VOX POP
How natural gas fares as transition fuel in the shift to renewable energy sources ASIA PACIFIC
Mike Thomas Managing Director The Lantau Group: I think we are at a point in time where it is possible to phase out fossil fuels, but the cost is still relatively high. A coal plant is largely only good for burning coal. There are some exceptions, but they are few. A gas plant can burn gas but may be able to burn gas and hydrogen at some point. Inherently, gas plants (the physical plant) have built-in transitional or optionality features. We do not know precisely when such a transition will start or how fast it will ramp up, but the fact that the transition is possible reduces the risk of gas-fired capacity investment (the physical plant). We also know that as renewable energy and storage increase, there will be a relatively long period of need for mid-merit to peaking capacity that will almost certainly be gas-fired. With many gas-fired plants able to burn liquid fuel, there may also be a role for biofuels for super peaking or critical standby reserve that is very infrequently needed. These are possibilities, not probabilities. Even so, they make it less risky to build out gas-fired capacity today. Much less risky than building, say, a coal-fired plant that has limited alternatives other than coal, and makes little economic sense in a reduced operational mode, such as being a flexible peaking unit. That makes gas-fired capacity very valuable as a transitional strategy, with natural gas and liquefied natural gas being the optimal transitional fuel. What we do not know is how many years and how much total volume of gas will be needed. We can reasonably expect renewable energy and battery storage to eat into the volume of gas required over time. We can expect the operating model for gas-fired capacity to develop a more distinct profile reflecting solar versus non-solar hours. We can expect the volume of gas required at any point in time to be subject to wider variations in percentage terms as the amount of ‘baseload’ gas or long-term take-or-pay gas falls off. One way or another we are far from being past gas Phasing out gas will likely happen quite naturally—much as phasing out coal did not start with the governments but with investors ceasing to see robust investment cases for long-term cost recovery of coal-fired capacity given the energy transition and falling costs of renewable energy and storage. Rather than phasing out gas, we would hope that the value of reducing carbon emissions will shift focus towards gas hydrogen blends and, eventually, to a more complete transition. This is still looking like a process that will run out to 2035 and beyond.
10 ASIAN POWER
Bruce Robertson Energy Finance Analyst - Gas/LNG, Institute for Energy Economics and Financial Analysis: If we look first at the economic aspect, gas is very problematic for people in Asia. In the case of Pakistan, it had three long-term contracts with Qatar, ENI, and GUNVOR. The one with ENI and GUNVOR defaulted on to them and did not deliver cargoes as per the contract and just paid the fine in the contract. This has left Pakistan without fuel for its power stations and therefore without power. It is not a reliable fuel for the developing world because as soon as the price goes up, there is a chance that the people that are supplying you with the gas are going to default. Pakistan found this out the hard way. The second point is, obviously, it is a political risk. We are seeing that play out in Europe. Germany gets 75% of its gas from Russia. For the rest of Europe, it’s around 44%. Obviously, that is a major issue when your neighbours are being invaded, like Ukraine. There’s that political risk always with gas. A lot of gas comes out of Qatar, which is a stable place. But that region is unstable. The political risk is always very great, so for economic and political reasons, gas is problematic to use as a transition fuel. From a climate point of view, I have been saying for a very long time now that the industry has been radically understating its emissions. It is actually not being honest with the public about just how gas is emissionsintensive. And the International Energy Agency (IEA) basically backed me up because I have always said that the top-down numbers do not add up to the bottom-up numbers. In other words, if you add up, all the countries say their methane emissions are lower than the total and that the gap between what the industry says it emits in the energy industry, and what it actually emits is 70%. So it is not a small gap. It is a massive gap between what they actually emit and what they say they emit. Emissions savings Gas is actually a high-emitting fuel. So if we’re talking about transitioning out of coal to save emissions, the emission savings are marginal at best, right? If we are talking from a climate point of view, it is not really a transition fuel because it is a high-emitting fuel. That’s what the IEA report is saying. If you zoom further out, they are saying that methane is now 30% of all greenhouse gasses. It used to be between 20% and 25%. Now, the IEA is saying it is 30%. So The proportion of global warming caused by methane is increasing. Methane emissions grew at the fastest rate last year and the COVID recession year in 2020, the fastest rate since records began in 1982. Last year, we may well see that record broken, and we may see an even faster rate of growth as the world recovered from the recession. Those figures have not actually come out yet, but they will come out and it will show further strong growth in emissions from methane. The whole idea of the Paris Agreement in our climate commitments is that we actually produce fewer, not more, emissions. Methane emissions are growing very strongly, so we cannot afford to put more gas into the global energy system because that means we will get more growth in emissions. It is really that simple. The whole point about the Paris Agreement is we need to reduce emissions and increasing gasses is not the way to do that.
