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    Editorial: Bridging the gap [NGW Magazine]


Pipeline or LNG, natural gas is going to become a lot cleaner. [NGW Magazine Volume 6, Issue 4]

by: NGW

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Complimentary, Natural Gas & LNG News, Top Stories, Insights, Premium, Editorial, NGW Magazine Articles, Volume 6, Issue 4

Editorial: Bridging the gap [NGW Magazine]

As the pipe-laying work on Nord Stream 2 resumes, the US continues to burn political capital with its extra-territorial sanctions on the European companies involved in it.  

Most recently, DNV GL has quit the project, leaving open the question of the line’s insurability. The pipeline’s lenders do not doubt – in public – it will be completed and nobody doubts the growing shortage of Europe’s gas reserves. Why then the endeavour to halt it?

Either Russia is an unreliable or undesirable supplier, in which case countries can, like Poland and Ukraine, buy gas from other suppliers; or it is not, in which case the gas will flow – and through a shorter route than the central corridor through Ukraine. Kiev has no legal basis to demand transit fees in perpetuity. In the meantime, tanker after tanker of LNG can unload at European terminals, if one is prepared to pay for them. Blocking the line only weakens Europe’s security of supply.

There were other ways to skin this particular cat, without resorting to tactics that undermine the credibility of the US legal system. The European Commission took a more sophisticated approach with Nord Stream 1 as it allowed construction to go ahead unhindered but then strangled Gazprom’s access to one of the onshore pipelines, Opal, that brought the gas south through Germany.

The elegance of that solution was that the extent of the restriction was variable. Last year the line exceeded its nameplate capacity by almost 10%. This was some consolation for losses earlier in its life when Gazprom was denied access to half the line’s capacity.

Relations between the EU and Russia will fluctuate over the course of a gas pipeline’s life: the fact they are poor now and possibly going to deteriorate further does not mean they cannot improve in the future. At some point in its decades of service, some or all of the line might prove very necessary.

NS2 will flow through Eugal, now able to carry 30.9bn m³/yr into central Europe through the first line and the second line is being commissioned. It will reach 55bn m³/yr total in the second quarter and the gas will be able to flow west into Germany and the Netherlands.

But if there is no Nord Stream 2, and things do go wrong for any reason elsewhere in the chain, for any one of a number of possible political or physical reasons upstream, then it is much harder for Europe to head off the problem in a timely fashion.

This winter has been a harsh one in the northern hemisphere by recent standards, although hardly exceptional. What has set it apart has been the prices paid for electricity, as renewable energy has failed to deliver and supply margins have been hit hard. Gas, much of it from Russia, has been vital for heating and for power generation.

It is small consolation that more UK power was generated by renewable energy than fossil fuels last year. A lot of it was given away or sold at negative prices on those hot weekends when the wind blew and the sun shone, and demand fell in the slump caused by Covid-19. Fossil fuel plants by contrast were forced off the grid causing further costs.

This year so far has seen a very different picture, owing to the dramatic collapse in wind and solar: gas-fired plant has had its moment in the sun, so to speak, as prices surge.

But this only sends all kinds of distorted market signals to would-be investors: volatility, caused by unpredicted policy shifts, is a deterrent. This has led some companies to shy away from investments in reliable, despatchable energy. One such, Calon Energy, even went into administration taking several plants with it last summer, thereby squeezing this winter’s supply margin yet further.

Prices have lurched from one extreme to another as the regulator ensures that consumers are protected from the economic evil of a gold-plated system.  

The story has been similar in Germany this year – except unlike the UK which relies on the market to deliver gas instantaneously, Germany has maintained its storage capacity.

On cold winter days, renewables cannot even supply a third of the required peak load, says the lobby group Future Gas. “Without gas-fired power plants, reliable pipelines and efficient gas storage facilities, it would stay cold in many buildings, and what this system can do today with natural gas, it can do in the future with green or climate-neutral hydrogen."

Apropos, keeping the door open for gas as it is today and replacing growing proportions of it with greener gases in the future sounds a perfect compromise. Electrons will have a lot of other things to do beyond heating, and there they would require major grid reinforcements. Heating – industrial and domestic – on the other hand is the primary purpose of the once “noble fuel” and the infrastructure is in place.

So it is good to see the rate of change accelerating in the upstream industry: Qatar, with its carbon capture and storage (CCS) plans for the North Field East LNG expansion; ExxonMobil, that notorious laggard, investing heavily in CCS; and practically everyone electrifying upstream platforms. All of this will come at a price, but the higher the carbon price goes, and the greater the economies of scale, the easier it will be to swallow the pill.

One will just have to hope, in the absence of any levers, that other parts of the world are also meeting their commitments as the clock ticks relentlessly and 2050 looms ever larger on the horizon.