The EU’s gas giants are taking direct aim at coal, pushing for higher carbon emissions prices to kill off their dirtier rival and secure a lucrative spot for themselves in the bloc’s energy mix long into the future.
Their lobbying effort in Brussels just got an influential push.
Europe must replace coal with two cleaner sources — renewables and gas — to hit the EU’s goal to reduce carbon dioxide emissions by 40 percent by 2030 and at least 50 percent by 2050, Claudio Descalzi, the CEO of Italian oil and gas major Eni, told POLITICO.
“It’s clear we cannot continue to advocate for gas, and we cannot continue to pay $73 billion per year in Europe to promote subsidies for renewables, and then open the door to big coal. It’s not consistent,” he said.
As green as natural gas
Descalzi, a 60-year-old Italian oil engineer who last year took over Europe’s fourth-largest oil and gas company by revenues, regularly meets and consults with Miguel Arias Cañete, the climate action and energy commissioner, and other top EU officials. His company is nicknamed “Italy’s other foreign affairs ministry,” which reflects Eni’s perceived influence at home and abroad.
Eni and five of its European peers, none of whom have significant coal investments, sent a letter in June to the leaders of the United Nations’ upcoming COP21 global climate summit in Paris, arguing that carbon pricing is the fairest and most efficient way to achieve greenhouse gas reductions. Gas-fired energy generation, they said, provides a “flexible partner” to renewables like wind and solar, which can vary with the weather.
In the interview, Descalzi framed his arguments in favor of gas in environmental terms, pointing out that gas has half the carbon dioxide emissions of coal.
The business imperative for Eni is straightforward. The falling price of both coal and carbon emissions, combined with a surge in renewables, has squeezed this cleaner but pricier fossil fuel out of the European energy mix in recent years.
Oil and gas companies are now seizing the opportunity to go on the attack as governments come under mounting public pressure to agree to strong commitments at the COP21 in December to keep global warming below 2 degrees Celsius.
Even as they seek to stoke demand for natural gas, Eni and other energy companies run the risk of not planning ahead for a possible full phase out of fossil fuels.
That’s what Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change, told the companies in response to their letter. While thanking them for supporting a global climate agreement, Figueres urged them to shift their capital expenditures to alternatives to fossil fuels.
The coal industry group Euracoal called the June letter “merely an opportunistic move to recapture lost market share” in the EU, arguing that replacing the 8 billion tons of coal and lignite used around the world every year is not doable.
Environmental organizations dismiss the oil and gas industry’s lobbying push.
To tackle global warming, policy makers need to fundamentally change the technologies and systems used to generate energy and not just the way existing fuels are taxed, said Tom Burke, chairman of the environmental analysis group E3G. Instead, he said, oil and gas majors are pulling governments into a “stupid debate” over carbon pricing, distracting them from a more aggressive move to completely decarbonize their economies.
Eni and the other big gas producers argue that coal has benefited from the EU’s dysfunctional Emissions Trading System, which Brussels is now trying to reform. The EU is one of the few regions to have an emissions market, but prices are too low to push power generators to switch to cleaner energy sources. And coal is cheap.
Europe’s gas industry has lost roughly 100 billion cubic meters of annual demand since 2008, while the use of coal has gone up by 7 percent, according to Descalzi. “The issue is, if you don’t have any regulation, any carbon pricing, any carbon tax, it’s clear that the market is going to take and use the fuel that’s less expensive,” he added.
So Descalzi and the gas majors are urging governments to agree in Paris to implement some type of stricter carbon pricing mechanism, be it an emissions trading market, a tax or emissions performance standards for power plants.
‘Gas will still be there’
As a political matter, the Continent is divided over coal. Germany plans to phase out coal subsidies by 2018 and all fossil fuels from the electricity sector by 2050. Many Central and Eastern European governments, such as Poland, staunchly defend coal-fired power generation, saying the alternatives are too costly.
In Brussels, natural gas appears to be in growing favor. While the European Commission stresses the need to shift from fossil fuels to renewables and energy efficiency, it says gas-fired power will complement the expected increase in renewables. It forecasts the EU’s demand to be between 380 and 450 billion cubic meters in 2030, similar to last year’s 409 bcm.
