Feature: Gas sector fears grow as backlash accelerates

A shift in attitude toward natural gas is taking place far more quickly than expected, leaving the industry struggling to keep up with the pace of change and prompting fears that numerous gas assets could be left stranded.

From youth protests to investment banks pulling funding from unabated fossil fuel projects, the role of natural gas as a bridge to a lower-carbon future is increasingly in doubt.

Policymakers are responding to the changing mood, with the European Commission planning to tighten EU sustainability criteria for funding natural gas infrastructure projects, and to propose a gas “decarbonization” legislative package by early 2021.

Companies also recognize the need to respond, with the “greenwashing” of the past seen as woefully inadequate against the background of ever-louder calls for a more rapid shift to clean energies.

“The pressure on oil and gas companies is growing, and growing at a pace I would not have anticipated one year ago,” Patrick Pouyanne, CEO of French oil major Total, said in October.

BP’s chief operating officer for European gas and power, Jason Tate, said in Paris last month at a conference disrupted by climate change protestors that the conversation with investors was all around the energy transition.

“It has totally shifted over the past 12-18 months, so we see there is a real expectation on us,” Tate said.

PIPELINE SUPPLIERS

It seems increasingly unlikely that any new mega natural gas projects in Europe — such as major new pipelines — will see the light of day, and big natural gas resources in regions such as the East Mediterranean or Black Sea may struggle to win financing.

Across the natural gas industry, the narrative is changing from excelling as a partner to renewables over the next few decades on the path to decarbonization to being part of the problem now.

In Europe especially, policy debates increasingly focus on decarbonized or renewable gases such as hydrogen or biogas, which have tiny market shares.

A senior European Commission official said last month that the main natural gas suppliers to Europe — Norway and Russia — should look to deliver “greener” gas to maintain their large market shares.

“Russia and Norway may well have an interest in supplying us with gas using carbon capture and storage or use technologies,” Benedikt Klauser, policy officer at the EC’s Directorate-General for Energy, said.

Gazprom Export CEO Elena Burmistrova said last month she recognized the need for the decarbonization of gas, saying in the longer term a mixture of natural gas and hydrogen could be a first step.

By blending hydrogen into the natural gas supply, existing infrastructure can still be used which would make it a relatively cheap proposition.

And things could be moving quickly in that direction.

The controversial Nord Stream 2 pipeline — set to bring an additional 55 Bcm/year of Russian gas to Germany from 2020 — is “hydrogen-ready,” allowing it to flow the carbon-free gas to Europe as soon as needed.

The backlash against natural gas could also be prompting producers to produce as much as possible as soon as possible. Qatar, for example, is now expanding its LNG capacity more rapidly than many thought it would or could.

BUMPY ROAD AHEAD

The European Commission in 2018 estimated Europe’s natural gas demand would remain relatively stable to 2030, at 380-480 Bcm/year.

But that was before the new EC President Ursula von der Leyen put climate at the top of her policy agenda for the next five years, with plans for a European Green Deal intended to make the EU a net-zero carbon economy by 2050.

That is more ambitious than the EU’s current goal to cut emissions by at least 80% from 1990 levels by 2050, and to help achieve it von der Leyen wants to ramp up the EU’s 2030 targets to cut CO2 to at least 50%, up from 40% agreed in 2018.

If this is approved by EU lawmakers — and the European Parliament has already called for a 55% cut by 2030 — then natural gas demand could well be displaced before 2030 by more renewables and energy efficiency.

The natural gas industry is hoping to find new demand as a lower carbon alternative to oil in transport — particularly for shipping and heavy trucks — and coal in power stations.

But opponents are likely to cite upstream issues — particularly methane emissions — to challenge how much greener switching to natural gas is.

All of which means the natural gas industry is facing a very uncomfortable future in Europe.
Source: Platts