The push for decarbonisation across all sectors and all countries, has put Europe especially in a predicament. The European reliance on natural gas has made the green transition a difficult and at times foggy situation which has raised the question: is natural gas a green transition fuel? The EU seems to suggest so in its proposed Taxonomy Regulation. Can natural gas pave the way to the energy transition? Our answer is no, but it is tricky.
Should we incorporate gas in the energy transition
Why some argue in favour of natural gas
According to (and be mindful of what I am about to write)... Shell natural gas is necessary in the energy transition because it emits between 45 to 55 percent lower greenhouse gas emissions than coal when used to generate electricity. It is arguable that this fall in GHG emissions builds a good case for natural gas to support renewables as it quickly compensates for dips in solar or wind power supply and responds to sudden increases in demand (questionable given the current landscape in the EU).
The backdrop to this support
In the United States, the shale revolution has dramatically impacted gas supply and prices. According to a report on the role of natural gas in today’s energy transition, the International Energy Association has argued that there are significant CO2 and air quality benefits in specific countries, sectors and time-frames from using less emissions-intensive fuels. Undoubtedly, that can be the case when we move from one very bad energy source to another less bad source. That does not mean that the relatively less harmful (in terms of CO2 emissions) energy source should be put on a pedestal.
The current landscape
The European dependency on (Russian) natural gas has meant that an unregulated and rushed transition may lead to a messy economic situation across Europe, leaving many consumers vulnerable. This has been felt throughout Europe’s increasing energy bills and the high cost of natural gas in the continent. The transition to renewables has left gaps in Europe’s energy supply - an almost predictable circumstance that has led to a fragmented European approach to gas supplies, and the lack of phasing out of the potent polluter.
Some commentators have argued that we have entered into a new “Cold War” era over gas imports in Europe. Perhaps a new cold winter era is coming up soon given the Russian threats over European natural gas supplies (yes, bad pun intended). In 2018, 40 percent of European natural gas imports came from Russia and in 2019, Russian gas exports to Europe (under Gazprom Export contracts) were equal to 199 billion cubic metres. It has been arguable that the US is fighting for this dominance with their ever-increasing number of LNG terminals in Europe - from Italy and Greece in South of Europe to France and Poland in the North. American LNG exports to the EU skyrocketed from 3.3 billion cubic metres in 17.2 in 2019 - a 521 percent increase over the period of a year. More recently, this has come in the form of US retaliation against Nord Stream 2 which will make the EU overly dependent on Russia.
Unsurprisingly, proponents that see gas as a bridge fuel to a decarbonised world are the five largest international oil firms: ExxonMobil, Chevron, Shell, Total and bp. Shell has announced that its oil production peaked in 2019 but that it will expand its gas business with annual investments of about $4 billion while Total expects its crude output to sink over the coming decade, but for gas to rise from 40 to 50 percent of sales.
Why gas cannot pave the way to a green transition
What is natural gas?
‘Natural’ may trick you into thinking that the gas is not harmful. Nevertheless, natural gas is still a fossil fuel that produces “alarming methane emissions.”
The extraction and burning of natural gas emit both carbon dioxide and methane, the two most crucial greenhouse gases. Methane is the more potent of the two. Over 20 years, one molecule of methane is around 90 times more effective at warming the atmosphere than a molecule of carbon dioxide.
Methane is emitted throughout the chain of extraction, transport and storage of natural gas. The term “fugitive emissions” was coined to describe the emission of greenhouse gases during the production process before the burning of natural gas, which in turn generates more emissions.
To illustrate the environmentally devastating impacts of natural gas, the Natural Resources Defence Council, an environmental group, calculates that adding methane leaks from fracking or pipelines, American LNG exports in the next decade may produce greenhouse gases equivalent to the annual emissions of about 45m new cars—not counting burning the stuff for energy.
The impact of strict action against climate change
Apart from the devastating consequences that natural gas has on the environment, stringent governmental responses to climate change that incorporate natural gas reduce its necessity in the economy while echoing the concerns over the impact that the natural gas market has on the environment.
In response to climate concerns, the Netherlands and some cities in California have banned gas in new buildings while Britain will do so from 2025.
“To put it mildly,” Werner Hoyer, president of the European Investment Bank, declared in January, “gas is over.”
To make an economic case against natural gas, echoing John Kerry’s words (Biden’s climate envoy) natural gas assets are in risk of becoming stranded. The IEA has estimated that demand will slow to 1.2 percent a year until 2040 from an average of 2.2 percent between 2010 and 2019.
The European “mid-term” plan to meet its energy supply needs in the short term runs the risk of locking the continent into a long-term dependence on gas.
The price of renewable energy from wind and solar farms is already cheaper than new gas plants according to Bloombergnef, while renewable energy infrastructure bears no marginal costs making it one of the most affordable forms of energy.
It may be arguable that gas’ role in the transition is not to be burnt for its energy but to serve as feedstock for hydrogen. If carbon is captured and stored in the process leading to blue hydrogen (a source of carbon-free energy), the European dependence may be turned around to something new, and carbon free. Nevertheless, what is missing is the infrastructure and a market. To switch gas from a combustible energy source to hydrogen feedstock requires transport and storage for hydrogen and CO2 as well as infrastructure to sequester carbon. These investments are hard to justify and find until demand increases. It is up to the EU to make a market that will sustain and encourage this investment, while it is up to gas-producing countries such as Russia and Norway to ensure this supply. Despite this optimistic suggestion, it is unclear whether producers will be ready to jump into this activity with the EU. Further, it has been estimated that in the future, gas with carbon capture and storage may prove even pricier than hydrogen generated by renewable electricity.
European climate-friendly endeavours seem to not match the Union’s actions when it comes to phasing out natural gas. Seemingly, the EU - and the world - is struggling to find a mid-term solution to act as an intermediary between now and 2050. The continent’s dependence on gas, as well as Big Oil’s ambitions to continue their fossil-based business after oil, put natural gas in a political and corporate agenda despite its detrimental environmental impacts.