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Andrew MacKillop: Europe’s Alternate Gas Strategy

Under current sovereign debt and national budget deficit crises, making a rapid and high cost shift to renewable, alternate and low carbon energy is unrealistic. A shift to natural gas is the more rational and cost-effective solution.


The upstream energy, climate and environment policy context in Europe remains officially and resolutely committed to Low Carbon, at present. This has hard-edged and increasingly self-defeating results on the ground simply due to cost, resource, technology and industrial issues.

In particular levering up renewable energy’s part in the energy mix focuses electric power, because most new and renewable energy sources produce electricity, but scaling up these alternate power sources has caused a shock of reality for the ambitious – in fact unrealistic – goals and targets set by European policy makers. Results include the serial downsizing and increasing abandonment of massive offshore windfarm projects, reduced plans for faster and larger scale European electricity grid development and interconnection, and delays or abandonment of smart grid plans and projects, and even of lower cost but economically unsure strategies, like smart metering. Other downsizing and cost saving action on the Low Carbon front includes reduced plans for European biofuel production, especially due to its negative impact on food production and prices, and slowed growth of industrial investment in solar photovoltaic panel production as the sector reels from industrial overcapacity and Asian competition.

Insofar as nuclear power can be called “green”, there is also an increasing move away from so-called climate friendly atomic energy as the Fukushima disaster changes both public and political perception of nuclear power. In addition the looming financial and economic disaster, and environmental threat of reactor decommissioning is becoming better understood and costed. Europe has some 146 civil reactors in operation as of early 2011. Including the German and Swiss total phase out of nuclear power by 2022 and due to the age profile of reactors in Europe, the number of reactors needing Safestor end-of-life decommissioning will rise as nuclear power in Europe climbs a wall of worry and extreme high costs, focusing public attention on the real costs of nuclear power.

For the European energy future as elsewhere, pure energy economics helps to cut through the swath of news, views and opinions on what is needed, possible and affordable. We find that gas stands out as one of the rare cases where basic energy economics, the resource and technology picture, and energy industrial factors like gas transport and storage capacity, and costs for raising capacity are all user friendly. To be sure, the main argument against “going for gas” is that unconventionall gas (shale and coalseam gas) resources may be large, or very large but producing it is environmentally dirty and will not have the CO2-cutting impact of fully shifting to renewables, even if gas burning produces much less CO2 and other environmental pollutants per unit energy, than coal or oil.


The European Union, since late 2008, has a target of getting at least 20 percent of all European energy from renewable and low carbon sources by 2020. For some national energy authorities, nuclear power supplies the “fudge margin” for setting a high mark to the share of low carbon energy in Europe’s energy future, because atomic energy supplied about 12 percent of EU27 primary energy in 2010 (and 28 percent of EU27 electricity).

Official European Commission data claims that about 10 percent of European energy supply is currently renewable, but if we take only windpower, solar PV and biofuels the number is closer to 5 percent. This leaves the other 78 percent of European energy (2010 basis) that comes from oil, coal and gas and underlines the huge size of the 20 percent replacement and substitution goal.

European Commission data shows the EU27 in 2008 consumed about 1799 million tons oil equivalent of primary energy. On an oil basis this was about 36.2 million barrels a day (Mbd) equivalent and around 40 percent of this was oil (down from 14.5 Mbd in 2005, to about 13.6 Mbd in 2010).

Substituting 20 percent of 2008-level European fossil energy would therefore need around 7.25 Mbd oil equivalent energy from renewable and low carbon sources, but the “goal post shift” due to rising demand, driven by population growth and economic growth, will likely raise the real target for 2020.

Previous experience, especially the most recent period of faster economic growth in 2003-2007, would probably raise the renewable and low carbon energy goal to more than 9 Mbd. The EU, also since late 2008, has added a target for reducing the energy intensity of economic activity by 20 percent, by 2020.

The forecasting of what Europe needs from renewables and low carbon energy therefore also depends on economic growth forecasts, which can be optimistically high or pessimistically low. Current trends for the European economy, like the US economy, show the “Japanese de facto solution” of long term low growth linked with super-debt is unhappily one real option for the real world European economy.

