EU policymakers have spent years extolling the virtues of gas, calling it the cleanest of the fossil fuels and a bridge to a lower-carbon future. But the world – and Europe in particular – is shifting its stance toward gas quickly, meaning it is at risk of being left behind in the race to net zero emissions.
Gas projects are increasingly vulnerable, as financiers and company management face pressure from their boards and investors not to invest in fossil fuels.
The International Energy Agency has repeatedly revised down its estimates for longer-term EU gas demand. In its past five World Energy Outlooks, the picture in 2040 has worsened gradually, from an estimate of 466 Bcm in 2015’s WEO to just 386 Bcm in last year’s outlook.
Likewise, there is no escaping the scale of environmental action spurred on by Swedish teenager Greta Thunberg, who has pushed the issue of carbon emissions to the very top of every political agenda worldwide.
Even Hollywood is getting involved, with stars like Mark Ruffalo and Cher weighing in on the debate, urging Europe not to import dirty, fracked gas from the US.
Ruffalo – currently starring in a film called “Dark Waters” about chemical pollution in the US – urged the European Parliament directly to vote against the inclusion of gas projects on the EU’s list of priority energy projects, the so-called Projects of Common Interest (PCI).
His lobbying efforts were ultimately unsuccessful, but the fact that in a few short years the mood has shifted away from gas projects being seen as a clean, sustainable element of European energy supply security to potentially as damaging as coal, is staggering.
It was not long ago that the Southern Gas Corridor, for example, designed and constructed at a total cost of some $40 billion – just to allow Europe a smidgeon of extra supply security – was much heralded by Brussels.
Now, the EU is all about its Green Deal. And gas’s role in it is questionable.
New European Commission President Ursula von der Leyen has put climate at the top of her policy agenda for the next five years, with plans to make the EU a net-zero carbon economy by 2050.
That is more ambitious than the EU’s current goal to cut emissions by at least 80% from 1990 levels by 2050, and to help achieve it von der Leyen wants to ramp up the EU’s 2030 targets to cut CO2 to at least 50%, up from 40% agreed in 2018.
If this is approved by EU lawmakers – and the European Parliament has already called for a 55% cut by 2030 – then gas demand could well be displaced before 2030 by more renewables and energy efficiency.
The EC has also launched a “Just Transition Fund” which could mobilize up to Eur50 billion ($55 billion) of public money to help heavy industry like refineries and steel works cut their emissions.
The proposed fund is part of a wider plan for a Eur100 billion Just Transition Mechanism intended to help targeted carbonintensive regions keep up with the rest of the EU becoming carbon-neutral by 2050.
In the UK, the chairman of the energy regulator said last month that the oil and gas industry’s “social license to operate” was also under serious threat, warning there were “no second chances” given the realities of climate change.
Tim Eggar said he could not remember “anything like the industry rethink of the last few months.”
“If the industry wants to survive and contribute to the energy transition it has to adapt,” he said.
Oil and gas companies seem to be recognizing the urgency amid calls for them to make a meaningful contribution to efforts to tackle climate change.
European majors – regularly accused of “greenwashing” given the tiny fraction of capex dedicated to renewables and low carbon fuels – are having to adapt.
In the past, they have pledged more spending on gas and LNG, highlighting its role as a bridging fuel in the energy transition. But now even gas is under increasing scrutiny.
“We are not spending enough on new energies, especially in power, and we want to ramp that up,” Shell CEO Ben van Beurden said in late January.
Van Beurden said Shell wanted to “maintain a strong societal license to operate” and to “thrive in the energy transition.”
“The pressure is keenly felt. We want to be a force for good in changing the whole energy system to a low-carbon version,” he said.
But his ambitions came with a warning. He said the energy transition should be done by oil and gas companies – “strong incumbents” as he called them.