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    From the editor: The future of gas is blue [GasTransitions]


Bloomberg New Energy Finance’s New Energy Outlook (NEO) 2020, released in October, clearly presents the fork in the road ahead for the gas sector. [Gas Transitions Volume 1, Issue 10]

by: Karel Beckman

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From the editor: The future of gas is blue [GasTransitions]

The NEO has an “Economic Transition” scenario, based on current policies and 2.2 degrees Celsius temperature rise, that sees natural gas demand grow by 0.5% per year to make up 24% of global final energy demand by 2050. It also has a “Climate” scenario that sees natural gas demand shrink to just 6% of demand by 2050, with a “peak” in global gas demand as early as 2023.

That seems like a stark choice. Or, if you will, no choice at all. There is a “but”, however. The NEO’s Climate scenario relies heavily on hydrogen, which would provide a quarter of global demand by 2050, but it assumes that this will be filled by “green” hydrogen only. Why? Simply because that is the assumption the researchers made. They do concede that this scenario has its challenges, to put it mildly. It projects total electricity generation of 100,000 TWh by mid-century, four times the amount today, and notes that the wind and solar power capacity needed “would take up an area the size of India”.

Clearly, for the gas industry, there is a big opportunity here, and it is called “blue” hydrogen, which implies: large-scale carbon capture and storage (CCS). However, as everyone knows, investment in CCS has been lagging. Why? It seems that the oil and gas companies, for which CCS would be a key emission reduction technology, have been playing a waiting game with governments. The name of that game: subsidies. To the companies, CCS is simply a large extra cost with no benefits as long as the price of CO2 emissions is low and they understandably want that cost to be covered by government.

On the other hand, as an analyst at consultancy AFRY pointed out to me, governments have been reluctant to subsidise CCS for the simple reason that it is a lot easier for them to subsidise small renewable energy producers than big oil companies with large balance sheets.

The result has been a stalemate that has hampered the development of CCS. Fortunately, there are signs that this stalemate is about to be broken. The IEA noted in a special report on CCS in September that “interest in CCUS is starting to grow,” especially in natural gas processing. This was confirmed by a major announcement in October from a consortium of all the big European oil companies – BP, Shell, Eni, Total, and Equinor – that they will start to develop large-scale CO2 storage facilities in the UK North Sea. (See the News section in this issue.)

To be sure, the Northern Endurance partnership, as the new initiative is called, is still asking the UK government for financial support. But support or not, they could hardly afford not to go through with this huge project, which is key to the decarbonisation of half the UK’s energy-intensive industry. As the AFRY consultant told me, the gas industry simply must get behind CCS if it wants to stay in the game.

This choice between blue and green hydrogen is currently being played out across the world. You only need to look through this issue of Gas Transitions to see this. One after the other major hydrogen project or strategy is being announced, with some going for green, others presenting opportunities for blue. For example, Spain and Chile have announced hydrogen strategies largely based on renewables and in Australia huge green hydrogen projects have been announced.

On the other hand, the Canadian province of Alberta is going for blue hydrogen, and the Dutch energy-intensive industry is opting for both blue and green. Perhaps even more significantly, a new US hydrogen roadmap has been presented by prominent US companies which notes that “the cost and feasibility of steam methane reforming (SMR) with CCS is likely better in the US than almost anywhere else on earth”. In another encouraging sign, a German trade union has called on the German government to cease its obsession with green hydrogen.

Likewise, countries like South Korea, China and Japan are not about to put all their eggs in the green hydrogen basket. Setsuo Iuchi, a Senior Executive at Japan’s Chiyoda Corporation, had this to say about hydrogen and natural gas in an interview we did with him for Gas Transitions: “Natural gas will be a leading energy source for a long time. Even in the very long term, humanity will always need some hydrocarbons, even if only as a source of hydrogen and for the chemical industry. The key question for the sector is how natural gas can be utilized in an environmentally friendly way. We can develop new technologies to make that possible. That’s our goal.”

It seems a wise lesson for the gas industry in these turbulent times.

Karel Beckman, editor-in-chief Gas Transitions