European gas markets have lost over 10 years of growth, with demand back to the levels of the 1990s, Professor Jonathan Stern of the Oxford Institute for Energy Studies told the UK House of Lords EU energy subcommittee Wednesday.
He said that "European gas demand has been in freefall" due to economic recession, the growth of renewables, low coal prices and strong gas prices.
There had been "declines in gas demand to levels that we never expected to see," he said, arguing that Europe was seeing more of a "dark age of gas" than the once-predicted "golden age." The International Energy Agency in a 2011 report asked whether the global energy market was entering a "golden age" for gas in which the fuel would take up a bigger share of the global energy mix.
Stern said that the market was "beginning to see the decline of gas in Europe as a whole," although he pointed out that neighboring Turkey, a possible future EU member, was experiencing double-digit growth.
Stern also told the committee that hub-based prices were becoming increasingly important in European gas markets. He said this year, or at latest next year, the majority of gas sold in Europe would be on hub-based prices, and that in three or four more years "virtually all gas sold into Europe" could be on hub prices.
He said that hub prices were "becoming more and more co-integrated" across Northwest Europe, although Eastern Europe, Spain and Italy showed greater variation in prices.
Major producers had less pricing power at a time when demand was falling and the market was becoming more global, he added, though cautioning that the gas market "is not and will never be as fungible as the global oil market." Stern did not expect US gas prices to head much over $6/MMBtu in the near-term and did not see European prices falling much below $10/MMBtu, noting that this would have an impact on the competitiveness of major gas-consuming industries in Europe.
SHALE, CCS PROGRESS SLOW
Stern said that he doubted there would be much significant shale gas production in European countries before 2020, which he defined as more than a couple of billion cubic meters a year.
Since a study by the Oxford institute two years ago results had been more disappointing than expected, with for example some big companies pulling out of Poland.
Stern said, however, that shale gas was "a real prospect" in some Eastern European countries in the longer term, and in the UK given sufficient "public tolerance" of drilling operations.
Studies from the institute also showed slow progress on carbon capture and storage. Though technically feasible, it was not working commercially.
The only active projects are in enhanced oil recovery schemes, which benefit from oil prices. But in power generation the economics did not work at present.
Stern also said that the economics did not work at the moment for more gas storage in the UK. "It does not pay to build large scale storage in the UK," he said, adding, "but we should." The future of gas in power generation varied from country to country across Europe.
In Germany, gas looked like being "progressively phased out" of power generation in favor of coal and renewables, whereas in the UK the market was moving more toward gas and renewables.
Stern said that the government's new gas-fired generation strategy did not create a new "dash for gas" in UK power generation.
There were already a lot of underutilized gas-fired power plants in the UK, he said. The reasons for new plants not being built was not a lack of sites or planning permission, but the plants struggling economically without changes to the market framework.
