Low LNG prices and pressing environmental challenges are becoming key drivers for the gas-to-power sector. But widespread adoption faces political and technological hurdles
Gas-to-power technology has been presented as a potential panacea both for developing countries looking to wean themselves off coal, and developed countries seeking transition-friendly energy solutions. But uncertainties remain over who will take the nascent sector’s reins, experts told Petroleum Economist’s inaugural Gas-to-Power forum in London last month.
Shifts in the ownership of utilities projects-as well as in their funding structures-will need to accelerate to lay the path for natural gas to play a larger role in electrification, according to the speakers.
“Will gas companies play a bigger role? Can governments help shape the way forward consistently and on a global basis? Recent evidence suggests the latter is a step too far,” Andy Brogan, EY global oil & gas leader, told the forum. “This uncertainty over the future is making life difficult for operators and investors.”
While it is common knowledge that combined cycle gas turbine (CCGT) plants generate far less pollution and greenhouse gas emissions than other traditional thermal projects, coal or diesel, the supply of electricity is also evolving. The uncertain new landscape could be further roiled by a complete restructuring of the utility industry itself, said other analysts.
“We are moving from an electricity system where, in a sense, firms are selling a commodity-electrons, with volumes as the driver. In the future, first in the developed world and then in the developing, companies will be selling a service,” said Tom Burke, chairman of the environmental think tank E3G. “Customers will be paying for access rather than volume and this will have a big impact on the future of gas-to-power.”
“Disruption is the most relevant word right now-we have a lot of natural gas capacity coming on line, and a lot of changes in government policy that affect it-China is a good example,” Jane Rangel, gas analyst at Energy Aspects, said at the event. “While China’s demand impact had a big impact on the gas market in recent years, it must be remembered that it was not replacing power generation on the whole, but heating boilers,” she added. “Perhaps we should not focus too hard on the replacement factor for power generation.”
Abundant gas supplies and falling LNG prices have boosted the prospects of major gas-to-power projects that have been touted in recent months-including the $1.8bn Jawa 1 IPP Project in Indonesia, a $4.5bn project in Morocco and a $3bn Brazil gas-to-power hub. However, the number of projects that have actually reached final financial agreement is small.
Critical choices
Victor Perez, partner and energy sector leader at EY, told the forum that “coal is proving much more resilient than we expected even just a few years ago”.
“There is still, for instance, in the US 150GW or more of coal capacity that is holding on against gas, and holding on well, “said Perez. “In the north of Africa, there are new coal developments with low sulphur technology being plugged into underground cables, connected to the Iberian peninsula and Europe, with much fewer controls than if it actually in Europe 20-30 miles away.”
Regulation, pricing and policy will be critical in the phase-out of coal, he added.
“Gas has an important part to play but it needs to be successful in putting across its message,” said Nick Witney, Group Commercial Manager, Energean in London. “Being known as the transitional fuel in a low carbon economy is a very good message. The relationship between gas and the electrons that are at the end of the gas chain is very important.”
Socio-economic challenges
Using natural gas to generate electricity as the world transitions away from coal will also likely create socio-economic challenges beyond the cost, technological and environmental pressures that it already faces, attendees heard.
Powerful coal mining unions in Germany and eastern Europe, south Asia and southern Africa, as well as the challenge of replacing hundreds of thousands of jobs created by the industry, will present politicians with some tough decisions, experts told the forum in London.
This will pose headwinds, despite the evidence that converting natural gas into power presents the fastest, cleanest and most reliable route towards governments meeting carbon emissions goals.
“It is a huge issue, for example in countries such as India that have a significant domestic coal industry. If governments try to get gas-imported gas-to compete, they face vested interests, balance of payments issues and other challenges,” said Brogan.
“People can be very protective of their industries,” Rangel said at the event, noting that opposition from certain sectors of society to embrace more environmentally friendly policies, which will affect their own vested interests, was equally important not just in emerging economies but also in western European countries such as Germany and France. “This is despite considerable wider public appetite for benefits such as cleaner air.”
“On the one hand, events are going to drive the transition, whether these are political events or climate related. On the other, there are social consequences that have not been thought through-and these will be a constraint that will lead to different resolutions in different countries,” said E3’s Burke.
Source: Petroleum Economist