Slow growth to 2020 could cut the target need as low as 7.5 Mbd oil equivalent. We therefore have considerable range for the renewable and low carbon target, but the most basic problem for Europe’s energy strategy is simple: these are massively high targets. The challenge of developing this much alternate energy and paying for it is massive, and the countdown as of late 2011 is that only 8 years remain.

Real solutions including the trimming back of targets for alternate and renewable energy, and a positive commitment to increased use of the real, near term but sustainable alternative – gas.


Above all, realistic targets are needed; to show that current targets are not, we can take the relatively simple case of transport fuels.

Current road transport fuel demand in Europe (2010) is around 6.15 Mbd on a total of 7.8 Mbd for all transport including air, rail, water and off-road transport, especially agricultural, making transport the biggest single user category of fossil fuel, using about one-half of all oil consumed in Europe. The EU’s new energy policy targets set in 2008 included substituting and replacing about 10 percent of total transport fuel demand with biofuels by 2020.

The European Commission’s Energy and Transport directorate tends to avoid discussion on whether transport fuel demand is expected to keep on growing like it has, until 2007, at rates as high as 5 percent a year, doubling demand every 14 years. But even assuming near-miraculous zero growth of total European transport fuel demand, the 10 percent goal would need production or sourcing of at least 0.8 Mbd of oil-subsitute fuels by 2020.

This 0.8 Mbd target could or might seem modest, but in fact will be very hard to meet, as the European Commission now recognizes. Apart from the time constraint and using the keywords “borderline sustainable”, the official EurActiv web site explains that the 10 percent target is unattainable. The new downsized target is set at the suspiciously exact figure of 5.6 percent of European transport fuel (about 0.44 Mbd) sourced from biofuels produced inside Europe by 2020. The reason is that raising biofuels production towards the 10 percent substitution goal would have severe counterproductive impacts on European food prices, simply due to the arable land, crop resource and irrigation needs. Using imported biofuels would imply that more tropical forests and peatbogs are converted to oil palm and sugarcane plantations, nullifying the hoped for CO2 emissions cuts.

Of course only rarely mentioned on official web sites, high oil-indexed prices can be confidently predicted for biofuels imported from other countries, for reasons including the basic oil intensity of producing them. Biofuel prices will rather surely and certainly track oil prices, and exactly like imported oil, imported biofuels will have the same energy supply security worries as imported oil.


Apart from the climate saving-CO2 emissions cutting role of alternate and renewable energy, the other main policy plank for current European energy policy is reinforcing energy security through producing more “home grown” energy. For many and in reality, energy security concerns almost exclusively concern imported oil, its supply security and its price, with knock-on impacts for uranium, coal and pipeline or LNG gas import prices.

Rarely mentioned, European uranium import dependence is nearly total, and both coal import and gas import dependence is also high, growing fast in the case of coal. Oil is therefore far from being the only imported fuel – the real difference is that oil is expensive and the longer term outlook, due to the resource constraint is for oil to stay expensive. Coal supply security for the 21 European countries reporting their hard coal (steam or energy coal) imports to the Commission, and importing about 110 Mtons of it in 2010, could in fact be raised, by restarting the European coal (and lignite) industry. On resource grounds this is possible if not cheap or easy, but the image value of extracting and burning coal is awful. Extracting coalseam gas at lower cost and on a shorter start-up timeframe, and burning it in efficient, low cost gas turbine power plants with full CCS is however very different.

This underlines that gas is the main and rational hope: the potential for producing more inside Europe is good, and global gas import prices, both LNG and pipeline, are as likely to fall as to grow. The immense initial estimates for European (and other world regional) shale gas resources published by the IEA and EIA (2010 and 2011) may be exaggerated, but both claim that extractible shale gas resources of Europe could be around or above 25 trillion cubic metres (over 150 billion barrels oil equivalent).

The outlook is therefore for abundant and relatively low priced gas supplies for many years ahead. This is the complete opposite of oil, uranium and coal supply and price outlooks. Prices for these imported fossil fuels are only set to grow unless there is all-out global economic recession.

