Press play to listen to this article
The European Union always needs natural gas flowing through its veins, even though it knows it is bad for it.
Amid a price shock that fuels inflation across the bloc, this combination of necessity and toxicity leaves the EU with a question: what will it do with the fuel that cooks a million ragus, but which also roasts the planet and leaves Europe vulnerable to skyrocketing world prices and depredations from Russian President Vladimir Putin?
In the short to medium term, gas is going nowhere, and the industry even sees a long-term role for gas in the continent’s ostensibly green future.
Gas-fired power plants create about a third of the continent’s electricity sector carbon emissions – not as much as coal, but unlike coal, gas emissions are barely declining. In fact, many new gas plants are expected to be built throughout the block as the coal dies out.
“This is the major challenge we really have to face, how we deal with the declining role of gas in the transition,” said Simone Tagliapietra, research fellow at the Bruegel think tank.
The European Commission promises natural gas will eventually be phased out, but its use for now opens the block to vicious price swings caused by increased demand thanks to the pandemic economic recovery and exacerbated by surprisingly low Russian gas exports .
This leaves the continent reeling from the stickers. Prices on the benchmark Dutch TTF hub are € 85.22 per megawatt hour, four times more than a year ago – they peaked at € 171.40 at the end of December.
Analysts expect prices not to rise much over the next few months, but that’s not much of a relief for the people, businesses and governments affected by soaring bills.
Electricity bills for German consumers are rising by more than 60 percent, while in Italy they will increase by more than 40 percent and in Poland by 54 percent. Consumer prices are tightly regulated, but businesses are feeling the full brunt of the price hike – a hotel in Wieliczka, Poland, says it pays three times as much for gasoline as it did a year ago. Governments across the continent are rushing to cut VAT rates in order to control prices.
A UK utility user said Its supplier advised shivering consumers to try the warming properties of consuming ginger, but avoid the chili as it could make them sweat.
Although energy (like food) is not factored into the core inflation that central banks use to set interest rates, rising electricity and gas prices are worrying economists as to the modification of price expectations.
It also painfully exposes the continent’s vulnerability to Russia, which supplies around 40% of the EU’s gas. Russia insists it is fulfilling its long-term contracts with European customers, but European storage facilities are at historically low levels and gas flows on the Yamal pipeline – normally sending gas from Siberia to Germany – were reversed for three weeks.
As Europe worries about Russia’s growing military threat to Ukraine – the subject of talks between US and Russian officials this week – there are fears that Putin could get his thumb stuck on the scales by limiting the gas flow to ensure that the Nord Stream 2 gas pipeline passes under the Baltic Sea to Germany gets regulatory approval this year.
The answer to all of this, according to Frans Timmermans, the bloc’s EU official in charge of the Green Deal, is to accelerate the move away from all fossil fuels by maximizing investment in renewable energy. For things it can’t electrify, the EU is considering a graceful transition in which pipelines slowly fill with hydrogen made from clean energy.
But this vision arouses a lot of skepticism.
It is a “complete hoax,” said Julian Popov, a former Bulgarian environment minister who sits on various think tanks on green and foreign policy. Because the transfer of energy into hydrogen is very inefficient, it will take large amounts of renewable energy to replace gas on a large scale, he said. “We’re not talking about some lab facilities or test projects here, we’re talking about the mass and mass availability of energy. “
The natural gas industry sees a long future for gas products in Europe. The plan is for the gas to be used to produce hydrogen with yet unproven carbon capture technology that traps and seals the emissions deep underground.
“Basically it’s about disconnecting or decoupling natural gas from its carbon,” said Nareg Terzian, senior director of strategic communications and media at the International Association of Oil and Gas Producers. “We are convinced that natural gas will have a role to play in the long term. It just won’t be used the way we use it today.
Many industries are also linked to gas. Ceramic makers in Italy, for example, say it will take years before they can power their furnaces with green hydrogen, if the fuel ever gets to them.
“We want to drive the next wave of investments towards decarbonisation to make the energy transition a reality,” said Armando Cafiero, general manager of the ceramic association Confindustria Ceramica.
Europe’s dependence on gas also fuels political divisions.
A significant lobbying effort has prompted the Commission to include natural gas in the EU’s definition of sustainable investments, the argument being that if gas helps to extinguish coal faster, it should be considered green.
It was “necessary to recognize” that “fossil gas” could help the EU meet its climate targets if it replaced coal and other more polluting fuels, the European Commission said in a proposal emailed to Member States and Expert Advisors on New Years Eve and seen by POLITICO.
It’s rotten, according to Andreas Hoepner, professor of finance at University College Dublin. “There is no point in declaring it green, because clearly, scientifically, it is not green. You have it because you need it. But you don’t declare it green to subsidize it like that [and] maybe having it for much, much longer than you should have.
This article is part of POLITICSpremium police service: Pro Energy and Climate. Whether it’s climate change, emissions targets, alternative fuels and more, our specialist journalists keep you up to date on the topics driving the energy and climate policy agenda. E-mail [email protected] for a free trial.