Playing our Part

The year 2007 promises to be something of a watershed for energy policy in Europe. Politicians and policy-makers in Brussels and in the UK in particular, have set themselves some ambitious aspirations.

Both the EU and the UK have decided to commit themselves unequivocally to strategies that will tilt the balance of energy policy away from obtaining the lowest-cost sources of supply and firmly in the direction of prioritising greenhouse gas emission reduction. EU and UK targets of 20 per cent greenhouse gas reductions by 2020 against a 1990 benchmark are laudably ambitious — but are they achievable?

An action plan expected later this year designed to achieve the goals outlined in the European Commission’s energy package and a May white paper from the UK government should form the critical foundations to this European energy future.

The radical — or conservative — nature of the proposals that emerge will define the extent of Brussels and London’s political courage. Making an important contribution towards saving the planet versus lowest-cost energy may seem like a no-brainer but, if politicians fail to make the case for tackling the challenge of climate change convincingly, or European energy consumers feel that they are paying higher prices to address problems that they believe stem from countries in other parts of the world, then there is likely to be an electoral backlash.

But let me say straightaway that the responsibility does not lie solely with elected politicians. Energy companies need to play their part in delivering the two energy policy challenges that define the first part of the 21st century: tackling the causes of climate change at the same time as ensuring security of energy supply.

Companies that specialise in natural gas, such as my own, BG Group, are in the enviable position of being able to make important contributions to both challenges — challenges that often seem mutually contradictory. And why might this be the case? Well, for three reasons, really.

First, natural gas is abundant. There are sufficient proven global reserves to meet current levels of demand for 65 years and there is likely to be as much again in reserves classified as ‘probable and yet to find’. Though it’s true that a significant proportion of these reserves are in what we might term ‘difficult’ locations — remote or politically challenging — the incentives for producer countries to develop their resource is compelling because of the strategic importance of natural gas in the energy mix over the next few decades

Second, natural gas is the cleanest of the hydrocarbons, producing 22 per cent less carbon on combustion than oil and 40 per cent less than coal. In any route to a low or no-carbon future, gas is an essential component.

The third reason relates to the fact that the delivery of natural gas by pipeline or in liquefied form by ship are mature technologies at a time when politicians and policy-makers are tempted to place their trust in technologies that might be proven but are not yet economic.

Renewable energy sources, a new era of nuclear generation, and carbon capture and storage are all examples of technologies that could represent the long-term future of the global energy mix but, until their economics improve sufficiently, natural gas is the obvious choice to fill any energy supply gap.

This is more than ever the case because of two developments that are making a fuel that was once largely intra-regional into one that is increasingly inter-regional and, at times, even global:

• The development of huge new gas pipeline proposals such as the North European Gas Pipeline from Russia to Germany and the Nabucco pipeline, linking the Caspian region to Europe, and

• The rapid evolution of the global liquefied natural gas market, which has seen inter-regional trade in gas by ship increase exponentially in recent years with further fast growth now inevitable.

But companies like my own can’t afford simply to sit back and rely complacently upon demand for natural gas increasing, as the pace of the drive to combat global warming quickens. If our governments need to show political courage, energy companies need to show leadership and vision too.

In the gas industry, we can do this in two ways. First, by strengthening security of gas supply in the UK and Europe by maximising the gas-chains we can construct that link producer countries to consumer markets to mutual benefit. And, as a leading Atlantic Basin LNG player, BG is well placed to do this by increasing the diversity of sources of gas supply that can supply European markets.

For example, we were the first company to export Egyptian gas to Europe and we will be in a position to bring gas supply to the UK and Europe from Africa, the Middle East, Trinidad and Norway in coming years.

The second requirement upon us is to be conscious of the technological developments that can make our fuel of choice still more environmentally acceptable. In the case of natural gas, carbon capture and storage (CCS) is likely to be the technology that can yield the most significant and the earliest results.

For that reason, BG Group is currently engaged in a detailed analysis of the practical and economic options available to us. These could be CCS initiatives aimed at capturing greenhouse gas emissions from oil and gas production and storing them either beneath the sea or in coal seams onshore. There could also be technologies based on CCS within power generation. The recent focus has been on CCS technologies designed to clean up coal-fired power generation but the same principles could be applied to gas-fired power generation to reduce its emissions still further.

These are early days, but none of us can afford to sit back and wait for others to make the running. Politicians in the UK and Europe face a major challenge to their political courage. For energy companies the challenge is different: how to underpin security of energy supply at the same time as exploring all of the options for reducing our carbon footprint?

These are not politicians’ problems; nor are they consumers’ or energy companies’ problems. They are problems that each stakeholder group must address and take responsibility for. We don’t kid ourselves that this will be easy, but we at BG Group are ready to play our part.

For further information contact Phil Murphy, Head of Corporate Affairs, Europe and Central Asia (phil.murphy@bg-group.com) or Claire Pinborough, Government Affairs Analyst (claire.pinborough@bg-group.com)