“There is a real role for gas. In 2030 gas will be there, in 2050 gas will still be there,” Arias Cañete said at a POLITICO conference last week.
Eni recently hit a massive gas discovery off the coast of Egypt that could help free up large amounts of gas in the eastern Mediterranean and soon make its way to Europe. Iran’s potential return to world markets following its nuclear proliferation deal could also keep Europe well supplied with gas.
Environmental groups complain that the Commission isn’t looking far enough into the future to the complete elimination of fossil fuels, including gas. EU environment ministers set a goal on Friday to cut emissions by at least half by 2050 (compared to 1990) and get to near zero by the end of the century.
“In the short term, yes, gas has a role to play,” Stephan Singer, global energy policy director at WWF International, said at the same conference. “But nobody talks about the transition scenario.”
Click Here: Aston Villa Shop
Coal is the easiest target for climate campaigners, who are pressing investors to dump shares of companies tied to the fuel. But shareholder activists are beginning to use the same technique against a wider array of oil and gas, chemicals and business industry lobby groups, which they say are not fully on board with the climate change agenda.
Eni is a member of two of the groups named in a recent letter from a group of institutional investors to oil and gas companies BP, EDF, Statoil and Total, among others. The industry lobbyists, International Association of Oil and Gas Producers and FuelsEurope, support gas over coal but were still accused of obstructing action on climate change.
For now, Eni is hanging tough.
“We need to lobby for gas advocacy first. Clearly, if there is advocacy for coal or something using coal, it doesn’t share our view,” Descalzi said.
Looking to Iran
If coal is successfully shoved aside, and the EU moves towards renewables, then there should still be a large role (and large future profits), for gas companies that can provide a cleaner reliable back-up fuel for when the sun doesn’t shine and the wind falters. That is Eni’s rationale for pushing ahead with an aggressive exploration and development program.
A key part of the European Commission’s broader energy union proposal is to diversify the bloc’s gas imports, mainly away from Russia.
To do that, its energy chiefs are looking for new pipeline supplies from North Africa and the Caspian, as well as liquefied natural gas (LNG) shipments from new projects in the U.S. and Australia.
Descalzi said the EU will have plenty of new options close to home in the coming years, from North and East Africa, the Mediterranean, the Caspian, Russia, and — maybe — Iran.
Egypt, Cyprus and Israel could have as much as 2 trillion cubic meters of untapped gas reserves, following Eni’s big Zohr discovery off the Egyptian coast a few weeks ago. Descalzi, along with Arias Cañete, say those fields could soon be connected to existing pipelines and processing plants to deliver gas into Europe, as well as supplying their domestic markets.
Then there are pipeline projects to carry gas from Turkmenistan and Azerbaijan, continued supplies from Russia, and Eni’s LNG export plant in Mozambique, which the company aims to complete in 2020.
That’s diverse enough, and leaves little need to import LNG from further afield, Descalzi said.
“At the moment, it’s not likely that the U.S. can send gas to Europe. Why? Because we have found a lot of gas in the Mediterranean, and in the Far East, and in Mozambique, and the gas price at the end of the chain will be cheaper,” he said. “I think Australian gas to Europe is impossible.”
Iran’s potential is still unknown. Eni operated in the country before it was pushed out by sanctions in 2012, and Descalzi flew to Tehran both before and after Iran reached the nuclear accord with Western powers in July.
But his willingness to invest in the country will depend on how Tehran changes its unpopular buyback contract regime, under which foreign firms are compensated in oil and gas without being given an equity stake in development projects.
Tehran was expected to unveil a new contract scheme in September. Descalzi now expects to see it in December or January, and says he won’t make a decision until then.
“We’ve been there for 15 years, we’ve developed two big fields, one gas and one oil, and for that reason I can say ‘No buyback for me.’ And I told them that too.”
In the end though, the extent to which Europe will be able to import gas from new suppliers will depend on how policy makers decide to regulate the industry’s number one enemy — coal, he added.
“We cannot increase and increase and increase taxation and limitations in Europe, and pay for renewables, and then use coal. We hurt ourselves this way.”
This article was first published on Politico Pro