Staying with the biofuels, global food supply problems could make 5.6 percent of transport fuels being produced from green sources inside Europe even less “borderline sustainable”. This would further cut the current implied feasible target of about 0.4 Mbd of biofuels being produced in Europe by 2020. In turn a “lower horizon” for biofuels production will need either increased imports of biofuels, or a further humble pie reduction in the substitution target (already cut from 10 to 5.6 percent) – or a cut in European road, rail, air and water transport energy demand.

This last cut would evidently be focused on private cars, commercial trucks and air transport, all of them heavily iconic job creating and supporting industries with a reliable and high government tax footprint. Adjusting to a “low car future” will be economically difficult.

Conversely, locally producing or importing the gas needed to substitute 10 percent or more of current oil demand in European road, rail and water transport by 2020 is highly feasible. It is also certainly cheaper, and will surely not eat into Europe’s already very intensively used agricultural land resources needing deep changes in agricultural techniques, away from the agribusiness model to achieve food supply sustainability in a world context where food supply security is going to rapidly move up the scale of strategic and economic importance.


The mismatch of what can be produced – and what is needed – shows up even in this quick look at EU plans to “go green” for transport fuel needs: the current target for 2020 is around 5.6 percent substitution and even this is unsure and probably over-optimistic.

Hence the lure of all electric and plug-in hybrid cars, or EVs. On paper, for political deciders uninterested in fine print details – or even the mineral and metal resource, energy cost and industrial sustainability of EVs – this looks a neat solution. On paper, Europe could or might produce and operate 5 million or even 10 million EVs by 2020. This is around 2.5 – 5 percent of the current 210-million private car fleet, ignoring Europe’s 4.5-million heavy truck and bus fleet (each consuming around 90 barrels of diesel fuel/year).

At the extreme ambitious target level for cumulative EV production by 2020 in Europe of around 5 – 10 million units, this would save about 0.35 Mbd, but the costs of the programme would be incredible.

Most forecasts of EV fleet growth assume government subsidy to EV buyers would stay at about 5000 euro per car. Apart from this massive subsidy need, costs would be further raised by the electric power capacity additions needed to charge a growing EV fleet – with inevitable trends for mass recharging at nights, especially Sunday nights, before the trek to work in the morning.

Needing around 5kW each EV, the additional peak power demand impact could be close to 50 000 MW for a 10 million fleet.

When we look at the largest existing and potential “new renewables” this concerns windpower, solar PV (photovoltaic), small scale hydropower, wavepower and some other other new, renewable, alternative and unconventional energy sources and systems – all of them producing electricity. Costing how much would need to be spent for replacing 5 percent of the current European car fleet with EVs, and economising about 0.35 Mbd of oil demand is relatively easy – but gives fantastic high numbers.

We can for example take current European offshore windfarm projects with capital costs around 6000 euro per kiloWatt, and hoped-for electricity price goals of around 100 euro per MWh (1000 kWh).

What we find is the one-way politically motivated drive to economize and replace oil by any means has reached a peak with the EV fantasy car fleet scenario: replacing even 5 percent of Europe’s current car fleet (and zero percent of its truck and bus fleet) with EVs, by 2020, is in fact totally unrealistic until and unless there are fantastic technology breakthroughs, both upstream in renewable energy, and downstream in the EV production, user operation and infrastructure support domains.

Conversely, replacing oil-fuelled cars and trucks with natural gas and propane fuel is easy and cheap. If the gas is also cheap we have to ask why it is not happening ? To be sure, T Boone Pickens can and does ask why it is not happening in the USA – after heavily losing on his bet to set up nationwide fleet refuelling centres for gas-fuelled transport vehicles, especially trucks.

The answer is in fact ironic: because EVs are intrinsically and basically uneconomic but fit with the current policy drift, they are getting heavily subsidized; gas-fuelled transport is intrinsically economic and practical so it is not deemed to be interesting and conflicts with existing oil-only or oil-majority road transport systems. Also, gas is a fossil fuel producing CO2 when used; in Europe at present it is mainly imported by pipeline, at high cost because of oil price indexation, and suffers from variable security of supply, as shown by periodic “Gazprom crises”.

