Alan Kay, an American computer scientist, researcher and visionary once said: “The best way to predict the future is to invent it”. It may sound like a strange thing to say but it makes sense, especially in our business.
Securing fuel supply, at a reasonable cost, while trying to meet emissions targets is the challenge facing most power companies today. During the opening keynote session at Power-Gen Europe in Cologne at the end of May, Dr Uriel Jonathan Sharef, Member of Siemens Corporate Executive Committee presented his view on what Europe’s power sector will look like in 20-30 years time. Dr Sharef said that the EU would need to add an extra 250 GW by 2050 with Germany alone needing an additional 48 GW by 2020. Notably he claimed that nearly half of the EU’s energy needs would be covered by imported fuels, and that dependency on gas will increase to 80 per cent by 2030.
Dependency on imports is always a risky option since politics often come into play. And as Sharef pointed out, “The situation will only get worse as nuclear is phased out”. Sharef added that all technologies had to be used. The only question was what the share of resources would be.
It was a view echoed by at least three of the four keynote speakers. John Krenicki, president and CEO of GE Energy, could not “imagine meeting the challenges without nuclear” and added: “There will be explosive growth in renewables over the next 10 years.” Dr Udo Brockmeier, CEO and Chairman of the Management Board at German utility, EnBW, said: “We will do everything to keep our nuclear plants running. The second part of our strategy is to strengthen renewables.”
In short, the speakers agreed that the best way to safeguard the future was by ensuring a mix of fuels in the generation portfolio. Even so, trends have been emerging. There has been growing support for coal. Certainly in Europe, security of gas supply is one of the main reasons why coal is coming back into favour. Also, when looking at national allocation plans, the impacts for coal have not been as severe as expected.
Even so, coal will still face its challenges. When asked whether he thought the future laid with coal fired plant, Dr Henrich Quick, responsible for asset development in Germany for Atel Energie, said that the availability of sites was limited, particularly in Germany, and local authorities were less willing to approve a large coal fired plant than a “clean industrial” [gas] plant. Yet he agreed there is still the perceived issue of security of supply. The posturing of Russia and talk of disrupting supplies to Europe has brought this into focus in recent months.
At a roundtable discussion at Power-Gen, the question was raised: is gas security really an issue? Both executives from Atel Energie and Natgas said they did not see a problem.
In a later interview, Quick said availability is not an issue but the shortage of cheap gas for power supply was. “Gas can be sold at pretty attractive prices to household and industrial users but those prices are much higher than power plant owners are willing or able to pay. Our mid term expectations are that gas prices will remain at today’s high levels.”
With high gas prices, Atel is only looking at gas projects where there are other synergies. Quick explained: “We will look at projects where heat demand, for example, will increase the efficiency of projects; or projects where the site has additional benefits such as available infrastructure or very competitive gas supply. Greenfield projects are unattractive.”
Detlef Weidemann, member of the management board of Natgas said: “I am not concerned about security of supply at all. Russia’s recent announcement that the Ukraine should store up gas in the summer obviously raises a general concern but there is sufficient gas around. With the long term gas supply contracts which big importing companies have, there should be no real concern at least for the next 10-15 years.”
Certainly there are a number of gas pipeline projects coming up. The Nabucco pipeline, which will come through Turkey and then go to Austria and other countries in eastern Europe, will offer opportunities, as will another pipeline going through the Baltic. This Baltic pipeline will bring gas from Libya and Egypt through Italy.
But while pipeline developments and LNG mean there will be plenty of gas, the question of price remains. Weidemann predicted: “Prices will not really come down. Most of the gas import contracts are connected to oil prices. In the last two years, we’ve not seen the historical trend where gas price goes down in the summer. Spot market prices are increasingly setting the benchmark, and for the last two years these have been way above the import price. If anything, prices will probably go up.”
On the face of it, it may sound less than rosy but let’s not look at high gas prices as a total disaster for the industry. It just means that the industry will work harder to compensate in other ways and ultimately invent its own secure and balanced future.
Junior Isles, Publisher & Editorial Director