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European gas association president calls industry situation “disastrous”

01 August 2013

Eurogas president Jean-Francois Cirelli said in his introduction to the organisation’s 2012-13 annual report that the business environment for members has become harsher than ever and there was little likelihood of any short-to-medium term improvement.

EON SE’s Irsching-5 in Bavaria last year operated less than 25% of the time as slumping power prices made burning natural gas unprofitable
EON SE’s Irsching-5 in Bavaria last year operated less than 25% of the time as slumping power prices made burning natural gas unprofitable

The association represents the European gas wholesale, retail and distribution sector, with 50 companies and associations from 26 countries as members.

In the report, released in July, he spoke of “profound transformations in the market” that were making it harder to maintain investment levels and plan for the future with confidence.

He identifies three main factors responsible for the sector’s difficulties.

“Firstly, none of us could have predicted the impact that the shale gas revolution in the United States would have here in Europe. Large quantities of cheap coal from the US, displaced by even cheaper shale gas, has continued to fl ood the European market, pushing coal prices down.

“Secondly, the share of renewable energy sources has continued to grow in the European
Union, thanks to extensive national support schemes and other favourable treatment. 

“Thirdly, the number of allowances issued under the Emissions Trading System was misjudged and the predicted level of emissions did not occur. In particular, the possibility of a major economic downturn was not factored in. The result has been an oversupply of allowances and much lower than expected allowance prices. Unless the number of allowances auctioned is reduced in the short term and the ETS Directive is further revised in view of 2030, the system will not provide a strong incentive for emissions reductions,” Cirelli says.

He considers the competitiveness of the EU economy to be affected by the high price of electricity, whose cost has risen mainly due to the levies imposed to finance renewable energy.

“Security of electricity supply has become an issue as flexible and effi cient combined-cycle gas-fired power stations are mothballed or closed because they are underused and uneconomic. Nevertheless, they are needed to back up variable renewables. 

“Environmental sustainability is adversely affected as carbon dioxide and other emissions from electricity production rise in countries resorting to coal.

“What is even worse is that there is no sign of this situation coming to an end in the medium
term. No political willingness has thus far provided the energy sector with the long-term
predictability and short-term signals necessary to encourage the investments needed to
ensure competitive, secure and clean supply,” he concludes.

Earlier, Cirelli, who is also vice-chairman of French gas giant GDF Suez, spoke to Reuters about the situation of the industry.

"The state of affairs in the gas sector in Europe is disastrous," he said.

He said EU gas consumption dropped 2% in 2012 after falling 10% in 2011. Half of the decrease was caused by lower gas consumption by power plants, the other half to a structural fall in final gas demand, notably the effects of energy efficiency and substitution.

Cirelli's own company, GDF Suez, has mothballed or closed 7.3 gigawatts of power generating capacity during 2009-2013 and is set to take another 1.3 gigawatts offline, a total equivalent to the capacity of eight nuclear power plants.

He said that, in the UK, the share of gas in the generation mix decreased to 25% from 40% between 2011 and 2012, mainly in favour of coal, whose share went from  30% to 42% over the same period.

As cheap shale gas displaces coal in US power plants, US coal exports to Europe rose 23% last year, pushing international coal prices lower. In some EU countries, the amount of electricity generated from coal is rising at annualised rates as high as 50%, Cirelli said.

"The exports towards Europe make a mockery of the green EU policy. We reject shale gas and we import coal," he said.

He said Europe needs gas-fired electricity plants as they alone are flexible enough to back up intermittent power from renewables and called for an EU-wide system to guarantee backup power.

A rare bright spot is the development of biogas and biomethane produced from landfills, wastewater plants and biomass. Cirelli said these gases can now be injected into the gas networks almost everywhere in Europe.

The European gas industry also hopes that cheaper US shale gas will eventually benefit the EU gas industry when the United States starts exporting, but significant amounts are unlikely to arrive in Europe before late 2016. 

EON SE’s Irsching-5 in Bavaria last year operated less than 25% of the time as slumping power prices made burning natural gas unprofitable

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