narratives for natural gas in decarbonising european energy … · 2019. 6. 28. · decarbonising...

Narratives for Natural Gas in

Decarbonising European Energy Markets

Professor Jonathan Stern

Distinguished Research Fellow Oxford Institute for Energy Studies

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Sedigas Annual Meeting, Madrid, 25 June, 2019

September 7, 2017

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aturalGasResearchProgramme Prospects for European Natural Gas

in the 2020s !  European gas demand projected flat or slightly

declining in the 2020s with decline accelerating thereafter due to carbon constraints

!  But declining domestic production means that imports (and infrastructure) will increase in the 2020s to meet (even declining) demand and therefore…

!  the next decade could be very positive for gas in Europe (if security issues can be resolved)

!  the `advocacy narrative’: coal to gas switching and partnering with renewables, is logical up to 2030, but policy focus is post-2030

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aturalGasResearchProgramme

https://www.oxfordenergy.org/publications/narratives-natural-gas-decarbonising-european-energy-markets/

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me EU Policy Assumptions and Consequences

for Methane

PRINCIPAL ASSUMPTION: GOVERNMENTS IN THE 7 MAJOR EU GAS MARKETS* WILL REMAIN DETERMINED TO MEET COP21 TARGETS THEREFORE: ! post-2030 the future for methane demand is decline, which will accelerate if governments adopt more aggressive decarbonisation policies; ! maintaining gas markets will require `green or zero carbon methane’ pathways *Germany, Italy, France, Spain, UK, Belgium, Netherlands

SECOND ASSUMPTION: electrification + gas will be a lower cost decarbonisation pathway than electrification only; decommissioning gas assets (eg networks) before the end of their productive lives will be expensive

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aturalGasResearchProgramme Proposition of this study: gas needs to

develop `Decarbonisation Narrative(s)’ DECARBONISATION NARRATIVE(S): !  Committing to different decarbonisation options

over a specific time period to fit with national COP21 targets

!  A time frame for selecting, and then rolling out, low carbon gas projects nationally or in specific regions

!  Telling the European Commission, national government(s) and regulators what will be required for these options to become reality

Challenge from the EC: what is the gas narrative for maintaining a substantial role in European energy balances post-2030? Narratives will be different for

different countries and regions

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PATHWAYS

6

Gas can decarbonise – how, how much, how fast?

Biogas / Biomethane Bio-SNG via Gasification

ElectricityElectrolyis

(Alkaline/Polymer/SolidOxide)

Water

Oxygen

Storage

Hydrogentostorage GasGrid

Hydrogentogrid

Carbonsource(CO/CO2

Methanation(biologicalorthermo-

catalytic)

H2

HydrogenTransportfuel

Power to Gas Methane reforming with CCUS GAS AND DECARBONISATION

Biogas / Biomethane Anaerobic Digestion Overview

Source: UK Anaerobic Digestion Portal

Biogas Plants in Europe: slowing growth

Total primary energy from biogas (2016): 16.6 mtoe (~15 Bcm). 1% of total EU primary energy consumption; total electricity production from biogas (2017): 65.2 TWh. 2% of total EU electricity generation Potential to reach around 50 Bcm (~10% of current EU gas consumption) by 2030 – with supportive government policy

Number of Biogas plants, and number per million population: Germany dominates

Source: European Biogas Association

Biomethane Production: growing from a small base Total Europe Biomethane production (GWh and Bcm)

Source: European Biogas Association

Total biomethane injection (2017): 2 Bcm. Maximum potential by 2030 50 Bcm would require rapid ramp up

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aturalGasResearchProgramme Biogas/Biomethane Projections 2020-50

11

Source: ENTSOG/TNYDP, Annex II, Methodology, March 2018, p.41.

