investing in renewable energy.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.