Natural Gas: More Than "Just Energy"

Ample sources of competitively priced natural gas are important for industry, as one player attested at Gas Week 2013 in Brussels, Belgium.

"It's not only energy for us, but also a source of feedstock,which is true for the whole chemical industry," explained Wolfgang Weber, Vice President EU Government Relations, BASF Group, who spoke in a debate entitled Fueling Jobs for Growth with Gas: The Energy Mix for a Competitive Europe.

"Altogether, we basically use natural gas for input into our combined heat and power stations, as well as for feedstock—so it's of crucial importance."

Mr. Weber admitted that the shale gas situation in the US had changed the game for BASF's business, and that investment decisions were now also being taken based on the price differences of natural gas in North America versus Europe.

He explained: "BASF, as well as others, have already taken decisions to go for more insulation investments that are heavily based on natural gas as feedstock input.

"We expect EU policymakers to secure the ideas that we have in the 3rd Energy Package, and to go for more European integration, more of a consistent approach and right now we are a bit concerned with some of the more recent decisions by national governments, who are focusing their decisions on national interests."

Mr. Weber mentioned Germany's push for renewables—dubbed the EnergieWende— which he said was not well coordinated across Europe, and had put pressure on neighboring countries, making them react with national capacity markets for their gas-fired power plants that were backing up renewable sources of energy.

"So what we need to do is go back to Brussels, design some consistent policies that would take advantage of the economies of scale that we have in Europe."

He said this also applied to one of the most hotly-debated discussions, the Emissions Trading Scheme (ETS).

"If you have an ETS and a carbon cap, which is what we have in Europe," Mr. Weber continued, "of course that's the deal, and then it should be the markets, and only the markets, that decide what energy sources will be used—the supply that will be necessary to cover the demand."

Thus, he said ideas to "massage" the price of CO2 should not make one fuel or another more interesting. But could natural gas do better with a stronger ETS?

He answered, "If the carbon price increased, then natural gas would play a greater role, and if the carbon price were increased even more, then renewables would come into play. We could use the CO2 price to drive whatever investment decision, but then we as an energy user have a problem, because then expectations for making energy prices low and competitive would not come true; increases in European energy prices would make Europe less competitive, so I think we should keep that in mind."

Mr. Weber said BASF believed in an abundance of natural gas and would be supportive of shale gas development in Europe. "Then it's a question, what are the right EU policies to deliver that? What Europe should do is to take care that we have a consistent approach and to make the regulation right so that companies like Chevron can make the test drillings and make shale gas a reality in Europe—that's what is necessary, and we believe that it's also necessary, because it's really competitive."

Polish MEP Konrad Szymanski, Committee on Industry, Research and Energy, also weighed in in the session. He started out by naming two obstacles which affected the competitiveness of Europe: out of reach labor costs, about which not much could be done, and the price of energy.

Of the latter, he said, "Of course it is not directly designed in Brussels, but Brussels has its own part in this phenomenon. Europe has prices comparable with Japan's, which is a bit strange and it is clear how much this is related to policy, not a natural situation."

He said that while the composition of the energy mix in Europe was determined by capital, Mr. Szymanski opined that decisions made in Brussels created a context for investors. "Indirectly, we make decisions regarding the energy mix," he commented.

He mentioned that it was a good timing of the conference to discuss Europe's climate policies in the context of its re design, with hopes for starting discussions at the Energy Summit on 22 May. "Because otherwise, we will stay in a kind of deadlock.

"We should be very clear that climate policy is to reduce emissions—full stop. It's not about the profitability of this or that sector, but only about carbon emission reductions."

Environmental protection law, he said, was a very important part of the acquis. "We are proud our heritage in this part of European legislation, but we should remember that we need to hold the balance between environmental protection and the climate for investors, because otherwise if we lose it we will pay a high price if we place environmental protection at the expense of the mining sector in Europe, which wouldn't be a success story in Europe.

"I think it's illusory to say that we don't care about it," he said of environmental protection in Europe. "We didn't care for too long a time about the cost of this environmental protection in Europe."

The third pillar he said, was the market architecture.

"We need a market to allocate energy resources the best, efficient way, and need it to propose the best price for consumers. The market needs physical preconditions, like interconnectivity, which is missing from Europe in contrast to the US, and secondly, diversification. Without it, we can't have real competition on the market. So, not just shale gas, but also LNG, maybe Azerbaijani gas to some degree.

"We can have the best possible framework for a market, but without the physical gas on the market it will be quite an academic exercise," said Mr. Szymanski, who said new policies should be proposed taking into consideration the three pillars to get out of the deadlock of economic competitiveness facing off against climate policies.

David Koranyi, Deputy Director, Dinu Patriciu Eurasia Center, Atlantic Council, offered his observations on how jobs and growth could be created via natural gas, describing what was happening in the US regarding the embracing of unconventional gas and its impact on the economy.

"When it comes to the macroeconomic benefits, by 2015 the annual contribution of unconventional gas activities to GDP is predicted to reach nearly $197 billion per year; by 2035 that number is expected to more than double, to nearly $332 billion," he stated, adding that by 2035 an estimated $3.2 trillion in investments will have been made in US unconventionals.

He also mentioned the sector's huge contributions to federal, state and local tax as well as to royalty revenues. Mr. Koranyi cited a study by IHS Cera, according to which there could be an 2.9% increase in industrial production in the US by 2017 due to lower energy prices; by 2035, that number could reach 4.7%.

Employment was also set to receive a boost. "Shale gas and related supply chain activities, including manufacturing, supported 1 million jobs in the US in 2010. By 2015, that number could reach 1.5 million, and by 2035 to 2.5 million."

He noted that the top producing unconventional gas producing states in the US had shown significantly lower unemployment than non-producing states.

After the host of numbers, Mr. Koranyi said, "I think it will be a luxury for Europe to relinquish shale gas, and it would be a luxury to not at least explore the potential that is there."

He admitted that E&P in Europe would happen at a much slower pace and the numbers would not be as impressive, even if Europe pursued it "full steam ahead."

"One thing people forget, is that it took 25-30 years for the US to get there, and it's an entirely different regulatory regime, an entirely different culture in the US when it comes to oil and gas production."