Day Two of the Flame Conference: Leading Insights
Today’s sessions discussed the impact of technological, market, environmental and regulatory changes on the industry. Radical thinker Professor Dieter Helm gave his latest observations on the gas sector. David Wells, President of Shell Energy Europe, presented his view on how Shell sees its future in gas, whilst gas as transport fuel and the regional issues facing the industry in South East Europe were covered by a range of interesting speakers including Carol Bailey (Director at European Rim Policy & Investment Council) and Costis Stambolis (Executive Director at Institute for Energy for South East Europe). Here is a snapshot of some of the topics discussed.
Dieter Helm
Dieter Helm, Fellow of New College Oxford, highlighted points from his latest book, ‘Burn Out –The end Game for Fossil Fuels’. His overall view is that the efforts made to comply with the Paris Accords are insufficient. He argues that political, economic, market and technological challenges stand in the way of reaching the Accord targets.
One thing is clear: despite the much publicised advances of renewables, gas is still likely to be playing a significant part in power generation, and in meeting the heating meeting needs of homes and businesses. As for its role in transport, recent technological developments suggest that LNG or CNG have certain advantages over electric power. In consequence, the market is moving from the sale of units of energy to one of access to capacity.
Another reality check is that energy policy in Europe is about domestic rather than EU issues. A case in point is Germany, whose Energiewende has promoted domestic interests in energy, environment and security at the expense of its neighbours. A good example is Germany’s support of coal and lignite power generation, with 13 gigawatts of new coal power added since the implementation of the policy. Pollution from these plants is a key cause of smog in neighbouring countries, and additional coal power has also depressed energy prices across Europe. Another example of national interest superseding that of its neighbours is Germany’s support for Nordstream II, which is about ensuring affordable and secure gas supplies for the nation whilst ignoring the impact on such regions as Poland, the Baltic States and the Czech Republic.
Notwithstanding the European Commission’s energy policies, it has become clear that the balance of power has shifted away from Brussels to the member states’ capitals. In effect, we are seeing the renationalisation of energy policy-making and regulation. In sum, energy policy is now driven at state rather than EU level.
We are also seeing a gradual end to coal and oil in many parts of the world economy due to public pressure, environmental regulation and technological advances. Industries such as power generation, petrochemicals and transport are making a dash for gas
In the future, Helm predicts that we are likely to see a range of emerging technologies driving the development of the energy sector, including:
- Electric cars
- Energy storage
- Smart demand side
- Smart systems.
What the future means for energy companies like Shell
What we are seeing is that many of the big oil companies like Shell are moving into gas and power generation, as the long-term prospects for oil begin to decline in the mid-2020s.
Among other challenges facing energy companies is that, because of world population growth and improvements in economic development in many increasingly affluent developing countries, the demand for power will continue to increase, despite significant gains being made in energy efficiency.
One thing is clear; much needs to be done to achieve current Paris Accord targets. It is important to realise that natural gas, together with increasing use of green gas and perhaps hydrogen, is likely to aid in the fight to tackle climate change, and can bring down the costs of doing so significantly.
Meanwhile, it is important to remember that despite increasing growth in renewables, gas has an important role to play in many countries like Brazil and Kenya, which have experienced decade-long droughts that have adversely impacted the output from their extensive fleets of hydro power plants.
In addition, other sectors like the iron and steel industries find it difficult to use electricity in their production processes and usually gas is much more cost effective. Also, many buildings use gas to provide for cooking and heat, so would find it expensive to convert to 100-percent electric.
As for Shell, it has announced plans to cut its overall carbon footprint, across all its sectors and market types, in both North America and Europe.
Volkswagen and CNG
Like several other car-makers including Renault, Volkswagen is experimenting with CNG (compressed natural gas) cars, using similar technology to truck and bus-maker Scania. Car-makers like Volkswagen are looking at CNG fuelled transportation, because current forecasts suggest 3 out of every 4 cars will still not be electric by 2025. Also, in developing countries, such as Egypt, Nigeria and South Africa, CNG is proving a reliable, affordable and environmentally friendly energy source for transportation.
Compressed natural gas enjoys several advantages. It is the cleanest burning transportation fuel on the market today. CNG burns cleaner than petroleum-based products because of its lower carbon content. CNG produces fewer emissions than other fossil fuels and contains significantly less pollutants than gasoline. CNG produces 20-30 percent fewer greenhouse gas emissions and 95 percent fewer tailpipe emissions than petroleum products. And because CNG fuel systems are completely sealed, CNG vehicles produce no evaporative emissions. In terms of performance CNG differs little from diesel, petrol or even electric cars. Lastly, CNG meets the EU regulations on particulate emissions for 2020.
Nevertheless, there are hurdles to its adoption. In Germany for instance, there is a shortage of filling stations with only 3000 as compared to over 14,000 traditional diesel and petrol stations. More generally, there are delays in updating and implementing relevant health and safety regulations. Moreover, unlike electric cars, there is a lack of government and industry incentives to adopt this relatively new technology. Overall, for Europe, CNG could be seen as a medium-term solution for transport and a longer term one for heavy transport such as trucking and buses.
Eastern Mediterranean Sea
The eastern Mediterranean has become of interest owing to the huge gas discoveries of Zohr in Egyptian waters and Leviathan off the coast of Israel. Since these newsworthy discoveries, several additional but smaller discoveries have been made, which have prompted several interesting pipeline and FLNG proposals to export newly-found gas to markets outside the region, irrespective of the political, engineering, hydrographic, market and technological challenges facing such developments.
However, apart from Zohr and Leviathan, development of the new fields has stalled as many are too small to be exploited by themselves, and current market prices make them uneconomic for development. It is also becoming clear to many that eastern Mediterranean gas supplies to distant markets like mainland Europe are increasingly unlikely for the next decade at least, especially since Russian gas from Yamal is substantially cheaper than any gas produced from Cyprus’s Aphrodite field. It makes more economic sense for the gas to be developed for local regional needs and benefits. Therefore, it is not surprising that policy makers in Turkey, Cyprus and Egypt are working with energy companies to capitalise on the region’s offshore gas fields as a source of secure, affordable and environmentally friendly energy for their power generation and e-transport needs of the future.