SWP. Elements of an Enlarged Natural Gas Strategy for Europe s Energy Supply. Enerday Dresden. Intermediate Results

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1 Stiftung Wissenschaft und Politik German Institute for International and Security Affairs Berlin Enerday Dresden Elements of an Enlarged Natural Gas Strategy for Europe s Energy Supply Intermediate Results Jens Hobohm jens.hobohm@ swp-berlin.org Dresden, April 11, 2008

2 Contents 1. The Role of Fossil Fuels in Europe s Energy Supply 2. Contribution of Natural Gas for De-Carbonisation 3. Problems of Increased Gas Usage 4. Policy Options and Concluding Remarks Contents

3 Primary Energy Demand in Europe will more or less stagnate. Efficiency gains might bring it further down. 4 Gtoe 3 Gtoe 2 Gtoe 80%-area of analysed scenarios 26 scenarios analysed EC Base IEA WEO 2007-REF Maximum Median Minimum 2,04 1,72 2,15 2,25 Europe (EU-25/27, OECD Europe): Primary energy consumption total 2,32 2,42 2,55 Efficiency 1,79 1,83 1,86 1,87 1,87 1,64 1,65 1,61 1,54 1,47 1,40 1 Gtoe 0 Gtoe Source: Meta study of Prognos AG 2007 Role of fossil fuels

4 The share of renewable energies will grow rapidly but not quick enough to make fossil fuels dispensable 40% 35% 30% 25% 80%-area of analysed scenarios 25 scenarios analysed EC Base IEA WEO2007-REF Maximum Median Minimum Share of renewables in primary energy supply 24,2% 28,5% 33,3% 20% 15% 10% 5% 0% 20,0% 15,8% 11,5% 13,3% 12,0% 10,9% 9,4% 8,3% 7,5% 3,1% 3,2% 3,4% 3,5% 3,6% 3,7% Role of fossil fuels

5 The share of nuclear does not grow significantly - even in very specific scenarios. 40% 35% 30% 25% 80%-area of analysed scenarios 21 scenarios analysed EC Base IEA WEO-REF Maximum (EEA, Nuclear accelerated) Median Minimum (EC Efficiency and Renewables) Share of nuclear in Europe s primary energy supply 20% 15% 10% 5% 0% 17,5% 16,3% 16,1% 16,5% 15,3% 15,4% 14,1% 13,7% 12,7% 11,6% 12,0% 10,5% 11,1% 9,5% 10,4% 9,2% 7,5% 4,8% Role of fossil fuels

6 In all scenarios fossil fuels remain the dominant source of energy until IEA Reference Case Nuclear and Renewables 21% Fossil fuels 78% Source: IEA / World Energy Outlook 2007 Fossil fuels 79% IEA - Alternative Policy Fossil fuels 69% Role of fossil fuels

7 2. Contribution of Natural Gas for De-Carbonisation

8 How can we reduce pollutants / CO 2 -emissions while using fossil fuels? Nuclear and Renewables Efficiency CCS Coal 17% Gas 24% Oil 38% Source: IEA / World Energy Outlook 2007 De-Carbonization Contribution of gas

9 CO 2 -emissions can be reduced significantly when switching from coal and oil to gas 5,00 4,50 4,00 3,50 t CO 2/ / toe 3,00 2,50 2,00 4,70 4,00 1,50 1,00 0,50 0,00 3,11 2,37 Lignite Hard Coal Oil Gas Contribution of gas

10 De-Carbonisation is possible in power, heat and transportation Coal Other uses 10% Final Energy 14% Power Generation Gas Other uses 4% Power generation 30% Nuclear and Renewables Coal 76% Oil Other uses 5% Final energy (mostly heat) 66% Source: IEA / World Energy Outlook 2007 Gas Oil Final energy (transportation) 54% Final energy (heat) 36% Power Generation 5% Contribution of gas

11 Development of the Share of Gas in Primary Energy in the EU-25/27 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 26,0% 80%-area of analysed scenarios 15 scenarios analysed EC Base IEA WEO-REF Maximum Median Minimum 30,4% 29,1% 24,5% 23,3% 23,7% Source: Meta study of Prognos AG ,1% 24,5% Share of gas in PEC 32,0% 33,9% 36,0% 27,5% 28,1% 28,1% 28,7% 25,3% 25,1% 24,1% Contribution of gas

12 3. Problems of Increased Gas Usage

13 Internationally Accepted Objectives of Energy Policy Economics Security of supply Protection of the environment / sustainability Problems of increased gas usage

