Stricter emission rules in Britain and Germany are more likely to boost natural gas consumption than stalled EU efforts to reform its carbon market, the head of marketing and trading at Norway’s Statoil said.
EU carbon prices have plummeted due to an oversupply of quotas, making low-emitting gas less competitive than cheap, higher-emitting coal.
Statoil, Europe’s second-biggest gas supplier after Russia’s Gazprom, believes it is unlikely Brussels will be able to change that at talks this week designed to reform the carbon market and boost prices.
Speaking to Reuters while EU diplomats were still trying to hammer out a reform deal, Statoil’s Rune Bjoernsen said change is instead coming from elsewhere.
“We are seeing some positive signs as we speak, such as the recent German proposal to put an additional cost on emissions prices, somewhere between 18 and 20 euros per tonne, to make it more expensive to burn coal,” he said.
The German government has also proposed imposing fines on emissions exceeding a set quota to reduce output from its oldest and most polluting plants, although this would require legislative approval.
“If Germany, which has excluded the nuclear power option, puts in place stricter regulations that pushes coal out, gas will remain the only option to be developed alongside renewables,” Bjoernsen said.
Gas is seen as well suited to balance intermittent power supply from renewables such as wind and solar as turbines can be started at short notice.
?UK carbon tax
Bjoernsen said Britain’s decision to impose a carbon tax has already helped boost gas demand there.
“This might in itself be more important than what’s being discussed at the EU level,” he said, referring to the steps taken in Germany and Britain, Statoil’s two biggest markets.
While EU energy policies will have a long-term impact on gas demand in Europe, changes in temperatures and economic growth were key factors in the short run, he said.
“If we get temperatures back to normal … and the economy starts to pick up, we will see a tighter market,” Bjoernsen said, though this would also benefit Statoil’s main rival Gazprom.
While Statoil sells 75-80% of its gas at prices indexed to spot prices at European gas trading hubs, oil indexation still dominates in Gazprom’s contracts.
“(The fall in oil) prices would suggest that Russian gas is again competitive in the market more than it was before, and we see the flows increasing significantly from the beginning of March,” Bjoernsen said.
In spite of a strategy of storage and diversification, the European Union remains heavily dependent on Russian gas imports.
Russia currently provides nearly a quarter of the gas consumed in the EU, 80% of which transits via Ukraine.
But Norway is fast becoming the continent's number one supplier in the face of ongoing tensions with Moscow over Ukraine.
Norway overtook Russia as the main supplier of the EU’s natural gas in 2012, a first for the Scandinavian country.
Norway is the world’s third largest exporter of oil and gas after Saudi Arabia and Russia.
The Scandinavian country says it can act as a stabiliser for the EU energy market.