Gas: Squaring Security, Affordability and Low Emissions - Mike Bradshaw, Warwick Business School, and Christophe McGlade, UCL
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By Mike Bradshaw, Warwick Business School and Christophe McGlade, UCL Presented at 'Staying on Target: Securing the UK's Energy Future in Challenging Times'; an event organised by the UK Energy Research Centre, on Wednesday 30 April 2014, 14.00-19.00, in London, United Kingdom.
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Gas: Squaring Security, Affordability and Low Emissions - Mike Bradshaw, Warwick Business School, and Christophe McGlade, UCL
- 1. Gas: Squaring Security, Affordability and Low Emissions Mike Bradshaw, Warwick Business School & Christophe McGlade, UCL Institute for Sustainable Resources Staying on Target: Securing the UKโs Energy Future in Challenging Times 30 April 2014.
- 2. Security Affordability Low Carbon? The Gas Trilemma
- 3. Click to add titleUK Natural Gas Trends 1990-2012 Source: DECC Imports > Production
- 4. Click to add title โThere is no perfect definition of energy security. When discussing energy security the (UK) Government is primarily concerned about ensuring that consumers have access to the energy services they need (physical security) at prices that avoid excessive volatility (price security). DECC (2012) Energy Security Strategy, p. 3 Security and Affordability
- 5. Click to add title THE UKโS CONTEMPORARY GAS BALANCE * * VECTORS 1.UK Continental Shelf 2.Norwegian Continental Shelf 3.Interconnectors (IUK & BBL) 4.Liquefied Natural Gas 5.Exports to Ireland 6.Domestic gas storage 7.Domestic unconventional gas? ?
- 7. UK LNG Imports LNG Facility Ownership Capacity 2012 % Dragon LNG (Milford Haven) BG Group: 50% Petronas: 50% 6bcm 1.2% South Hook (Milford Haven) Qatar Petroleum Intl.: 67.5% ExxonMobil: 24.15% Total: 8.35% 21bcm 73.4% Isle of Grain (Essex) National Grid (Sonatrach, GDF-Suez, Centrica, E.ON Ruhrgas, and Iberdrola) 20.3bcm 25.4% Others Algeria, Egypt, Nigeria, Norway, LNG = 46.8% Of UK Gas Imports in 2011 and 19.2% UK Gas Imports in 2013p.
- 8. Click to add titleInternational gas price divergence Source: BP Statistical Review 2013
- 9. Click to add titleUK Global Gas Challenges Source: National Grid 2013 Gone Green 2013
- 10. A Supply Chain Approach to UK Global Gas Security
- 11. Security Affordability Low Carbon? The Gas Trilemma
- 12. Click to add title Export volumes are severely impacted by maintaining oil-indexation but helped by an ambitious climate agreement โข Using TIAM-UCL, we modelled two different structures of gas markets in scenarios with different long-term temperature increases โข A continuation of existing regionalised prices โข A global gas price based on gas supply/demand fundamentals โข Defending oil-indexation in the short-term will lead to a destruction of export markets over the longer term โข Total exports, particularly LNG, are larger under a 2o C scenario โข If countries or companies want to expand gas exports, they should actively advance an ambitious global agreement on GHG emissions mitigation 0 100 200 300 400 500 600 700 800 900 1000 1100 2010 2015 2020 2025 2030 2035 2040 2045 2050 Totalgasexports(Bcm/year) Gas exports in 4oC scenarios Australia Global gas price CIS Regionalised gas price Middle East 0 100 200 300 400 500 600 700 800 900 1000 1100 2010 2015 2020 2025 2030 2035 2040 2045 2050 Totalgasexports(Bcm/year) Gas exports in 2oC scenarios Australia Global gas price CIS Regionalised gas price Middle East
- 13. Click to add title Natural gas can act as a transition fuel globally but its potential varies by region 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 2010 2020 2030 2040 2050 Annualgasconsumption(Tcm/year) 2oC scenario 3oC scenario 4oC scenario -70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Changeinconsumptionbetween2oC and4oCscenarios 2020 2030 2040 2050 โข We say that gas can act as a bridge to a low-carbon future for the time when consumption is rising in a 2o C scenario and when consumption is greater than in a 4o C scenario โข Under this definition, gas can act as a transition fuel to a low-carbon future on a global level out to 2035 โข But this does not mean gas can play this role within all regions. For example: โข Strong potential role for gas to act as a transition fuel in China, Japan and South Korea โข But almost none in Africa, Canada, Central and South America, the Middle East and Mexico