Increased European production of unconventional gas will certainly change the energy security fear, for gas. World gas supplies are rather sure and certain to grow, perhaps by large amounts, removing both the price fear, as well as the supply security worry.


To date, but probably not for long, CO2-cutting goal have the high ground role in all policy decisions on European energy. Extreme detailed “carbon footprint” data is available for almost any activity, from producing an ice cream cone, a burger, or making a voyage by foot, bicycle, car, bus, train or airplane.

This is energy intensity data, and can also be applied to map the energy cost for producing EV batteries, smart meters, national grid expansion to accept a huge increase in power transport (with inevitable line losses), and the other high cost, resource intensive infrastructure and consumer level technology changes needed to radically increase the percent share of renewable energy in the energy mix.

These particularly include he very high cost challenge of large scale electrical energy storage, to handle intermittent and variable production of electricity from renewable sources. To date, progress is very slow, in part due to basic scientific and technology limits, and the extreme high real world cost of storing large amounts of electricity with minimum losses, at high input/output power rates.

The regulatory and legislative, as well as commercial and trading impacts can also only be large, as shown by the EU’s upcoming or mooted Agency for the Cooperation of Energy Regulators (ACER), which would be responsible for decision making across the hoped-for interconnected European electric power space. The ACER would possibly set tariffs, taxes, transport charges and premiums for either “bad” suppliers or “good” suppliers of electric power, linked with the already complex and opaque ETS or European CO2 emissions trading system. This system started in 2005 but remains the world’s only mandatory anti-CO2 trading system. It could well be the first and last – the US voluntary CO2 trading system having collapsed in January 2011 with the shuttering of the Chicago CCX emissions exchange, and last trades at price levels of around 10 US cents per ton of CO2.

To be sure, if CO2 prices fall to these derisory levels for a useless side-product of commercial energy production, the upstream concept of CO2 emissions being “valuable” if they are reduced or eliminated is also compromised, to say the least. What counts using energy economic criteria is that the CO2 side product from energy production is simply a measure of energy economic efficiency, making it easily possible to create norms and standards for energy efficiency conversion rates – rather than CO2 emissions – with the energy efficiency norms and standards monetized and traded.

Energy policy setters at the European Commission and in the most climate conscious European countries stress the keywords of “hoped-for interconnection” of electric power grids. Europe’s natural gas grids are already fully interconnected and able to transport huge amounts of gas, but this is not at all the case with electric power. For basic reasons including electrical engineering fundamentals, including line losses, as well as past policy and spending on power grid interconnection conceived as, and designed for low-power system balancing and marginal supply, the capacity is not available.

The real situation is that the needed high-capacity electric power grid interconnection linkages across Europe are currently either in project or simply missing. Building them will not only be expensive but take a long time – in fact decades. Where relatively large capacity power transport already exists, notably in Germany, its own nuclear power exit strategy completely phasing out nuclear power by 2022 will create massive additional needs for in-country north-south power transmission. This will make it unlikely that transborder east-west transmission capacity raising will be prioritized by German deciders, whatever the calls for “European solidarity”.

Energy economic criteria show that even the lowest-cost renewable energy systems with the highest net energy yield – onshore windpower – create problems for integration in national energy systems based on constant energy supplies using fossil energy, and both economic and private users habituated to uninterrupted supply. Only a few renewable energy sources, geothermal in particular, do not suffer from intermittancy, and are generally very high capital cost.

Under current difficult global and regional European energy conditions, signalled by the sovereign debt crisis and national budget deficit crises, making a rapid and high cost shift to renewable, alternate and low carbon energy is unrealistic. Investment strategies favouring local and decentralized electric power systems, for example micro CHP primarily using natural gas, and targeting the soft and easy potential for European transport energy shift to gas, as well as cutting the massive waste of electricity in most EU countries are more rational and cost-effective solutions.

Andrew McKillop is a former in-house policy and programming expert, DG XVII Energy, European Commission