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    [Premium] Europe's Gas Industry 'Must Invest in R&D': Experts

Summary

Given the challenges ahead of it, the gas industry is showing remarkable complacency, under-investing in the types of new technologies that could ensure its prosperity for decades to come, said speakers at an IFRI conference.

by: Sara Vargas

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[Premium] Europe's Gas Industry 'Must Invest in R&D': Experts

The gas industry will have to provide a credible answer to climate change issues, including stepping up its game on renewable gas (or biogas) and power-to-gas techniques, says Sylvie Cornot-Gandolphe, Research Fellow at the French think-tank IFRI (Institut Français des Relations Internationales). After 2035, renewable gas will be key in assuring that the market for gas stays strong, she argues.

Her opinion was backed by a senior executive at France's EDF, Fabrice Noilhan, who was a panelist at the discussion hosted by IFRI on November 16, on investment trends in the global gas industry.

Low investment rate in R&D and LNG

Based on data from the International Energy Agency’s World Energy Outlook 2017, the agency's chief economist Laszlo Varro suggested that investment in research and development (R&D) of new technologies in the gas industry has not risen for some years. This is despite growing recognition of the importance of energy innovation. To illustrate this point, he pointed out that the top three information technology companies spent more in R&D than the gas industry as a whole in 2015.

Nonetheless, natural gas will have an increasing role in sectors where it traditionally played a smaller or marginal role, such as power generation and transportation – especially light road and marine traffic. In some regions, such as the US and the Middle East, investment in capacity building remain high, but not so much in other places, like Europe. However, Varro sees gas “coming back into the game” thanks to technological developments that have increased gas turbines’ capacity.

And indeed the power sector will need 114 GW of new capacity by 2040, says IFRI. However, this new capacity does not mean that demand will increase dramatically, but instead that the gas network will have to be very flexible in order to fulfill a back-up role for renewables in electricity generation. This also implies that decision-makers and regulators must develop a good electricity market design and capacity mechanisms.

On LNG, the IEA suggests peak investment levels have already been reached. Well-supplied markets in the short term are maintaining downward pressure on prices and discouraging new upstream investment. In 2016 only two new final investment decisions (FIDs) were taken to expand existing or build new LNG facilities, and only one FID had been taken in 2017 when the IEA’s annual report was published.

Challenges

As mentioned before, natural gas is set to have a more predominant role in the power and transportation sectors, but it will have to compete with the established sources of energy in each of them. While new technologies are making small breakthroughs, they remain concentrated in specific markets, not evenly spread out. For example, out of the 1.3mn cars powered with natural gas in Europe, 1mn are in Italy, says IFRI. In marine transportation however, European LNG projects do make future plans for supplying a fleet of gas-powered ships, and many LNG terminals are built with such a facility already.

Digitalisation of the power market will also be a challenge to the industry, argues Varro, as it unlocks flexibility to facilitate integration of renewable energy and turns them into flexible grid assets. He says this will steal market share from natural gas, if the latter doesn’t implement new technologies and practices to contribute to flexibility and decarbonisation.

All in all, the aforementioned experts believe that decarbonisation of the gas industry will determine whether it will still play a role in the long term, after 2035. Coal-to-gas switching has proved to deliver rapid and cost-efficient reductions in CO2 emission, as demonstrated by the UK after it introduced a carbon price floor. But there have also been disappointments, such as the failure to introduce carbon capture and storage (CCS) technologies beyond pilot projects, or methane leaks that can quickly turn political and public opinion against natural gas.

As things are now, IFRI sees two distinct periods in the future of the gas industry: up to 2030, gas demand will be driven by coal-to-gas switching, and to a lesser extent, use in the transport sector. After that, demand will decrease, so renewable gas and a flexible network (power-to-gas) will have to be ready.

Sara Vargas