From the Editor: Lots to talk about [Gas in Transition]
In a few weeks, world leaders will gather in Egypt for the 27th Conference of the Parties to the United Nations Framework on Climate Change. That’s the formal wording – for the rest of us, it’s just COP 27.
In the wake of COP 26 in Scotland just about a year ago, the green movement was giddy with the prospect of seeing – finally – some progress towards the Paris Agreement ambition of limiting global warming to 1.5°C.
The outer fringes of that green movement – those looking for the outright defusing of the fossil fuel industry’s “carbon bomb” – were hopeful that agreements forged in Glasgow would help them achieve their goals of removing oil and gas completely from the global energy equation.
Now much of the optimism that came out of COP 26 has been replaced by heightened uncertainty, over not just the forward path towards a lower carbon future but over energy security and affordability.
Natural gas prices in Europe – already trending higher in January – have soared since Russia’s attack on Ukraine. In the months since the February invasion, energy transition goals have been trumped by concerns about supply security, and markets across Europe are in turmoil as a scramble is on to secure enough energy – from gas, from coal, from nuclear, from wood or cow dung even – to get through the coming winter.
Assuming delegates to COP 27 can pull themselves away from the distractions on offer in the Egyptian seaside resort of Sharm El-Sheikh, and sit down in the Tonino Lamborghini (not THAT Lamborghini, the watch and luxe lifestyle side of the brand) International Congress Centre, they’ll have lots to talk about.
The ongoing Russia-Ukraine crisis will likely throw a shadow over most of the discussions, but two key topics that will also nuance the negotiations are the rising (again) demand for coal to replace Russian supplies and a waning interest in accessing carbon-neutral cargoes of LNG. LNG importers, it seems, will take their gas wherever they can find it, and aren’t interested in paying a premium for LNG that bills itself as low carbon or no carbon.
Coal heating up
The disinterest in cleaner natural gas and a shortage – real or perceived – of LNG supplies have combined to drive demand for thermal coal higher, and for the first time in the memory of many coal executives, thermal coal is now fetching a higher price than metallurgical coal.
Across Europe, plans to mothball coal and oil-fired power plants are being shelved, already shuttered facilities are being brought back to life and coal mines are boosting production to take advantage of a new-found profitability of exports.
And in a bizarre twist on the march to decarbonisation, at least one gas-fired power plant, in Austria, is being converted to run on coal in the event of an energy emergency.
But it’s not just Europe that is experiencing the dash to coal.
In Japan, Tohoku Electric earlier this month signed a long-term contract for thermal coal with Australia’s Glencore that carried an eye-watering price of $395/metric ton FOB, more than three times higher than contract prices that prevailed in 2021.
In Africa, the Botswana government has estimated that demand from Europe for its coal could reach more than 50,000 mt/month, while European countries imported more than 40% more coal from South Africa’s main export hub through the first five months this year than in all of 2021.
And China – long considered the villain in global efforts to get the world off coal-fired power – approved 15 GW of new coal-fired capacity in the first half of this year.
Cool to LNG
On the LNG front, efforts to lower the carbon intensity of the super-chilled fuel have cooled heading into an uncertain winter, as buyers are more interested in securing supply than in polishing up their green images.
Last year, 30 deals were struck to ship carbon neutral LNG around the world; so far this year, only 10 have emerged, according to global gas consultancy Wood Mackenzie, and it’s unlikely any more will come along given current prices for “normal” LNG and premiums on low carbon LNG that could conceivably add as much as $2mn to the price for a cargo of 100,000 m3.
Interest by North American producers in certifying their natural gas by one of several programmes – Equitable Origin and MiQ among them – remains. So far, those two have, on their own or together, certified 12.6bn ft3/day of US natural gas and another 2.1bn ft3/day of Canadian gas, and are in discussions to add to that total, not only in North America but also with producers in Europe and the North Sea.
But as yet, no US LNG exporters have sought to have their facilities certified, even though MiQ, which measures methane intensity, said it hoped to be certifying the LNG link of the gas value chain by the end of this year.
The largest of the US LNG exporters, Cheniere Energy, is now supplying its customers with cargo emissions tags, which estimate the greenhouse gas emissions associated with each cargo of LNG. And it’s implemented collaborative programmes to quantify, monitor, report and verify (QMRV) methane emissions along the supply chains that it employs, including at its Corpus Christi and Sabine Pass export terminals on the US Gulf Coast.
But it hasn’t yet taken that final leap to actually have its product certified. Its participation in the certification process, MiQ hopes, could open a floodgate of certification initiatives, not only in North America but at natural gas production and liquefaction facilities around the world, and that, it would seem, might be a good thing for COP 27 delegates to think about.