Editorial: Investing for the future [NGW Magazine]
Two announcements in quick succession on opposite sides of the world have helped to lift the mood of the gas market. This is admittedly, in this year of Covid-19, only true to a limited extent.
Further it is debatable whether there can be said to be a mood at all, in this widespread state of individual isolation in which many find themselves as the 2019-20 Gas Year draws to its close.
First was the decision by the long-cautious Norwegian government to back the Longship carbon capture and sequestration project (CCS). It is relatively trivial in terms of money and volume, and it is unlikely to turn a penny in profit for its commercial investors even with government backing. Anglo-Dutch Shell and French Total have their fingers in the downstream – that is, the offshore, conventionally the upstream – side of other CCS projects in Europe as well.
Nevertheless, Longship has the potential to play a large role influencing attitudes in favour of gas.
If all goes well, no longer will references to CCS – a key enabler in every International Energy Agency scenario where the world meets its climate goals – have to be accompanied in articles and analysis by the phrase “so far untested at scale.”
Designed to carry third-party emissions, the project will, if parliament backs it, also become an enabler for blue hydrogen. Will that still be a thing by the time it is operational; or will European economies be struggling too much to afford such luxuries? This is a long way off but at least it is more likely to be a thing than green hydrogen.
But there is CO2 from many other sources including industry and power generation that will need a permanent, safe home. And the notion of Norway going ahead might also spur other countries into action.
The Netherlands for example has the Porthos CCS project centred on an industrial complex in the port of Rotterdam and offshore storage. And the UK has its Acorn – initially a blue hydrogen scheme – and its Humber CCS projects. Both will depend on government money and have been promised some, if not as much as Norway.
An independent consultancy Xodus has said Porthos might cost just €50/metric ton, which is tantalisingly close to the Dutch government’s figure and not that far from the present price on the European carbon market. It is also no more than half what Longship could cost, based on the volume and investment, owing perhaps to the greater distances Longship must cover. So if Longship, why not others? Competition will be welcome.
It is not as if these three will come anywhere near plugging the hole in the EU’s carbon budget. Many more are needed, and the technology, intellectual property and physical experience gained at the different stages of the value chain will also become useful exports for their host countries quite apart from enabling them to reach their climate goals.
At an IEA-hosted webinar launching a report on CCS, the country’s prime minister Erna Solberg, in party mood, distanced her country from the activities of its earlier and more care-free citizens. This Longship would take away what its neighbours did not want: their carbon emissions, rather than their wives or their gold.
The other event, despite being very much vaguer, also has the capacity to lift the market mood. China’s aim to achieve carbon neutrality by 2060. There are few details and it does not necessarily mean the end of coal-fired generation and a surge in gas imports. It is possible that CCS will address the former concern and indigenous production the latter. But gas remains the cheapest as well as most available source of low carbon and despatchable energy.
Dodging serious decarbonisation on the grounds that whatever Europe or the US does on the plus side will be swamped by countries ‘like China’ as they use cheap coal as an energy security hedge – a version of the ‘prisoners’ dilemma’ – will no longer be justified. If it too is focused on limiting temperature rises, then global targets become a little easier. What will be the next game-changer? Will India follow suit?
On the negative side, a report by S&P Global Ratings argues that Covid-19 has accelerated the transition but without many benefits for gas and therefore for its producers, small and large, struggling to survive after months of very low prices.
While nobody doubts the affordability and availability of gas, its demand in the long term is dubious. This downward trend has been apparent for the better part of a decade and reversing this trend will be difficult without major policy intervention, it says. As for blue hydrogen, the hope that it would emerge as a storage and transport fuel “is already wobbling due to a focus on green hydrogen.”
There was other, discouraging news too: Dutch industry and climate minister Eric Wiebes repeated September 23 the party line on Groningen in another IEA webinar. Once it is turned off in 2022, the giant field will not be brought back on again. Prolonged cold weather, high prices or a suffering Dutch economy must all take precedence over the risk to safety implied by producing gas.
That is despite the state’s own mining safety regulator setting a maximum of 12bn m³/yr. More houses are being built without gas mains connections and many of those that have them are to be supplied with other means of heating. Following Groningen into the history books at a respectful distance will be GasTerra – the successor to Gasunie, set up to market Groningen – as ‘secular’ 2024 ends.