GfC 2018 TYNDP 2018

Even with maximum potential production (95 Bcm in 2050) biogas and biomethane will not be sufficient to maintain

gas markets in most countries

Power to Gas (P2G) enables “sector coupling”

ElectricityElectrolyis

(Alkaline/Polymer/SolidOxide)

Water

Oxygen

Storage

Hydrogentostorage GasGrid

Hydrogentogrid

Carbonsource(CO/CO2

Methanation(biologicalorthermo-

catalytic)

H2

HydrogenTransportfuel

Sector coupling strongly supported aby EU: needs to be proven at scale

•  Very low carbon if using renewable electricity: limited availability of surplus generation: may need dedicated generation

•  Currently very small scale: 10MW electrolyser “largest in the world” •  Costs (currently >150 EUR/MWh) projected to fall as technology scale up – but needs

incentives

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aturalGasResearchProgramme European Power to Gas Forecasts 2030-50

13

Until 2040, no significant production; too little `surplus’ RES so off-grid RES will be needed; but small up to

2040 so an additional hydrogen source needed

26%pa annual scale up 2030-2050

Methane Reforming with carbon capture and storage – UK and NL leading the way?

But CO2 storage is not possible in many countries

•  UK: H21 (North of England) and Hynet NW (Liverpool area)

•  NL: H-vision (Rotterdam) and Magnum (Eemshaven)

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Hydrogen from methane cracking – new technology?

Potential decarbonisation technology: •  Research led in Germany (Karlsruhe and Potsdam) •  Strongly supported by Gazprom for continued supply of methane to Europe.

Splitting of methane into hydrogen and solid carbon which allows utilisation of `carbon black’ and allows easier storage

Range of Renewable Gas Cost Estimates

0

50

100

150

200

250

300

Biogas Biomethane PowertoHydrogen

PowertoMethane

EUR/MWh

RenewableGascostestimateranges

Source: Lambert/OIES

Low

High

TTF 2018

Compare with `Gas for Climate’ estimates of €47-54/MWh for biomethane and €52/MWh for hydrogen (based on

off-grid renewables)

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CHALLENGES: BUSINESS MODELS AND REGULATORY

FRAMEWORKS

17

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me Different Value Chain Sectors Have Different

Business Models PRODUCERS AND EXPORTERS: !  want to sell large quantities of methane over long time

periods (if possible) underpinned by long term contracts

NETWORK COMPANIES: !  Want to prolong the life of their assets not necessarily

transporting methane (also biogas, biomethane, hydrogen)

SUPPLIERS AND TRADERS: !  Supply power as well as gas and (unless they are

producer affiliates) can switch from gas to power OWNERS OF POWER, REGAS AND STORAGE ASSETS: !  Maximise life of assets: shorter for power than regas/

storage; may be stranded if others decarbonise

Liberalisation has caused value chain fragmentation

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me Pipeline Gas and LNG Producers/Exporters:

business model options beyond 2030

!  Exit the methane business in Europe and concentrate on selling in other regions – easier for LNG exporters

!  LNG exporters: !  Skip liquefaction, decarbonise in the exporting country, ship

hydrogen (not LNG) !  Decarbonise at the regas terminal (reforming+CCS)

!  Develop hydrogen (with CCS) for sale to which requires… "  utilisation of offshore depleted fields for CO2

storage and offshore pipelines for CO2 transport "  coordination of new H2 networks with TSOs

Reserve life and location, and alternative markets are key issues

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Gas Networks (TSOs/DSOs): a post-2030 narrative

!  Gas networks provide major storage capacity –

important for seasonal back-up !  Biomethane will replace fossil methane !  Blending hydrogen into the network can be a limited

strategy in the 2020s (technical limits are unclear: up to 20% in some countries; 100% in others)

!  Commercial scale projects must be committed to demonstrate a long term narrative: reforming of methane with CCS (where storage opportunities exist) can be a partner hydrogen technology for electrolysis of renewable energy

!  DSOs: still part of a gas value chain or disconnected?

For networks, failure to develop a decarbonised gas business model is an existential threat

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aturalGasResearchProgramme Netherlands Network Concept: three

integrated networks

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Current high calorific value network is assigned to hydrogen; low calorific value networks are assigned to

methane and biomethane

Source: Gasunie and TenneT, First Infrastructure Outlook 2050, p.15

Diverse networks: biomethane, hydrogen, ddcarbonised (biomethane/H2), and CO2

FRANCE

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Current Limits on Hydrogen Blending in Natural Gas Networks

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*depending on CNG filling stations on the network, calorific value of gas and pressure in the network Source: IEA, The Future of Hydrogen (2019), Figure 26, p.73

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“BY THE MIDDLE OF THE 2020s, WE WILL NEED TO HAVE THE

EVIDENCE REQUIRED TO MAKE STRATEGIC DECISIONS ON THE

FUTURE OF DECARBONISED HEAT, AND THE LONGER TERM ROLE OF THE GAS NETWORK WILL BE AN IMPORTANT PART

OF THAT DECISION” A Vision for Scotland’s Electricity and Gas Networks to 2030, Scottish Government, March 2019, p.14.

