European gas companies woo the electricity sector – but get a lukewarm response [Gas Transitions]

Last week, on 27 February, I wrote about Jonathan Stern’s wake-up call for the European gas industry. As it happened, the day before, an in-depth interview appeared on the Brussels-based website Euractiv with Jean-Marc Leroy, president and chairman of Gas Infrastructure Europe (GIE), the European association of gas infrastructure companies, which confirmed exactly the points that Stern had been making. The interview eloquently reveals the challenges the European gas industry is facing, and the difficulty they have in finding answers at this moment.

Let me recall Stern’s argument briefly. In a recent paper for the Oxford Institute for Energy Studies, Narratives for natural gas in decarbonising European energy markets, he notes that if the EU follows through on its climate policies (and he sees no reason to assume this won’t happen), there won’t be any place for “unabated” fossil-based natural gas in Europe in 2050. The industry could turn to alternative “green” gases – biogas, biomethane, “green” (renewables-based) hydrogen – but these couldn’t supply more than a fraction of the current volumes of natural gas. Hence, if the industry wants to have a future, writes Stern, it needs to start producing “blue hydrogen” – based on natural gas, combined with CCS – at a very large scale – and fast. He sees little indication that this is happening.

Stern sees problems ahead above all for gas infrastructure companies. Gas producers and suppliers, like Russia and Norway, can turn to alternative markets, he notes. Pipeline operators have no such flexibility. Hence, he warns that they face an “existential threat: unless we have large scale hydrogen, many will go out of business.”

Enter Jean-Marc Leroy, who not only represents GIE, but is also senior executive vice-president for external relations at Engie. The interviewer of Euractiv, Frédéric Simon, asks him all the right questions about the predicament described by Stern described – and it is obvious Leroy is struggling to find adequate answers.

What emerges from Leroy’s answers is a gas infrastructure sector in trouble. He speaks of a “portfolio of solutions”, but one by one they all have their limitations.  Green gas and biomethane have limited potential. The idea of “reinventing agriculture” to produce “huge” amounts of biomethane seems like wishful thinking.

He refers to carbon capture and storage (CCS) as “part of the solution”, a meme we have heard from the gas industry for some time, whereas what is really needed, as Stern suggests, is real, substantial investment in CCS. Actions, not words. Nor do Leroy’s answers on stranded assets seem very reassuring.

Not that I am trying to knock Mr Leroy – far from it. There may not be any better answers that the gas infrastructure industry can give at this moment to the hard questions raised by the energy transition.

New roles

Nevertheless, in the interview there are some hints about where the European gas pipeline operators see their industry going and what kind of solutions they are seeing.

First, the industry is positioning itself as a provider of flexibility and stability – and hopes that it will be rewarded for this by governments. Leroy: “The market is not always the trigger for investments. So we see more and more investment from the state to develop a harmonious energy mix. The future will be geared not so much towards volume anymore but towards capacity and flexibility.”

Second, the gas infrastructure companies see themselves taking on new roles – for example as operators of heating and cooling networks, heat storage and geothermal facilities. As Leroy puts it in the interview: “We need an integrated vision, not only for gas and electricity but also for heating and cooling. Individual cooling devices – air conditioners you can buy in supermarkets – are the least efficient tools you can imagine. Cooling networks are by far more efficient. So we should develop a global approach including new solutions, like geothermal, heat storage, etc. And gas infrastructure operators are very able to deal with these new technologies. Because they’re dealing for instance, as far as storage operators are concerned, with underground management which is key for massive heat storage or geothermal.”

Third, Leroy believes the gas market will become much more decentralised, implying a larger role for distribution network operators. “We will live the same revolution as the electricity business”, he says. “In the old times, you had production, transmission and consumption. Now, you can have electricity production at the distribution level. (…) Some people consider that in 2050, more than 50% of gas production will be connected to the distribution grid. And that is a completely new way of doing business. (…) [W]e envisage a more connected grid system where gas supply and demand are more fluid, allowing greater solidarity between territories and regions. And there will be a greater variety of decarbonised gases available: biomethane and biogas but also second-generation gases, for instance, biomethane produced from plastic bags and other types of waste.”

Whether these activities add up to anything comparable to what the gas infrastructure companies are doing today, however, remains to be seen.

The interviewer asks: “These solutions need to be developed on a much bigger scale in order to decarbonise the gas sector. Have you quantified this in terms of investment?”

Leroy’s answer: “What we’re trying to do today is to have a joint approach between the gas business and the electricity business. We very much welcome the fact that ENTSOG and ENTSO-E [the European associations of the gas and electricity transmission system operators respectively] have jointly developed a ten-year network plan. That’s the first brick. If you develop a common approach, you can then have an idea of the amount that needs to be invested.”

In other words, the gas sector hopes that cooperation with the electricity sector will somehow help it survive. How realistic is this?

Ability and agility

Co-operation between the gas and electricity sectors is what is known as “sector coupling” in Brussels-speak.

According to Leroy, “sector coupling is about diminishing the cost of the energy transition by using the advantage of each system.” He says: “Gas Infrastructure Europe was one of the first to develop this idea. What we recommended is to stop thinking in silos and have a system-wide approach to the energy transition.”

The molecules declare their love to the electrons – but is the love mutual? There are reasons to doubt that.

A few days earlier, on 22 February, Euractiv published another interview, this one with Kristian Ruby, the secretary general of Eurelectric, the EU power sector association. This interview makes it painfully clear that the European electricity industry is not about to walk down the aisle with the gas industry any time soon.

