European policymakers are convinced, the energy transition cannot rely on electrification alone. “Molecules” will be needed. This sounds reassuring for the gas industry, but the new molecules will not be based on natural gas, and there will be a lot less of them. Gas companies are facing an “existential threat”, warns gas expert Jonathan Stern. Nord Stream 2 could be Europe’s last great gas import pipeline

After a long drawn out battle, it now seems certain that the controversial Nord Stream 2 pipeline between Russia and Germany will get built. A victory for Gazprom, the state-backed Russian energy producer, but could it be a Pyrrhic one? A lot will depend on how the European gas market will evolve in the coming decades.

On the face of it, the gas industry’s future looks bright. Until recently, there was a fierce debate about whether Europe, on the way to a decarbonised future, should take the road of “electrons” or “molecules. That debate is over. It was won by the “molecules”. That is to say, there is widespread agreement now among experts and policymakers that the energy transition should not be based 100% on electrification, but should maintain an important role for various forms of gas.

“Hundreds of studies have been done but they all come to the same conclusion: it is better to have an energy transition with than without molecules,” says Klaus-Dieter Borchardt, deputy director general for energy at the European Commission, the EU executive body. It has become clear that moving to a 100% electrified economy would be far too expensive, he states. “It would imply that you produce all energy with renewables, store it as electricity, transport it through the power grids, change all the appliances that do not work on electricity. That would be a very costly exercise. The transport and distribution power lines would need to be massively expanded. And at the same time you would end up with billions of stranded assets in gas grids.”

In addition, he says, there are some industrial processes, involving high temperatures, where electrification is virtually impossible.

No wonder, then, that the gas sector seems upbeat about the future. Gas industry association Eurogas “welcomed” the Commission’s strategy for “a climate-neutral Europe by 2050”, published on 28 November 2018, which points the way to the zero-emission energy system of the future.

In response to the strategy, Eurogas optimistically stated that: “Gas fuels are necessary in all seven strategic areas identified by the European Commission”. It added: “The combined potentials of natural, renewable and decarbonised gas will help to achieve climate ambitions in time and will benefit quality of life and the environment also in terms of cleaner air, comfort and choice.”

New narrative

And so, a new, positive narrative has emerged around gas: for the next decade or so, it will serve as a bridge, replacing coal and serving as a backup for renewables. After that, renewable and decarbonised gas will take over from unabated natural gas. Molecules (and the gas industry) will live happily ever after…

Behind this narrative, however, lies a more complex and far less reassuring reality. After all, the molecules that will be around in 2050 will be very different from the ones that are around today. And, more importantly, there will be a lot less of them.

The Commission has made it clear that natural gas will have to be replaced with carbon-free alternatives, such as biogas, biomethane, or green hydrogen (also known as power-to-gas, made from electrolysis based on renewables). The only way fossil-based natural gas can stay in the picture is if it is combined with carbon capture and storage (CCS) in the form of so-called “blue hydrogen” — hydrogen made from natural gas in which the carbon dioxide is captured and stored underground or used for other purposes.

But all of these alternatives have their limitations and challenges. And even if they are developed successfully, they will still add up to a much smaller amount than the gas industry supplies and transports today.

“There may be a place for molecules in the future energy system, but that does not change the fact that the future will be much more electrified,” says Lisa Fischer, senior policy advisor at the international climate think tank E3G.

E3G has been warning for years that the gas industry will need to downsize and that new investment in major gas infrastructure in Europe is not justified anymore. Fischer points to a study from consultancy Ecofys, Gas for Climate, published in 2018, commissioned by a group of European gas network companies, including SNAM (Italy), Gasunie (Netherlands), Enagas (Spain), Fluxys (Belgium) and GRTGaz (France). It shows that Europe in 2050 could produce around 98 billon cubic metres (bcm) of biogas and biomethane and 24 bcm of green hydrogen. That is only about a quarter of the volume of natural gas Europe consumes today.

Pioneering Spirit installing the pipeline in Swedish waters. Image: © Nord Stream 2 / Axel Schmidt

Existential threat

Moreover, as Jonathan Stern, distinguished research fellow at the Oxford Institute for Energy Studies, states in a recent paper, Narratives for natural gas in decarbonising European energy markets, the Ecofys study has far and away the most optimistic estimate of Europe’s biogas, biomethane and hydrogen potential. Most other studies do not even get to half that number.

Stern, a highly respected independent voice in the international gas community, concludes that since the potential of renewable gas is limited, the gas industry will need to start investing seriously in blue hydrogen, in other words in CCS, if it wants to maintain “anything resembling current demand levels” in Europe.

But so far he sees little action. “I do not hear the post-2030 issues being discussed at a high corporate level at international conferences,” he says. And time is short. “The next five to ten years will be crucial for the gas industry,” underlines Stern. “Failure to deliver credible decarbonisation actions could result in the adoption of electrification rather than gas decarbonisation options.”

Stern believes that gas transmission and distribution companies are faced with a bigger threat than producers and suppliers. “Exporters such as Russia and Norway can either decide to convert to hydrogen or phase out their pipeline exports. Russia has a large domestic market and (potentially) an alternative Asian pipeline market.” On the other hand, says Stern, network operators are faced with “an existential threat”. He adds that: “Since biomethane can only supply a fraction of the current throughput of networks, unless we have large scale hydrogen, many will go out of business.”

Biogas plant GrønGas Vrå, in northern Jutland, Denmark. Image: E.ON Danmark

Gas package

Borchardt takes a more optimistic view. He concedes that most of the gas industry has not committed itself to CCS yet, but he believes that will change. “They have seen all the early CCS projects fail, so they are cautious. But those projects were based on power plants. I believe industrial CCS projects are more likely to succeed.”

He is also optimistic that the industry will be able to bring down the cost of green hydrogen, just as the cost of solar photovoltaic and wind energy have come down. And he points to the possibility of importing hydrogen.

The European Commission is planning to introduce a gas package in 2020 as a companion piece to the Clean Energy for All package adopted in December 2018, which deals mostly with electricity. The gas package should set out a strategy that gives industry some certainty about its future. Borchardt believes an “international strategy” for developing a global hydrogen market should be part of the new package. “We can’t do it alone.”

Fischer of E3G agrees a gas package could be useful in providing more certainty to investors. In a briefing paper, published on 19 February 2019, she writes that each of the different alternative options for unabated natural gas comes with different infrastructure implications, which need to be researched. She calls for an update of the EU’s “energy network infrastructure priorities, which still date from before the Paris [climate] Agreement”.

Nevertheless, regardless of the outcome of this process, according to Fischer two trends are clear. One, demand for gas will decline and be increasingly restricted to high-value uses. Two, the current gas system, based largely on imports, will become much more based on domestically produced biogas and biomethane. Given these trends, Fischer sees no justification for any more major investments in the gas network, “certainly not for big import lines”. Not for nothing is the planned France-Spain gas interconnector facing considerable resistance, she adds.

If Fischer is right, Nord Stream 2 could well become Europe’s last major gas infrastructure project. And it might not even ultimately be very successful financially. “Gazprom may make a lot of money in the short term,” says Fischer. “But in the long term, if we follow through on our climate targets, I don’t see where the demand for the pipeline will come from.”

This story by Karel Beckman, originally appeared on FORESIGHT Climate & Energy

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