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EU to dissuade long-term gas deals to meet CO2 goal

29 Jan 2020 10:35

Foto: Pixabay

Foto: Pixabay

29 Jan 2020 10:35

(Montel) The European Commission will overhaul rules for the gas industry to discourage long-term supply deals that risk undermining a goal to decarbonise Europe by mid-century, a senior official has said.

“We need to develop liquid spot markets,” deputy director general of the European Commission, Klaus-Dieter Borchardt, told the European Gas Conference in Vienna on Tuesday. 

“That means we will depart from long-term supply contracts and we will depart also from long-term capacity products.” 

Borchardt’s address confirmed industry expectations the new EU executive’s “green deal” plans to make Europe carbon neutral by mid-century would also target natural gas, despite its potential to slash emissions from dirtier fossil fuels like coal. 

“If we really want to go to a net zero carbon economy by 2050, we cannot achieve it with a high share of natural gas as we have it today. Therefore, in the long run, we will need to move from natural gas to low carbon gases and renewable gases,” Borchardt said. 

Regulatory overhaul?
The commission planned to “adjust where necessary” rules governing gas market design under proposals for a decarbonisation package it expected to publish by mid-2021, Borchardt said.

These changes would specifically target the industry’s legacy of long-term supply deals because they “could jeopardise the 2050 targets”.

Participants at the conference – held under the Chatham House rule that prohibits speakers’ identification without their consent – overwhelmingly considered “energy transition-related measures” the biggest threat to European gas demand this decade. 

Energy security, by contrast, rated low as a risk. 

“Look at the gas prices – this is a signal the market is very relaxed about the abundance of gas,” said one delegate.

Spot gas prices are trading at their lowest levels in a decade for January amid an LNG glut in Europe, leaving inventories at record high levels in the middle of a mild winter.  

New pipelines unnecessary
The LNG industry too could expect to face scrutiny regarding the CO2 intensity of its supply chains given problems like methane leakage and flaring in source countries, Borchardt said.

“We have to do better than today,” he said, adding some studies suggested prevalent methodologies for estimating leakage were discounting the true extent of the problem by as much as 60%.

One speaker rated LNG from Australia and the US as having as much as twice the carbon intensity of natural gas from traditional pipeline sources such as Norway and Russia. 

To salvage a future beyond the next 20 years, the gas industry would have to find ways of repurposing existing infrastructure to accommodate green gases like hydrogen won through electrolysis or fuels that had already had their CO2 captured and stored, said Borchardt.

“I don’t see any need for further big pipelines in our gas sector. The challenge will be – how do we make the smartest use of this existing gas infrastructure in this changing gas world?”

A Commission spokesperson added: “While Mr Borchardt speaks in his capacity as deputy director general of the Commission’s directorate general for energy, his quotes should not be mistaken for the official commission position on the matter.” 

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