700% Higher Gas Prices Take Energy Transition in Wrong Direction
The war in Ukraine has reshaped global energy markets, putting gas as the energy supply at the center of the unfolding crisis. Prices have soared by 700% in European markets, driving up costs and sending the EU scrambling to stock up on its supply for the coming winter. Russia has cut supplies to some EU countries, and the EU has set targets for halting Russian gas altogether. In response, world leaders are shoring up gas projects.
It also appears that the European Commission's plan to classify gas and nuclear as "green” will pass with a majority of votes by EU nations and a lack of opposition by the European parliament. Climate advocates, such as WWF and NGO ClientEarth, are taking action and will "explore all potential avenues for further action to stop this greenwashing and protect the credibility of the whole EU taxonomy,” the Guardian reports.
"This is the 1970s for natural gas,” Kevin Book, managing director at Washington-based research firm ClearView Energy Partners LLC, told Bloomberg. "The world is now thinking about gas as it once thought about oil, and the essential role that gas plays in modern economies and the need for secure and diverse supply have become very visible.”
Bloomberg: Europe Energy Crisis Drives US to Top Slot of LNG Exporters, April 25, 2022.
Bloomberg: US, EU Unveil LNG Supply Deal to Cut Dependence on Russia, March 25, 2022.
IEA: A 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas, March 3, 2022.
Why This Matters
Gas shouldn’t be a part of the clean energy transition, and the energy crisis driven by the war in Ukraine could have been an opportunity to advance a green transition. Instead, countries are doubling down on gas (from sources that aren’t Russia) and tabling their climate targets. The speed and urgency at which countries are investing in gas should be applied to renewables. The decisions world leaders make now will likely lock in the infrastructure for years into the future. This decade is critical for building the infrastructure necessary to hit climate targets in 2050 and reduce the impact of the climate crisis. Gas produces climate-damaging emissions at every phase of its use, from fracking to delivery pipelines.
YaleConnections360: The Product | LNG and Energy's Perfect Storm, December 20, 2021.
IEEFA: Are gas and LNG investments safe?, December 1, 2021.
TED: How to Realistically Decarbonize the Oil and Gas Industry | Bjørn Sverdrup, March 3, 2022.
What's Getting Built
To move gas around the world, it is cooled and converted into liquified natural gas (LNG), making it much smaller than its gaseous state. But LNG requires infrastructure for cooling, receiving, and regasifying. Here are the projects accelerated to ramp up global gas trade:
- Export facilities - A terminal expansion in Texas was recently approved.
- Import terminals - The EU has announced or expedited the building of about 20 terminals to receive LNG.
- Pipelines - Some countries, like Spain, are able to regasify the fuel but can only move a fraction of that capacity.
- Tankers - There has been a spike in orders for the ships that carry LNG.
Together, these investments are a massive shift in the wrong direction for energy policy.
Bloomberg: LNG Market Is Extremely Tight | Flex Lng CEO, March 30, 2022.
CNBC: It would take two years to supply US LNG to Europe | Tellurian executive chairman, March 8, 2022.
The Big Comeback
With rising gas prices and infrastructure expansions needed to access and use gas, coal is making a very unwelcome comeback. Even Germany and the US have increased their demand for the fossil fuel, and China has all-out doubled down on its production. According to The Atlantic, 36.3 metric gigatons of carbon pollution from fossil fuels [were emitted] into the atmosphere [in 2021], a record high.” And while the uptick in coal is a bad sign, it’s still too early to tell what 2022’s emissions will look like.
UN Secretary-General António Guterres recently stated that fossil fuel exploration and production is "delusional” and that oil and gas are not sustainable, long-term solutions to the current energy supply crisis.
Similarly, US Climate Envoy John Kerry warned in May that if countries extend their deadlines for the phase-out of coal, "we’re cooked.”
FRANCE 24: Return to coal? Austria to reopen power station amid fears of Russian gas shortage, June 28, 2022.
Reuters: Europe may shift to coal as Russia slows gas flow, June 20, 2022.
ABC (Australia): Big new gas project prompts climate concerns, June 9, 2022.