Big energy firms call for gas-to-power revival

OREANDA-NEWS. June 04, 2015. The chief executives of Shell, Total and France's Engie today called for global emissions pricing mechanisms to increase power sector natural gas consumption at the expense of coal burn.

The share of gas in the energy mix should be increased because of its lower CO2 emissions than coal and its flexibility, Total chief executive Patrick Pouyanne said at the World Gas Conference in Paris.

Gerard Mestrallet, chief executive of Engie, formerly GDF Suez, called for the inception of a climate dialogue that would give gas "pride of place" in electricity generation. Engie had advocated lifting EU emissions trading scheme (ETS) carbon prices with a market stability reserve system — which has now been approved by EU legislators and will start operating in January 2019 — to regulate the number of carbon credits available, Mestrallet said.

The CO2 price should stimulate economic growth, particularly in the gas industry, Mestrallet said. It was important to promote gas for power generation and a global mechanism would allow gas to displace coal, Pouyanne said. The steps taken with the EU ETS are in the right direction, Mestrallet said. Expanding carbon trading to become a global mechanism could help provide more certainty and stimulate investment in low-carbon energy sources and energy efficiency, he said.

It is in Engie's interest to have a stable agreement at this year's UN climate talks in Paris rather than no agreement, which would lead to uncertainty and possibly chaos, Mestrallet said. Companies need long-term visibility, he said.

Shell chief executive Ben van Beurden called for governments to provide a long-term stable framework for transition to a lower carbon economy. The welcome reform of the EU ETS will hopefully change things for the better, he said.

European power sector gas demand has declined in recent years as renewable generation increased with new capacity. Wider margins for coal-fired plants than combined-cycle gas turbines have also resulted in gas being displaced from the generation mix.

The current European carbon pricing system had "failed" to result in switch to gas from coal, van Beurden said. And combining renewables with coal generation could result in emissions not falling fast enough in countries such as Germany, or even rising, he said.

Unless incentives were created to encourage gas to displace coal, such coal-plus-renewables systems could also emerge in northeast Asian countries such as Japan, van Beurden said.

But there is little incentive for any substantial increase in European power sector gas demand, at least given prevailing prices. Forward spark spreads — adjusted for emissions — remain considerably tighter than for equivalent dark spreads. Taking yesterday's gas, coal and emissions forward prices and assuming coal-fired plant efficiency of 38pc and gas-fired plant efficiency at 49pc, EU ETS allowance prices would need to be as high as €45/t CO2 equivalent (t CO2e) to make gas burn more profitable than coal in Germany. Gas has come into competition with coal in the UK, which has higher emissions costs because of an additional national carbon tax. And EU ETS prices could average €44/t CO2e between 2020 and 2030 after the introduction of the market stability reserve, according to modelling by analysts at Energy Aspects.