Europe is facing a major precedent in times when it needs to commit its best effort to curb carbon emissions. The continent is experiencing a natural gas shortage that is forcing coal to come back to fill in for the extra demand.
As the world is recovering from the pandemic and Europe experienced colder than usual winter, demand for energy has increased, leaving gas storage sites depleted. Coal power usage in the continent rose from 10% to 15% this year.
Countries like Germany, the Netherlands, and Poland increased coal power generation to provide for the rise in energy demand. According to a report released on Monday, usage in Germany, Spain, and the Czech Republic is above the five-year average, while demand in Italy and France stayed flat.
“Gas storage is so low now that Europe cannot afford to run extra power generation with the fuel,” said Andy Sommer, team leader at Swiss trader Axpo Solutions AG.
Part of the problem is Russia – the largest natural gas supplier of Europe, that sent less gas to the continent via Ukraine. There is also a delay in the construction of the much-disputed Nord Stream 2 link to Germany. The natural gas pipeline project that is supposed to send gas from Russia directly to Germany is postponed for more than a year.
The pipeline is supposed to be good for the environment as it will replace coal, reducing carbon emissions in Europe’s power sector. However, there are many arguments against it on geological and security grounds as Europe’s energy supply will become more dependent on Russia.
Europe’s natural gas storage is 25% below the five-year average which has caused the benchmark Dutch gas to surge more than 50% this year. Futures are also boosted, trading around their highest levels for this time of the year since 2008.
“The market is super tight, it’s trying to get less gas into power,” said Trevor Sikorski, head of natural gas and energy transition at consultants Energy Aspects in London.
Carbon Emissions Potential Prerequisites
Even the high carbon pricing in the EU cannot do much to limit power generation. According to Axpo’s Mr Sommer, generators with “highly efficient” new plants can still produce power from coal until 2023, even with high carbon emissions prices.
Given the demand-supply deficit situation in Europe, it is somehow easier to conclude why G7 leaders did not set a firm date on ending coal burning at the recent G7 Summit in Cornwall. The return of coal in Europe also sends the wrong message ahead of the COP26 climate change conference in Glasgow in November this year.
Even though political leaders realize that coal is still one of the most reliable sources of energy generation, they have committed to rapidly scale technologies and policies that accelerate the transition towards a carbon neutral economy.
According to Ursula Tonkin, portfolio manager of the Whitehelm Capital Low Carbon Core Infrastructure Fund, coal is likely to be phased out by 2030, 2035 either way, even though a deal by political leaders would further facilitate the process.
The extended burning of coal in Europe recently has made a dump on carbon removal, however, the need for decarbonization of the global economy is recognized among countries. Investments in low carbon solutions for industries have been accelerating around the world which is expected to make the dirtiest energy sources completely obsolete in the next few decades.
