At the 2024 Cedigaz seminar, one of the key messages from gas suppliers is the need for a regulation that is more supportive of natural gas. Why is this so important now?
From the point of view of a midstream company, it is very important to have a clear, stable legislative and regulatory framework when it comes to investments that aim to bring affordable energy to end-users. We need to have stability in the long run otherwise some projects can be undermined by sudden regulatory changes.
Indeed, regulation is a key variable to be factored in when drafting or outlining long-term scenarios as it typically supports or undermines the financing of a project.
In recent years, policymakers abruptly changed their position with regards to natural gas which was deemed no longer
suitable to achieve the decarbonization and sustainability goals in the long term. As a result, this caused enormous uncertainties on the future of this abundant and affordable molecule which at the time, was considered as one of the key energy vectors to support both the economy and the energy transition.
Therefore, we shifted from the so-called “Golden Age of Gas” as coined by IEA’s World Energy Outlook a decade ago to a “Darker Age of Gas” where natural gas role is likely to be squeezed in favour of alternative vectors that are in most cases, expensive and technologically still immature.
Natural gas is now considered an ‘antagonist’ of the decarbonisation path. As a result, traditional players are faced with a dilemma of remaining in this business or not, by potentially relocating investments in new energy vectors that need a strong financial backing in both CAPEX and OPEX to be successfully delivered.
What is the case for gas, especially when it comes to supporting the energy transition?
The natural gas industry is mature in terms of technology, know-how and costs. Most of the existing infrastructures throughout Europe are already amortized. Therefore, the incidence of the capex cost in the unitary price is reducing. This might be one of the levers to exploit when supporting the EU in its efforts to keep its energy bill competitive, whilst fostering the economic growth of the European perimeter.
When it comes to emissions, there is a wide range of possibilities to abate GHG emissions in the fossil fuel industry. Along the gas value chain, from upstream to downstream, we can deploy measures to reduce the carbon intensity of the lifecycle of the molecule from the wellhead to the consumption points.
To name some potential solutions, the upstream industry may be supplied with renewable green energy to run its activities of exploration and production by minimizing the usage of natural gas for example in processing units or liquefaction facilities.
We also need to look at midstream infrastructure and vessels that can replace burning gas or oil products with cleaner fuels, so they can emit less CO2 in the atmosphere during the transportation phase.
As far as pipelines are concerned, there is also room to decarbonize the compression phase by supplying compressing stations with renewable electricity.
Eventually, all players in the industry should work together to minimize and prevent methane emissions across the whole chain.
What other types of collaboration is needed in your view?
The energy crisis in 2022 was a wake-up call that demonstrated to everyone that natural gas is important for our economies in the EU. We were unprepared to switch suddenly to other energy vectors.
But if we continue to omit natural gas from all discussions, we will end up having a shortage of clean energy that can support
the transition effectively. We are in most cases talking about new energy vectors that are very expensive and require a lot of time to be deployed. We should return to a more pragmatic approach where natural gas is already present, abundant and affordable. Additionally, gas infrastructures are largely mature, which makes natural gas competitive compared to other new sources.
These qualities – accessibilities, competitiveness and affordability – should be restored in the narrative to bring back the importance of natural gas. Then we should work together along the value chain to reduce the carbon intensity of these molecules across their entire lifecycle and promote more solutions to abate GHG emissions.
Such cooperation should be put in place not only at the European level, but also on an international level, so that the gas that is produced in the US or another supplying country can be certified in Europe as well. Today this is not possible.
If we factor in and record the efforts of producers to cut emissions, we can demonstrate to our end-users in Europe that this gas has low-carbon intensity and that can encourage other producers to make investments in such solutions too. That can put European importers in a stronger negotiating position for future supplies.
What is your view on future gas demand trajectory?
Gas demand is still strong, and it is not expected to drop as fast as many are depicting. It is still above 400 Bcm in the EU, so it is significant and not easy to replace. Gas is needed for flexibility and to manage the fluctuations inherent to the intermittency of renewables. It then remains key for hard-to-abate industries to produce final goods. Ultimately, natural gas is also an essential resource needed to compensate the potential delays that may arise in deploying the new technologies envisaged by the energy transition.
As soon as the EU brings natural gas back in fashion, which is much needed for the economy, European players will have more bargaining power when negotiating gas.
Interview by Fatima Sadouki – Independent Energy Specialist – for CEDIGAZ