Emphasises the need to make decisions by mid-2020s due to the lead times for rollout of decarbonised gas/heat

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!  Reality of `competing’ low carbon projects !  Involvement of network operators in new

generation, storage technologies !  How to deal with stranded assets as/if

throughput declines !  `Rebundling’ (after decades of unbundling) !  Incentives must recognise avoided emissions !  Asset life – regulatory return – could become

dependent on transitioning from methane to low/zero carbon gases

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The regulatory framework must prioritise decarbonization over competition

A revolution in regulatory thinking/practice will be needed, not yet visible (Madrid Forum)

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aturalGasResearchProgramme CERTIFICATION OF THE CARBON AND

METHANE FOOTPRINT OF GAS

FUTURE REQUIREMENTS FOR GUARANTEES OF ORIGIN + VERIFIED EMISSIONS FROM PRODUCED OR IMPORTED GAS including: !  Domestic production, transportation,

distribution and storage !  Imports of pipeline gas ie production and

transportation in the exporting country !  Imports of LNG: upstream, liquefaction,

shipping, distribution

26

Any corporate statements about gas emissions will need verified data on CO2 and methane

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aturalGasResearchProgramme Threats to the Narrative(s)

!  Security and pricing: Russia/Ukraine, Groningen, price volatility

!  Climate Policy/COP21 commitment-related: `hydrocarbon rejectionists’: lock-in/renewable displacement, slow progress of CCS

!  Commercial and business model: short time horizons, commercial justification for projects is weak (non-existent?)

!  Regulation: shift from competition to decarbonisation may be resisted

!  Methane leakage challenges gas’ emission advantage over coal

27 But biggest long term threat is shift to `net zero’ target

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aturalGasResearchProgramme EU Methane Demand Scenarios Compatible with

COP21 Targets: optimistic scenario

Maximum EU methane usage in 2050 – 200 bcm and maximum biomethane+green hydrogen = 272 bcm; ~100 bcm is more likely.

Therefore in 2050 maximum gas availability could be 472 but 300 is more likely compared with 480 bcm in 2017. This means that either

the market will shrink substantially, or hydrogen from methane reforming will continue to be necessary

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aturalGasResearchProgramme Pessimistic Scenario: `net zero’ emissions

by 2050, methane is 10-15% of current level

Total gas demand in 2050: 200-250 bcm of which natural gas 45-60 bcm

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aturalGasResearchProgramme Arethereconvincingnarrativesforgasmarkets

inEuropepost-2030?

•  Methanehas~10yearsbeforedemanddecline•  Relativelysoon,longtermcontractsforsupply,andinvestmentsinnewinfrastructure,maynolongerbepossible,whichpointsto..

•  Narrativesmustdemonstratethatgasmarketscanbedecarbonisedwithlargescaletransformationtobiomethane/hydrogen(withCC[U]S)andthat…

•  gascanplayalargerroleinEuropethanjustseasonalstorageback-upforrenewablesbut…

•  Investmentsincommercialscaleprojectsareurgentlyneededtobackupthesenarratives

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!  Biogas/biomethane potential is limited !  Hydrogen potential from electrolysis (even from

off-grid RES) is relatively small up to 2040 so… !  Large scale hydrogen will initially need to come

from reformed methane with CC(U)S but.. !  large scale CCS projects are not yet under way

and in many countries are not possible !  Networks lack uncertainty how to prepare for a

mixture of decarbonised gases because… !  technical/regulatory frameworks are lacking

Although each country will have its own narrative, these will be difficult problems to resolve

Developing Decarbonised EU Gas Markets: summary

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THANK YOU

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narratives for natural gas in decarbonising european energy … · 2019. 6. 28. · decarbonising...

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