- 14. Click to add title Coal must be curtailed, but gas-for-coal substitution alone is not sufficient โข The increased use of gas needs to be accompanied by an even larger decrease in coal consumption if the global temperature target is to be achieved โข Classifying gas as a transition fuel needs a convincing description of how global coal consumption will be curtailed, or emissions from the increased use of gas will be additional to those from coal โข Gas only โdisplacesโ coal in early periods (up to 2015), afterwards efficiency and low- carbon fuels are more important than gas in replacing the drop in coal consumption -100% -80% -60% -40% -20% 0% 20% 2010 2015 2020 2025 2030 2035 2040 2045 2050 Changeinconsumptionbetween2oC and4oCscenarios Gas Coal 0% 10% 20% 30% 40% 50% 60% 70% 80% -300 -250 -200 -150 -100 -50 0 50 100 150 200 250 2015 2020 2025 2030 2035 2040 2045 2050 Changeinconsumptionbetween2oC and4oCscenarios(EJ) Oil Nuclear Renewables Gas Coal Biomass Drop in coal met by gas
- 15. Click to add title Without carbon capture and storage, gasโs potential role is drastically reduced 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 2010 2020 2030 2040 2050 Annualgasconsumption(Tcm/year) 2oC scenario 2oC scenario with no CCS 4oC scenario -60% -50% -40% -30% -20% -10% 0% 10% 20% 2015 2020 2025 2030 2035 2040 2045 2050 Changeinconsumptionfrom4oCscenario 2oC scenario 2oC scenario with no CCS โข If carbon capture and storage (CCS) is not available, global gas consumption peaks much earlier โข The absence of CCS therefore shortens the natural gas bridge by ten years, and also results in the subsequent need for a very rapid decline in consumption โข Multiple uncertainties and challenges exist over whether CCS will be technically viable, but the commercialisation of CCS is crucial for the future role of natural gas in a decarbonised energy system
- 16. Security Affordability Low Carbon? The Gas Trilemma
Editor's Notes
- Have been modelling the role of natural gas in the future under a variety of scenarios using the cost-optimising integrated assessment model TIAM-UCL TIAM-UCL is a tool that has been developed throughout UKERC phase II over the past 5 years which can be used to produce projections of the future energy system under different scenarios on a global and regional basis For this project, one of the first areas we examined was the effect of different market structures on the future role of gas . As MB mentioned, we currently have very regionalised gas market, but there could possibly be a โglobal gas priceโ, based on gas-on-gas competition, that forms in the future. We therefore modelled these two different structures, the results presented here (on the graph in the left) focus on level of exports by three of the really major gas exporting regions: the Middle East, Australia and the CIS countries There is a stark contrast between future exports from these regions with traded volumes are over 5 times larger under the global gas price scenario by 2050 The move away from oil-indexation (and towards a more global gas price), delays or prevents the production of indigenous production in importing regions (including shale gas). At the same time, exporting regions reduce domestic demand (switching to alternative sources) and so grow the proportion of gas produced that is exported These results suggest that if they choose to defend oil indexation based pricing in the short-term, gas exporters are destroying their markets over the longer term. TIAM-UCL calculates the greenhouse gas emissions from all sources under these different scenarios. Since itโs an integrated assessment model, it can be used to give an estimate of the average temperature increase that these result in. For the scenarios in the left-hand-graph, we didnโt introduce any need to mitigate CO2 emissions and there is a consequent temperature rise of around 4oC by 2100. The model can also be forced to ensure that certain temperature targets are not exceeded. On the right hand graph we again look at exports under the two different gas market structures, but this time also constrain the model to make sure that the temperature does not rise above 2oC in any year (out to 2200). Itโs clear that this doesnโt have as large an effect on exports as switching between the market structures. But whatโs interesting is that under both market structures, gas exports are actually higher when there is an ambitious level of emissions mitigation than when emissions are entirely ignored. LNG exports in particular benefit in the 2oC scenarios. For example, in the 2oC scenario with a global gas price, total LNG volumes traded more than double from current levels (to over 600 Bcm/year) whereas under a 4oC temperature rise they more-or-less remain constant at current levels. This is despite their generally having higher emissions than pipeline trade, and results from the much greater level of gas demanded by the emerging Asian economies, a market that is largely supplied by LNG. We can therefore argue that gas exporting countries and companies that wish to expand their gas exports should actively pursue an ambitious global climate change agreement This issue also brings us on to another set of results looking at the future role of gas
