The EIB's Attack on Gas is Counter-productive [Global Gas Perspectives]
Over the last few months, and especially following the publication of the European Commission's Green New Deal, we are witnessing an unprecedented attack on natural gas. The opposition to the growing use of gas stems from the notion that, along with coal and oil, it is highly polluting and contributes substantially to greenhouse gas emissions (GHGE). As the EU and several other countries, including the UK, have pledged to lower GHGE in order to achieve carbon neutrality by 2050 or sooner, they advocate drastic cuts of gas use and substitution by "blue" or "green" hydrogen, bioethanol and biogas as early as 2030.
The attack on gas became more visible following the European Investment Bank's (EIB) decision on November 14 to stop financing fossil fuel infrastructure projects, including those related to natural gas, by the end of 2021. The rationale of the EIB – hence rebranded as European Climate Bank – is that gas use should be discouraged by all means possible. By making it more difficult for companies to undertake construction, expansion or upgrading of gas facilities whether on the upstream side or in the utilisation cycle, gas may be gradually phased out.
The EIB's highly contentious decision means that companies planning to build gas pipelines, LNG terminals, gas storage facilities or simply want to expand distribution grids will struggle to obtain the necessary financing.
Although EIB's share of fossil fuel project funding is small by international standards, corresponding to €11.8bn between 2013 and 2017, it is a trend setter and its example is soon to be followed by international lenders such as EBRD and the World Bank but also by commercial banks, which are under increasing pressure by activist investor groups to limit or even terminate their exposure to fossil fuel funding.
But EIB's decision is totally misplaced in view of natural gas's positive role in our overall effort to decarbonise, especially in the power generation and transportation sectors. Hence, we shall argue that by sharply reducing funding now for gas related projects in an effort to curtail gas use, and zero it tomorrow, is a totally counterproductive measure as it will only encourage current coal and oil users to prolong their habits.
Take the case of southeast Europe where in the 15-country group, which the Institute of Energy for southeast Europe (IENE) tracks, you have a substantial part of its installed electricity capacity from coal and lignite, about 30% of the total, which will have to be phased out over the next ten years. This can only be done fast and efficiently by switching to gas, while allowing more room for greater use of renewable energy sources (RES) use. Now, thanks to EIB's unwelcome Initiative, funding for gas conversion schemes is becoming uncertain.
Power generation is the main producer of greenhouse gases. Substituting lignite with natural gas reduces CO2 by 67% and SOX by 90%. In addition, gas generated electricity, along with nuclear power, can provide the only realistic and economically competitive base load electricity, which is absolutely necessary if we are to aim for a much higher grid penetration by RES. But RES in their majority are intermittent and hence, require a stable electrical background in order to operate and contribute their output to the grid.
The usual pronouncements by environmentalists and assorted techno advocates that battery storage and hydrogen will soon be able to replace the need for traditional base load, and therefore gas or nuclear will become redundant, lack credibility since from an economic and engineering perspective such systems are not yet ready to substitute the huge amounts of installed electricity capacity required.
In order to obtain an understanding of the magnitudes involved, we should mention that in Europe alone the installed capacity of gas-fired power plants amounted to 264 GW in 2018, while the installed capacity of nuclear power plants represented 142 GW, which by the end of the decade, according to IEA estimates, will reach 323 GW and 118 GW, respectively.
Rather than embrace natural gas as the fuel of choice for industry and power generation during the arduous Energy Transition period we have now entered, the eco establishment is waging an unnecessary war. Because in their highly contentious and polemic approach, they fail to see the real virtues of gas as the only available fuel which can ensure immediate and easily available solutions in lowering GHGEs.
At the same time, gas, because of its huge reserves, can provide security of supply and the required flexibility to operate present day electricity grids. Leap frogging from the present situation of extensive coal, gas and nuclear use into a RES+battery+hydrogen future is not a viable alternative. On the other hand, natural gas is the only fuel which by combining substantially lower emissions and economic affordability is ideal as an energy bridge until the time when zero emission alternatives become available at reasonable cost.
Costis Stambolis, chairman and executive director
Institute of Energy for South East Europe (IENE)