14 Economics: Border Crossing Prices in Germany / toe Crude Oil Source: Energiewirtschaftliche Tagesfragen 3/2008, p Gas 100 Hard Coal Problems of increased gas usage

15 Economics: Gas will stay much more expensive than coal 2007 Source: EWI / Prognos AG 2006 Problems of increased gas usage

16 Aspects of Energy Security Definition of Energy Security Uninterrupted availability of sufficient energy of adequate quality at predictable and affordable prices during a given period of time. Oil Gas Coal Geological availability Political stability of producing countries Vulnerability of transport routes Import dependency Stability of trading relations Predictability of prices Affordability of prices Adequate quality Sum Total Rank Problems of increased gas usage

17 Assessment of Selected Fossil De-Carb Measures Sector Measure Economics / Competitiveness Security of supply Change of Status quo Sustainability Power substitution of coal by gas Power CCS (?) Buildings / Industry substitution of oil by gas Transportation substitution of oil by gas Status quo is - deteriorating 0 stagnating + improving Problems of increased gas usage

18 Development of Gas Demand in the EU-25/ Mtoe 900 Mtoe 800 Mtoe 700 Mtoe 600 Mtoe 500 Mtoe 400 Mtoe 300 Mtoe 200 Mtoe 100 Mtoe 0 Mtoe Source: Meta study of Prognos AG %-area of analysed scenarios 15 Scenarios analysed EC Base (EU-25) IEA WEO-REF (EU-27) Maximum Median Minimum Gas consumption EU-25/ Problems of increased gas usage

19 4. Policy Options and concluding remarks

20 De-Carbonisation is a major pillar on which Europe climate policy should rely Power markets: CCS might be the better choice rather than gas-to-power, The world will use coal as cheap energy source: Europe should help to develop the technology for making coal cleaner. Heat markets: Limiting factor is the availability of gas grids. Transportation: Large theoretical and technical potential for substitution of oil. Policy Options

21 Questions and Challenges 1. Will CCS be technically and commercially available and competitive with other measure in the power sector and will storage problems be solved in due time? 2. Will gas in the heat markets continue to substitute oil? 3. Will it be possible to increase the market share of gas in the transport sector and how can this be done? 4. How will the total gas demand develop? 5. If it does, how can the sources of gas supply be diversified? 6. How can security of supply be maintained in the long run? 7. How will the prices of natural gas develop in the long run? Policy Options

22 European Gas Market: Policy Options and Fields of Action LNG Infrastructure New Pipelines / Access to Central Asia / Iran Efficiency Infrastructure for Gas distribution (regulation) Supply Common Market Demand Dialogue with producing countries esp. Russia Storage Biogas Carbon Trading Scheme Dialogue with the Industry Policy Options

23 Demand Side Policy Options 1. Europe s plan to improve energy efficiency should be followed consequently action plans should become binding! 2. In the heat and transport sector, infrastructural barriers have to be overcome. Regulation should set incentives for further expansion of gas networks. 3. Gas availability at filling stations must be increased strongly - maybe with economical assistance like investment subsidies. 4. A dialogue with the car and mineral oil industry should be led. 5. To help gas to a break through in transportation, merely all member countries should work together to improve the attractiveness of gas 6. Growing shares of gas can be replaced by biogas a feed-in law comparable to the German Renewable Energy Law seems sensible. Policy Options

24 Supply Side Policy Options 1. Europe needs additional access to gas sources. A positive framework for new pipelines is to be achieved. 2. New LNG infrastructure will increase the security of supply and fungibility of the gas market these projects should also get high priority status. 3. The dialogue with Russia should be continued in order to achieve an agreement close to the energy charter treaty. 4. Additional storage capacity like in the oil market could be a matter of regulation. 5. Growing shares of gas can be replaced by biogas a feed-in law comparable to the German Renewable Energy Law seems sensible. 6. Europe needs a Foreign Energy Policy. Policy Options

25 Concluding remarks 1. Fossil fuels will play a dominant role in Europe s energy supply in the decades to come. 2. There are various options to reduce carbon dioxides emissions caused by fossil fuels. Among them, the shift to natural gas. 3. The largest potential for natural gas is seen in the transport sector but also in the heat markets. 4. Policy can act on the demand as well as on the supply side in order to help the market to higher shares of gas in primary energy. Foreign energy policy is needed to safeguard future gas supply especially from Russia. Concluding remarks

26 Thank you for your attention. And now the floor is yours Jens Hobohm International Energy Policy and Security of Supply Contact