Ladies and Gentlemen,
I am delighted to be here to address this conference on the external dimension of European energy policy, and would like to thank Ms Tuge-Erecinska for the opportunity to be here today. I look forward to the Polish Presidency of the European Union.
I would like to talk about the vital role gas can play in addressing the significant energy challenge that Europe and the world is facing. And the important role the EU can play in helping to secure that gas supply, as there is little doubt that Europe will remain dependent on largely imported fossil fuels for many years to come.**
The Energy Challenge
The energy challenge, which I have personally been trying to meet for many years, lies in getting the balance right between meeting the increasing demand for affordable and secure energy, whilst at the same time, tackling climate change. Maintaining a sufficient supply of reliable, affordable and sustainable energy is crucial for Europe’s growth and development. But with energy consumption expected to almost double in the next 25 years; access to resources becoming ever more difficult; and climate change becoming increasingly challenging, the energy challenge is complex and multifaceted.
My coalition government believes nuclear power, without public subsidy specific to the nuclear industry, has a role to play in our energy mix, alongside a significant expansion in other low carbon technologies, including renewable and carbon capture and storage, so long as costs can be lowered and commercial viability achieved. Gas will become increasingly dominant over the years to come. In the UK alone, Gas has gone from making up 1% of our electricity generation, to 43%.
We must also remain aware of the continued interplay between energy issues and geo-politics. The recent events in the Middle East and North Africa have exposed Europe’s vulnerability to supply disruptions and extreme price volatility. And the Ukraine-Russia gas dispute in 2009 had a major impact on many European countries dependent on Russian gas transported through Ukraine.
But while the challenge is great, the leadership of European governments and industries can be greater.
The role of gas in tackling climate change
There are those of course who say Europe’s ambition to tackle climate change is at odds with Europe’s commitment to meeting the energy challenge. This is not the case. It is a false choice. As we make the transition to a low carbon economy, natural gas is likely to become increasingly prominent in the energy mix. Gas is the cleanest fossil fuel, it generates 50% less carbon per kilowatt hour than coal. Moving away from coal and towards gas provides a realistic and affordable pathway to achieving a major reduction in greenhouse emissions. And against the backdrop of the global economic downturn, in the shorter term, many European governments will increasingly rely on natural gas to meet their international climate obligations. Furthermore, gas can work for transport industry too and is interchangeable with oil.
I see gas as a firm and large stepping stone to a lower carbon future.
The EU has a key role to play in enhancing energy supply. Instruments such as the European Neighbourhood Policy offer a platform for promoting the transparency, economic liberty, internal markets and the investor-friendly environments vital to creating reliable and affordable supplies of energy, which includes gas supplies
The EU should continue to encourage open markets and greater transparency. We need to build on international activity such as the Energy Community Treaty and the Energy Charter Treaty.
But it’s not just about enhancing our existing energy supplies, we also need to diversify the sources of supply by creating alternative routes such as through the Southern Corridor which will allow Azerbaijani, Turkmen, and perhaps Iraqi gas to flow into Europe.
The advancement of technologies such as horizontal drilling and hydraulic fracking are transforming the way the world views energy reserves. The Shale Gas Revolution in North America demonstrates the importance of unlocking unconventional energy reserves: five years ago the US was a net importer of gas; today it is an exporter.
And this should not be limited to North America, shale gas has the potential to radically transform the European energy landscape too.
As you will know exploration is already underway in Poland with preliminary estimates by the US Energy Information Administration suggesting that Poland could have as much as 1.4 to 5.3 tcm of shale gas. Although uncertainties and obstacles remain, the IEA estimates that unidentified or underdeveloped unconventional gas could extend the world’s gas reserves by as much as two hundred years. This increases the pressure to reduce the cost of renewable and to concentrate on the greatly valuable green innovations, like smart grids and new generation technology.
Carbon capture and storage
And while gas can provide the affordable intermediary step on our path to a low carbon future adding carbon capture and storage to gas generation has offered the possibility of natural gas becoming a permanent feature of the low carbon future. Gas power stations fitted with CCS would provide a 90% reduction in CO2 emissions.
Transport, capture and underground storage have all been demonstrated. But for CCS to succeed we need to prove the economic viability of the full chain of CCS on commercial scale power stations to gas producers as well as consumers. The EU has a strong record in promoting CCS; the sale of 300 million EU Emissions Trading Scheme allowances to support commercial-scale demonstration projects is the most recent example.
The EU must continue to develop and demonstrate CCS technology, and encourage all countries, particularly gas producers, to invest in developing this technology.
The EU must also facilitate practical cooperation on low carbon technologies through international fora and work in partnership with key emerging powers such as China and India to help them move towards a low-carbon future.
A good illustration of this is the EU’s Near Zero Emission Coal initiative with China, aimed at addressing the challenge of increasing energy production from coal in China while tackling growing carbon dioxide emissions. The agreement has the objective of demonstrating advanced, near zero emissions coal technology through carbon capture and storage in China and the EU by 2020.
Increasing gas demand
In the UK, we are looking at the impact of new gas developments on our future energy mix. As our gas production from the North Sea declines, we expect our dependence on imported gas to increase from around 30% to 50% by 2020. This trend is likely to be mirrored across the EU which is increasingly dependent on international gas imports.
While increases in supply are important, we must not lose sight of the fundamental shift in the dynamics of global demand. As gas becomes a more tradable commodity, supplies should become more reliable and costs will fall. The importance of natural gas in the world’s energy mix can only increase as a result of this shift in the market dynamic.
Ladies and gentlemen, I have briefly outlined the energy challenge facing Europe and the world today. I expect that natural gas will play a vital role in the transition to a low carbon future. New technologies have radically transformed the way we view our gas reserves and supply, and will have a fundamental impact on the world’s energy mix.
The world’s obligation to tackle climate change, and our need to have affordable energy to secure economic growth, mean a world that increasingly demands natural gas. If we can make CCS work on an economic scale, the demand for natural gas will continue for many years to come. This would allow gas to be more than a bridge or a stepping stone to a low carbon future, but to be part of the destination also. Europe must not simply be a passive participant in this gas revolution: it must lead in promoting and encouraging it including outside its borders.
Finally I would say this. Delivering energy is always bound to be precious and costly, given the huge capital investment involved. But it is incumbent on policy-makers everywhere to see how that can be reconciled with competitive industry and affordable prices for domestic consumers. I think we, and all of Europe, have much to do on that front to fulfil our democratic responsibilities, but that, as they say, is another Chapter!
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