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The Gordian knot of Europe’s gas dependence


At the COP26 climate conference last week, activists awarded Norway their “Fossil of the Day” prize. It’s an accolade Oslo’s brand-new government could have done without at its first global outing. But it highlights the dilemma faced by Norway, as a big fossil fuel producer, and even more so by the EU, whose economy is deeply reliant on natural gas.

In a punchy first interview, Jonas Gahr Store, Norway’s new prime minister, told the Financial Times that Europe’s green transition required his country to keep drilling. A rapid end to Norwegian hydrocarbon supplies, he said, “would put a stop to an industrial transition that is needed” to decarbonise.

It is, of course, a self-serving argument. It flies in the face of the International Energy Agency’s road map to net zero, which calls for no more investment in new oil and gas developments. It also goes against the EU’s quixotic demand for an end to hydrocarbon extraction in the Arctic.

That said, the argument may be right. It is correct technologically, in that substituting natural gas for coal and oil is the necessary next step to reduce emissions. It captures important truths about the political economy of oil and gas-exporting countries. Even a population as climate-conscious as Norway’s has nowhere near a majority for phasing out fossil extraction. It reflects geopolitical reality: less Norwegian gas would make Europe even more dependent on Russian president Vladimir Putin’s caprice.

Above all, it exposes the political challenge of the EU’s green ambitions. The intention to decarbonise is genuine. But the continent remains highly dependent on natural gas, and would become more so by weaning itself off coal.

And yet, the short-term logic comes with a long-term contradiction. If the EU encourages gas investments to meet short-term needs, it could lock itself into its dependence on gas for a long time. The argument for gas as a transitional energy runs up against the fact that nobody develops a gasfield planning to switch it off in five to ten years’ time. So the EU and Norway are caught in a hypocritical embrace, with North Sea gas set to power European homes and businesses for the long haul.

There is a way out, as all sides recognise. Natural gas needn’t be burnt for its energy content. It can serve as a feedstock for hydrogen. If carbon is captured and stored (CCS) in the process, the resulting “blue” hydrogen is a source of carbon-free energy.

The technologies exist for using it to power heavy vehicles unsuited for batteries, ships and high-temperature industrial processes such as steel. In fact, some activities are hard to decarbonise in any other way, and CCS is a sine qua non if net negative emissions are to become possible.

What is missing is infrastructure and a market. To switch gas from a combustible energy source to hydrogen feedstock requires transport and storage for hydrogen and CO2, and facilities to sequester carbon. Such investments are hard to justify unless sufficient demand is expected.

This is a chicken-and-egg problem. For there to be enough demand, mass adoption of hydrogen-powered technologies in the relevant sectors is necessary. That in turn is economically viable only if users are confident hydrogen supply will be forthcoming.

It is in the EU’s power to create a market. It is in the gift of gas-producing countries to ensure large-scale hydrogen supplies. But for either to happen, both must jump together.

The EU bears the greatest responsibility to make this happen. It has a hydrogen strategy. But speak to public and private decision-makers in Norway, and scepticism that the EU means business is close to the surface. They question if Europe has the stomach for the tough choices net zero requires, such as a carbon price that bites. And does Europe fully endorse blue hydrogen and CCS, or is it wedded to the less efficient “green” hydrogen made from electrolysing water? That choice would be as self-defeating as Germany’s turn from nuclear energy, which made it use more coal.

If the EU were to commit to blue hydrogen, and put its money where its mouth is, it could demand the corresponding commitment to supply from Norway. Rather than a ban on Arctic exploration, it could demand a policy to allow further gas extraction only with infrastructure that could be swiftly converted to blue hydrogen production with carbon storage.

Politically, or even legally binding, instruments could be found to assure each side that both demand and supply would be forthcoming. For Oslo, such a policy offers a compromise with those demanding an outright phaseout of fossil fuels. It might even be allowed to return its Glasgow award.

martin.sandbu@ft.com



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