Let’s hear what Ruby has to say in his own words. To begin with he notes that according to Eurelectric, electrification should reach 60% by 2050 in Europe, a tripling of the current level – and even more than the European Commission itself envisions in its long-term strategy (53%).

Ruby does concede that “You will probably need other energy carriers than electricity – in industry, in buildings and in transport.”

He also says there are “some industrial processes – such as petrochemicals, cement and a number of other industries – where we are at the early stages of understanding how we can decarbonise them. Over the last decade, they have decarbonised mainly through efficiency gains. Now, they are coming to a stage where they need to think of other measures in order to achieve deep emission reductions.”

But he stresses that “What’s clear is that electricity continues to surprise by its ability and its agility, pushing the boundaries of what can be electrified.”

Ruby does note that “green” hydrogen “can be part of the solution”, and indeed, “is the way forward”. However, he adds that it won’t have a large role. “We see a role for Power-to-X technologies mainly in industrial sectors, in addition to transport. Our deepest decarbonisation scenario foresees a role of around 5% for Power-to-X technologies in total final energy consumption. And it could also potentially play a role in the power sector. But it will only come in as a balancing vector and a source of energy provided there is a push from other sectors. Otherwise, you won’t get the volumes to get the costs down.”

With regard to energy storage, which the gas industry views as an ideal application of gas, Ruby notes there is no certainty that gas will be the favoured solution: “There is absolutely competition between a number of different storage technologies. The strength of gas as a balancing vector in the energy system right now is that it’s very big. It has a volume that the others don’t have today. But we also have to be aware that the emergence of renewables with better capacity factors will lower the need for balancing power. Secondly, we’re seeing a drastic trend of cost reduction in batteries. The battery technologies we know – lithium-ion – is getting cheaper very fast, whether grid connected or not….  Today, storage is a scarce commodity. But it’s going to become a much more crowded space in the near future. And in 10-15 years’ time, we’re going to see much more competition there. So the range of flexibility options is widening. And gas will be one of them, competing against the likes of demand-response technologies.”

As to “blue hydrogen” (natural gas-based hydrogen with CCS), which Stern sees as a lifeline for the gas sector, Ruby is decidedly unenthusiastic: “We are more sceptical when it comes to other types of hydrogen coming from natural gas. Blue hydrogen can under certain circumstances be carbon neutral, when the CO2 is stripped from the gas and deposed underground, using carbon capture and storage (CCS). But it’s complex and expensive. And often, the CO2 is actually pumped into the ground in order to extract more fossil energy from oil fields, which makes the whole thing very questionable from a climate perspective.”

When asked whether he believes electricity and gas are “complementary”, and whether he sees them “working together”, Ruby answers: “It depends. And I think the nature of this cooperation will change over time. We have some examples of dual providers. In Germany, there are companies that operate in the electricity infrastructure and in the gas infrastructure. The question for them is how to create synergies between them and where they focus the individual infrastructures.”

But he stresses that “I think we’re going to see a smaller gas infrastructure in the future, with less volume. This comes out clearly from the European Commission’s analysis in the 2050 long-term strategy. And that means that the gas system has to be more focused on what makes it really unique. For example, as a feedstock for industrial production, or as a balancing vector for the energy system when competitive. And also for hard to abate sectors, where gas can’t be replaced.”

And that, he adds, “also means looking at the infrastructure, which parts you keep and which ones you discontinue. That will be a consequence of this journey towards decarbonisation. We cannot see the amounts of clean gas or decarbonised gases emerge to power the entire gas system as we know it today.”

If all that isn’t clear enough, Ruby makes the same point again: “… that means a more focused gas system in the future. Because, once you make the transition to a fully decarbonised gas system, you inevitably end up with lower gas volumes. Of course there will be a certain amount of hydrogen, but it’s expensive and there is only so much that can be produced. And with biogas it’s the same – you’re not going to be able to produce it in the same volumes than natural gas today…. we shouldn’t lose sight of the big picture: electrification will play the main role in the future energy system because it’s more efficient. And Power-to-X technologies will play a supportive role to electricity.”

330mn Teslas

For the moment, then, “sector coupling` doesn’t look like a marriage between equals in Europe. More like a master-servant relationship – at least according to the spokesman of the European electricity industry.

Of course others may see things differently. In my country, the Netherlands, where we have a long tradition of compromise and consensus politics, the electricity transmission system operator Tennet and gas transmission system operator Gasunie do seem to see possibilities for fairly close cooperation.

On 15 February, the two organisations published a joint “Infrastructure Outlook 2050” – the first-ever such joint venture – in which they looked at how future electricity and gas networks would be used under three scenarios – not just in the Netherlands, but also in Germany, where both Tennet and Gasunie own networks and pipelines.

Their conclusion: “All the scenarios show that not only the electricity, but also the existing gas transport infrastructure in Germany and the Netherlands will play a crucial role in the future energy systems envisaged in this study.”

I won’t go into the details, but the report’s conclusions are quite positive:

• Both the existing electricity and gas infrastructure will play a crucial role the energy system of the future
• Although additional electricity storage will be available by 2050, only gas storage provides a solution for seasonal storage
• Location, capacity and operation of P2G installations are decisive factors and must be aligned with both electricity and gas TSOs
• Socially acceptable solutions for an integrated energy infrastructure require a new level of public and political support

I will leave you with this somewhat more upbeat perspective on the future.

And to add just one last intriguing piece of knowledge on energy storage, one of the authors of the Tennet-Gasunie report wrote to me: “We have calculated that in two of our three scenarios we need about 15 to 20 TWh of electricity storage. If you have to store this in 60 kWh Tesla batteries, you would need about 330mn cars.”

That seems a tall order even for Elon Musk.