Power April 2022 - 25

GAS POWER
Europe Scrambles to Cut Dependency
on Russian Gas
As part of a rapidly evolving suite
of measures by countries to cripple
Russia's economic prowess, the European
Union's (EU's) 27 member
countries during the first week of
March laid out plans to slash its reliance
on Russian gas by two-thirds
this year and make Europe independent
from Russian fossil fuels " well
before 2030. " The plan also outlined a
series of measures to respond to rising
energy prices and replenish European
gas stocks for next winter.
The joint European action initiative,
" REPowerEU, " proposes to keep retail
energy prices in check through price
regulation, state aid measures, and
market actions, which could involve
reforms to the electricity market design
and emissions trading program.
The ambitious initiative will meanwhile
seek to issue a legislative proposal in
April on minimum gas storage and establish
a 90% filing target by Oct. 1,
by designating gas storage as " critical
infrastructure " and allowing incentives
for filling.
Over the longer term, REPowerEU
will encourage more rooftop solar
panels, heat pumps, energy conservation,
and electrification. It will also
hampered by mixed investment signals,
and investment signals hinge on commercial,
political, regulatory, and public
appetite for new gas projects (see the
sidebar " Decarbonization A Major Consideration
for Gas Suppliers " ). According
to Smith, action now is imperative,
given " these plans take years and years
to build. "
Marco Alvera, CEO of Italian infrastructure
firm Snam, also highlighted a
dire need for infrastructure, though he
proposed the sector's flexibility could be
heightened with more storage and accompanying
joint pricing mechanisms.
" With only €2 billion of extra storage
investments, we could store about 312
TWh or 30 Bcm of energy in summer
and use that in winter to essentially
make Europe almost import-free during
the winter, " he said.
Modern gas pipelines will also factor
heavily into future gas power plays. But
according to Cynthia Hansen, executive
vice president and president of Gas
Transmission and Midstream at pipeline
firm Enbridge, government carbon
April 2022 | POWER
seek to speed up renewables permitting,
as well as diversify gas supplies.
Finally, it will double down on ambitions
to build out its hydrogen economy,
developing infrastructure, storage
facilities, and ports to replace demand
for Russian gas with an additional 10
million tonnes of imported renewable
hydrogen and 5 million tonnes of
domestic renewable hydrogen. Also
notable are ambitions to produce 35
billion cubic meters (Bcm) per year of
biomethane by 2030 from agricultural
waste and residues.
The EU's plan comes on the heels of
a " 10-Point Plan " issued by the International
Energy Agency (IEA) in March.
While many of its recommendations
echo the EU's, the IEA proposed shunning
gas import contracts with Russian
gas company Gazprom that cover
more than 15 Bcm set for expiry by
the end of 2022. In total, Gazprom
covers close to 40 Bcm, and all contracts
will expire by 2030. The IEA also
explicitly championed nuclear power's
contribution to energy security, urging
countries to temporarily delay the closure
of five nuclear reactors that are
scheduled to shut down over the next
couple of years.
priorities will determine how that plays
out. " We have to provide more energy
security, both for Europe and for North
America, " she said. " We still have places
in North America where you have that
disconnect in the U.S. Northeast because
we haven't been able to build out
our pipeline infrastructure. "
For U.S. natural gas suppliers, a glaring
new issue is the Federal Energy Regulatory
Commission's (FERC's) Februaryissued
sweeping new guidance for new
interstate natural gas facilities, Hansen
noted. The energy regulator has moved,
for the first time, to consider whether a
proposed project fulfills environmental
interests-including of proposed mitigation
of greenhouse gas (GHG) emissions-and
interests of landowners and
surrounding
communities. The
policy
has " introduced some increasing ambiguity
into the process where pipeline
infrastructure is being asked to do assessment
of upstream and downstream
impacts, and that is not adding to the
clarity of the process, " said Hansen.
www.powermag.com
An Evolving Landscape for Gas
Power
Complexities swirling around gas suppliers
are evidently bearing down on the
gas power industry, putting unsustainable
pressure on end-users. Reacting to
these developments, some governments
have stepped in with stop-gap measures
to bail out energy firms and customers
veering on the brink of collapse. At least
five of the biggest European economies
-Germany, the U.K., France, Italy, and
Spain-have so far rolled out grants and
time-limited tax cuts to help consumers
heat and power their homes.
" European power prices are a direct
reflection of what we're seeing happening
in the commodity markets, " noted
Catherine Robinson, S&P Global executive
director, in March. " Gas prices in Europe
are trading at around €240 to €150/
MWh-that's $50/MMBtu-seven to 10
times normal levels. " With coal prices
that hover around $400 per ton, high fuel
costs (Figure 2) are feeding directly into
current power prices in the EU that are
now in excess of €300/MWh.
" I think it's really important to say,
however, that these do not reflect scarcity
pricing from point of view of power,
these €300/MWh prices are a direct
reflection of the entries in the dispatch
cost for thermal generation in the EU, "
said Robinson. " So, really, what we're
seeing in Europe today from a power
perspective is not as it is normally from a
commodity perspective, but from a power
perspective. It's an affordability crisis. "
The impact can be felt even in Asia,
where shares of gas generation are relatively
small, and the fuel supply mix is
less dependent on spot prices, said
S&P Global's Jenny Yang. What's significant,
however, is in the short term-and
particularly in China where gas power
makes up 3% of total generation-these
impacts have persuaded generators to
fall back on domestic coal resources,
she said. " I think a lot of other markets
in Southeast Asia share very similar
challenges as China, " Yang said. Other
countries like Japan and South Korea
are meanwhile concertedly exploring
nuclear again. Japan is slated to restart
several reactors this year to offset LNG
generation, and South Korea recently
elected Yoon Suk-yeol, a new president
who supports policies that favor nuclear.
In the U.S., prices " will look similar to
what they did last year on both gas and
power, " suggested Douglas Giuffre, S&P
Global senior director. " Certainly sub$5,
possibly sub-$4. So, not changing
25
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Power April 2022

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