Flame 2013: A coherent EU energy policy is necessary for fully integrated market

Over 200 gas industry professionals gathered today in Amsterdam for the first day of the Flame 2013 conference.  The conference is an opportunity to hear from a wide range of experts and key figures from across the energy sector. These include Dieter Helm, Fellow at New College, Oxford University, Roger Bootle, MD, Capital Economics and Philip Lowe, Director General, Energy DG, European Commission.

The agenda for the first day has been a broad overview of the current state of play for the gas industry.  We heard about the current global economic forecast, the market from the perspective of a gas producer and listened to a debate about the effect structural change could potentially have on the gas market.

The overall feeling was one of cautious optimism that despite the fact that European gas demand is somewhat uncertain, that growth was likely to resume by 2020.

Speakers generally agreed that a lack of a coherent European energy policy has acted as a barrier to a fully integrated energy market.  This has been caused in part by energy policy being a national prerogative, which has led to diverging policy across Europe.

Rune Bjornson, Senior Vice President of Statoil suggested that in order to have a predictable policy framework by 2030 the EU would need to “set a single CO target, ensure a level playing field for competing technologies and to promote market based solutions”.  His view is that gas market liberalisation is moving forward but that current policies are too costly and complicated.

Similarly Stefan Judisch, CEO of RWE Supply and trading agrees that there is a need to implement fundamental structural change and noted that demand has decreased due to the economic recession and in some countries by the growth of renewables; and most importantly that gas needs political support if it is going to complete with coal.

This was followed by a number of presentations on the prospect of a golden age for gas.  It was noted that much of the global growth in demand for gas came from China and the Middle East, and that China uses as much gas as Germany and Italy combined whilst demand in the Middle East stands at 80% of that in Europe.  Dr Fateh Birol, Chief Economist at the International Energy Agency pointed out that at its highest level, EU gas prices traded 5x higher than in the US, a price decoupling caused by oil indexation and the US’s unconventional gas revolution.

This debate led to a discussion around shale gas and it was noted that both industry and governments in the EU would have to work to earn and maintain a “social licence” to produce unconventional gas and furthermore that what was a “silent revolution” in the US is likely to be a longer and more challenging transition in Europe.

Another reoccurring theme was that the relative economics of gas and coal will remain a key determinant of future natural gas growth but it was highlighted that gas relative to coal can markedly decarbonise the energy sector.  Though it was caveated with the fact that switching to gas alone will not ensure the EU reaches its carbon reduction target.  It was also noted that in meeting these targets, two thirds of the known fossil fuel reserves  cannot be used before 2050 unless CCS is widely deployed.  Ben Hollins from Woods MacKenzie  summarised the situation as “coal is struggling against gas in the US whilst gas is struggling against coal in Europe” and will continue to do so unless there is a policy intervention.

In summary it was agreed that natural gas is a crucial fuel in the transition to a low carbon economy but that it alone is not a panacea.

Tomorrow will cover investment in infrastructure and take a more detailed look at the situations in Russia and the US.

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