"High carbon prices are a very strong driver of gas-fired power," Ian Cronshaw, head of the International Energy Agency's (IEA) energy diversification division, told liquified natural gas (LNG) industry representatives at an energy breakfast organised by Ifri in Brussels last Thursday (30 April).
He argued that strong prices of around €25-28 a tonne witnessed at the beginning of last year gave gas-fired companies a big competitive advantage in the UK, for example.
EU allowance (EUA) prices have crashed since then, as the financial crisis has significantly reduced industrial demand (EurActiv 09/02/09). Speakers at the seminar nevertheless argued that it is important not to rely on short-term signals to predict the long-term future of gas markets.
William C. Ramsay, director of Ifri's energy programme and a former IEA deputy director, argued that coal and gas are still actively competing in the US, whereas the EU's emissions trading scheme has already skewed the market in favour of gas in the UK.
Last week, a former US government energy official said that the US should also expect a surge in gas-generated power should President Barack Obama manage to pass a cap-and-trade bill, Platts reported.
"If nuclear power grows by a small amount, natural gas will be a big winner in the 2010-30 period," said Guy Caruso, a former head of the US Energy Information Administration. "My personal view is that's probably how it will all play out, even though the Obama administration is very cautious about supporting any fossil fuel," he added.
Caruso pointed out that while coal now accounts for around 50% of electrical power in the US, the share would fall below 40% if emissions trading legislation is pushed through.
LNG to play a big role
"Gas has become the preferred option in power generation in the OECD over the last decades," Cronshaw said. The previously regional gas market had now effectively become a global market, and higher prices would follow despite current drops, he explained.
"Prices of gas are now setting the price of energy," he concluded.
EU domestic natural gas production is expected to decrease in the coming years, which means that there will be a growing need for imports.
Europe relies heavily on Russian gas, which makes up 44% of its imports. The problems of such dependence became apparent earlier this year, when the winter gas dispute between Russia and Ukraine forced the EU to rethink its energy import routes (EurActiv 22/01/09).
As identified by the European Commission in its Second Strategic Reviw in November 2008, liquid natural gas (LNG) would allow Europe to import gas from sources that are not connected with pipelines. Hence, the bulk of Europe's LNG comes from Algeria and Nigeria, while its pipelines run mostly through territories that fall under Russian influence (see EurActiv LinksDossier on 'Pipeline politics').
The process involves liquefying the gas at source and then shipping it in a much more compact form to its destination, where it is turned into gas again.
According to Tom Vanden Borre from the Commission's energy and transport department, LNG is important in terms of enhancing Europe's energy security, as there are more countries producing gas than can be delivered through pipelines.
Vanden Borre told participants in the Brussels' seminar that while Europe's seven LNG terminals currently have annual capacity of 102.4 bcm, a further 60 bcm is under construction. "There is a clear tendency to increase LNG terminal capacity in the EU," he concluded.