- And thatโs this notion that gas can act as a transition fuel or bridge to a low-carbon future. Before getting onto results, important to highlight that although the phrase โbridgeโ is now very-commonly used, its quite rare for anyone to explain what they actually mean by this (and I include the IPCC in this) Here, we say that for gas to act as a bridge to a low-carbon future, total consumption must rise from current levels, and consumption must be higher in a scenario giving a reasonable chance of limiting warming to 2oC than in a scenario leading to a much higher temperature increase The figure on the left shows gas consumption on a global level under 3 different temperature scenarios โ resulting in a 2oC, 3oC and 4oC rise by 2100. Consumption is around 500 Bcm or 15 % higher throughout the 2020s in the 2oC scenario (the green line) than in the 4oC scenario (the red line), and remains greater out to the mid 2030s. It is also from around 2035 that gas consumption starts to decline and so we conclude that out to this date, gas can indeed act as a transition fuel to 2oC future on a global level. The remainder of what Iโm going to talk about, discusses the numerous caveats to this interpretation, however. The first, which is clear from this figure is that the bridging role is strictly time-limited, in this case out to around 2035. The second is that just because gas is act as a bridging fuel on a global level, it does not follow that it can do so in all regions. This is demonstrated by this figure, which gives the relative difference in gas consumption between the 2oC and 4oC scenarios in the major regions included in TIAM-UCL. We can see that in some regions, such as China, Japan and South Korea, and the United States gas consumption is always higher in the 2oC scenario. However we can also see that in numerous others, including Africa, Central and South America, and the Middle East, consumption is always lower โ in these regions we therefore suggest that there is no potential for gas to act as a transition fuel.
- Another critical factor for gas to play this bridging role is the need for a binding, global emissions reduction agreement that leads to the rapid reduction in coal consumption. In the absence of such an agreement (or in the case that its is not widely implemented) then we simply end up with growth in both coal and gas and are almost guaranteed to exceed 2oC. Any advocacy of gas as a transition fuel therefore needs to have a convincing narrative as to how global coal consumption can be curtailed. This stark reduction in coal consumption that is required is demonstrated in the left figure there. This gives the relative difference in gas (in blue) and coal (in black) consumption between the 2oc and 4oc scenario. So as just mentioned, the biggest difference in gas consumption between these 2 scenarios was around 15% in the 2020s. Over the same period, coal consumption is over 50% lower, while after 2030 coal consumption is nearly 80% lower in the 2oC scenario. This therefore also highlights that it would be wrong to talk in terms of gas simply displacing coal or gas-for-coal substitution. But this can perhaps be seen most clearly in the graph on the right hand side, which similarly plots the difference between the 2 and 4 oc scenarios but this time in terms of changes in absolute energy. We can see that in 2015 gas consumption offsets around 75% of the drop in coal consumption. This proportion drops rapidly however so that by the 2020 the increase in gas consumption less than 30% the fall in coal. A combination of very-low carbon energy sources, including renewables nuclear and bio-energy, and energy efficiency play a much greater role in offsetting the drop in coal from 2020 onwards.
- Finally, results suggest that Carbon capture and storage is critical for gasโs potential to act as a bridging fuel. The purple line here is gas consumption in an alternative 2oC scenario in which no CCS technologies are allowed. It can be seen that initially there isnโt much change from the 2oC scenario with CCS, but that after 2025 consumption rapidly falls off. The duration of the โbridgeโ is therefore reduced by over 10 years. This pattern of a vastly reduced role for gas to act as a bridge without CCS being available is similarly observed in all regions. Will end by commenting that given the fact that CCS is not yet proven at large scale, and given the range and variety of uncertainties that exist in trying to do this (as was highlighted by other work undertaken in UKERC phase II), you could probably argue that this no-CCS case is actually the more reasonable scenario in which to assess gas potential to act as a transition fuel.