Editorial: Greener Gas On the Way

The policy-driven conversion of natural gas into a green fuel in its myriad forms is gathering pace worldwide and Europe in particular. But it will be some time before it will blend in economically, let alone replace, gas from subsoil reserves. So gas producers are not going to find demand for their gas falling. They still have to replace falling output and markets in transport and power generation can spring into being very rapidly.

Besides, not only must the inevitably risky technology be thoroughly tested in a safe environment before it can be approved for domestic use; the infrastructure to provide this decarbonised gas – the steam methane reformers for example – must also be built at scale and domestic appliances refitted and regulatory funding models devised.

Despite the challenges, the schemes for removing carbon before or after combustion are proliferating in the laboratories. For example, the city of Leeds in the UK could next decade have hydrogen flowing through its low-pressure pipelines, depending on the outcome of an ongoing study; but that entails initial costs of £2bn ($2.7bn) and ongoing costs of £140mn/yr, for that one grid alone.

And the next few years will see many more in place, eating away at the demand for methane but not for the capacity to move it around the place. This suggests confidence that the money will be forthcoming from one fund or another. Europe, being a densely populated continent sitting on top of still useful resources but importing more and more with the associated political sensitivities, has no shortage of pipelines.

Few believe that conventional renewables will be able to heat cities affordably, whatever happens to batteries; and they cannot generate high enough temperatures to replace gas in industrial applications. On economics alone, never mind the aesthetics, the all-electric future is unattractive. According to new analysis by Poyry, there are significant extra costs of €1.15 trillion ($1.35 trillion) associated with the ‘All-Electric’ pathway, which precludes carbon capture and storage (CCS), biomethane and hydrogen.

The largest differences occur in the heating sector, where both electricity and biomass fuel prices contribute to very high costs, and in residual power costs, which are mainly associated with the extra costs of power generation, especially nuclear, the report says. On the other hand, it is unreasonable to expect merchants to commit to buying long-term, take-or-pay gas. Power generators will be running their gas-fired plant at lower and lower baseload, while heating and industrial demand will remain as unpredictable as ever; while European gas storage is becoming less attractive as a business. So there is a difficult discussion going on between governments and the fossil fuel-based gas industry over the way ahead. Governments are seldom coherent when it comes to the science underlying the policies. Germany, for example, has seen carbon emissions rise this decade, thanks to cheap US coal, and only recently level off; while subsidies for wind and solar have mounted. This has led to Germany having one of the most expensive energy systems in the world and yet it will still miss its 2020 reductions target.

Could that happen on a wider scale across Europe? Theoretically, not, as long as the lessons are learned and coal phased out – something that is not planned at the EU level, as defining a fuel mix at a national level is beyond its competence. Separate member states though can, as the UK has successfully done, introduce carbon taxes and incentivise alternative forms of gas. This is unlikely to be compatible with the conventional gas market however, as importers will find their market share taken away and unfairly transferred to green newcomers, as happened with wind and renewable energy. But maybe those days of a gas market are over anyway.

The CEO of leading Dutch marketer GasTerra, Annie Krist, told the Flame conference in Amsterdam mid-May that “we are in the middle of a very expensive transition to climate-neutral energy that needs active government intervention. The market needs reliable infrastructure to meet new demand, but if the financial risk is too high the investment will not go head, so the taxpayer has to foot the bill.” As she pointed out, the Groningen field onshore the Netherlands was once a disruptive energy source that required government intervention in order to create a market for it, through the displacement of heating and fuel oil.

Pricing it at a discount against the customer’s existing fuel procurement costs allowed buyer and seller to share in the benefits of clean gas, but it was not a normally-functioning market. This idea will be the inspiration for the future, she said: the government can take a guiding role as natural gas gives ground to renewable gas. Carbon capture, use and storage remains the elephant in the room: Shell Energy Europe head David Wells told the Flame conference that it was a key part of the Paris Agreement but its development was moving more slowly than he had hoped.

Schemes do exist though and the rising carbon price achieved in the European trading scheme is a start. More countries are introducing floor prices in the form of a tax: the European Commission not possessing the competence to itself impose taxes, the trading scheme, with its overly generous allocation of permits, is the best it can do. But prices are on the way up. 

NGW