A focal focus on natural gas infrastructure may put the region at a comparative disadvantage, warns Professor Andreas Goldthau from the Institute for Advanced Sustainability Studies, Potsdam. “The reason for this is that it will hardwire structural choices into the system that you don’t necessarily want to have”, he explained during the conference “Romanian International Gas Conference(RIGC)”, organized by the Energy Policy Group (EPG).
Talking about the role of natural gas in the region and in the energy mix in the future, he challenged the “transition fuel” paradigm. “Yes, gas will be with us for the next 10 years, but I would very much suggest we find a different narrative for it – it is not a transition fuel, it is one that we can make stick around for a little bit and it has to give way to something completely different”, said Goldthau. And that would be some form of electrification, plus un unconventional form of gas.
This can be assumed from “current and even further tightening climate policies” in the EU, with the EU Green Deal as the primary and yet not fully factored element. ”We just had a vote in the European Parliament lifting the climate targets from a 40% to 60% the CO2 reduction target by 2030. The German government just endorsed that, and they’re not the only ones, which means to some extent this this is likely going to end up in the Climate Law that we’re discussing at the moment”, said Goldthau, just to conclude: “The trend is ‘Away from gas!’ Gas will not disappear. We will still consume molecules, but this might to a larger extent be a different type of molecules. It will be hydrogen, it will be a decarbonized gas, not conventional gas”.
Professor Goldthau also supported his view with the forecasts from the International Energy Agency’s World Energy Outlook. “If you look at their gas demand projections over the last couple of years, you see an interesting trend. In 2018, the World Energy Outlook talked about gas demand in Europe of 592 billion cubic meters (bcm) by 2040. In 2019, that was down by almost 40 bcm, to 557 bcm. This year, they’re talking about 536 bcm, that’s another 20 bcm down.” Goldthau admits that IEA numbers and scenarios can be disputed. However, “at the very end they give us a clear trend and the trend is that gas is becoming less and less prominent in the energetics”, he believes.
It is not only the climate, he explains: ”what we’re seeing here obviously underpinning these developments is a mix of policies and of market developments”.
The economics are tilting against natural gas
On the public side, EU policies are tilting against funding any type of fossil fuel infrastructure. A powerful example is the European Investment Bank – EIB and their policies, “essentially what they’re doing is they’re cutting all funding to foster fuel projects by 2021”.
“Instead, they’re going to invest a trillion euros into climate-related policies of the next couple of years. It is going to be a climate bank and that, by the way, includes money in the Just Transition Fund”, noted Goldthau. Also, as the EU Commission announced they will reassess all projects on the current list of projects of common interests, it is questionable if all 30 plus projects in the gas sector on the PCI list will remain there in 2021, when analyzed in light of sustainability requirements.
Also, the EU taxonomy will very much determine where the public money goes. “And it will go to projects that are sustainable. By extension that means it’s going to be harder for natural gas investment to find the money and that also questions whether natural gas will be the transition fuel of choice. By the way, the EU taxonomy explicitly excludes natural gas as a transition fuel”, stressed professor Goldthau.
On the private money side, he considers that money goes mainly to innovative solutions to electrification. “This is where most of the innovation is happening, so cost are dropping in solar and wind, battery costs are dropping, they’re dropping in EV’s, they’re dropping in the electrification segment of the energy system which also means that private investment is focusing more and more on electricity infrastructure, on smart grids, on smart grid management, on digitalization, on finding innovative solutions to modular sector coupling and all these kind of things.”
None of these says that gas infrastructure will not come through, but it will probably not be additional gas infrastructure. “Investment will look into improving the current system, improving the connectivity between existing grids and possibly transiting those grids into a lower carbon future”, noted professor Goldthau.
A decentralized, bottom-up, R&D focused energy system
In his view, good policy is the policy that will want to capture the benefits of the future, against the short-sighted advantages of the present. “A focal focus on natural gas infrastructure may put the region at a comparative disadvantage, because it will hardwire structural choices into the system that you don’t necessarily want to have. At the moment we have a system that has fuel input, conversion – usually some sort of thermal plant and output in the shape of energy services, heat, electricity etc. System of the future is the opposite! It is by and large decentralized, so it pays a lot more attention to geographic realities when it comes to natural resource endowments. With renewables, it is modular, it combines different sources depending on regional realities, it combines those sources in a very flexible way, but it is essentially a system that works bottom-up, so structurally it is at odds with a centralized system. Even more importantly, it is the decentralized systems where most of the business mode
ls will be. A lot of money in the future will be earned around the deployment and maintenance of scaled systems; it will develop service industries and low-carbon solutions, it will be about giving customers tailored products that they can use in their specific context. A lot of the competitiveness of the region will also depend on how much R&D goes into all of this, because R&D is not only about developing business solutions, it’s also about the human capital and it is about patents, so essentially it is about the front-end of the value chain going forward. That’s where you want to be! The green race is on. I think that’s the reality and the ones winning it will be the ones that that have the intellectual property and have the solutions. That’s that caters the decarbonized system of the future”, concluded Professor Andreas Goldthau from the Institute for Advanced Sustainability Studies, Potsdam.
The third edition of the Romanian International gas Conference – RIGC, with the theme of the “European Green Pact and the future of natural gas”, runs as an online format between November 23 and November 26. More information HERE!