Natural gas in Eastern Europe: risk or opportunity?

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by Alexandrina Rotaru and Iain Todd, Erasmus University Rotterdam

 

Natural gas as a bridging fuel

Since the new Commission took office in December 2019, the European Green Deal (EGD) has been the most-lobbied topic in Brussels (Transparency International EU, 2020). One of the topics that has received most attention was whether to include natural gas as a bridging fuel in the transition towards climate neutrality. This is a controversial issue. In its initial proposals, the Commission proposed that the EGD would not finance any fossil fuel projects. Nevertheless, the efforts of coal-reliant Member States and the fossil fuel industry have won concessions, securing financing for natural gas under several financial instruments – under certain conditions – until 2025.

Why is that one might wonder? Well, natural gas is advocated to be an important transition fuel for regions which rely heavily on coal. Advocates argue in favour of natural gas for primarily three reasons:

 

  1. Natural gas has significantly lower CO2 emissions than coal or oil, and so could prove a faster way of moving away from coal.
  2. The gas infrastructure being built now could be used in the future for cleaner forms of gas, such as displacing natural gas with hydrogen.
  3. Proponents suggest that natural gas constitutes an important part of domestic resources in certain European regions (particularly Poland, Hungary, Romania and Bulgaria) and its deployment would enhance the security of national energy supply.

Research suggests that these three arguments may not hold.

Ongoing discussions around methane emissions natural gas

The bright picture presented by gas advocates is not fully accurate. Although natural gas has lower CO2 emissions than coal per unit of energy released, several studies present evidence which indicates that gas might be like – or worse than – coal due to the methane emissions leaked in the process of gas production and distribution. Discussion of gas often focuses on CO2 emissions, which are indeed significantly lower than coal. However, the leaked methane emissions – a significantly more potent greenhouse gas than CO2 – could make natural gas a worse energy source for the climate when the “leakage rate” of gas exceeds 1% of the total amount of gas recovered (Alvarez, 2012; Howarth, Santoro, & Ingraffea, 2011; Howarth, 2014). And building the infrastructure necessary for the distribution and transmission of gas would simply mean a lock-in for at least 25 years in a polluting source of energy that risks emitting high amounts of methane. Consequently, environmentalists suggest that renewables are the safest and most reliable way of becoming climate neutral when replacing coal.

An infrastructure for hydrogen may never pay off

Secondly, although using current infrastructure for hydrogen in the future seems like a promising idea, some aspects of the large-scale production of hydrogen could be detrimental to the climate. According to an S&P Global Platts report, currently 96% of all hydrogen is produced with fossil fuels. Given this, it could be some time until a clean form of hydrogen generated from carbon-free resources will become a financially viable alternative. Simply, it could be too late for decarbonised hydrogen to be part of the transition given the pace of the market.

Natural gas still favoured due to job and energy security

Although from an environmental point of view gas is entirely disfavoured vis-à-vis cleaner forms of energy, there is still a positive outcome stemming from current EU plans. By allowing funding for natural gas to flow towards member-states that most need it, the security of energy in the upcoming years would be fostered and the reduction of coal plants accelerated, allowing for a significant reduction of overall CO2 emissions. Furthermore, the use of gas in the most affected coal-reliant countries (Poland, Hungary, Romania and Bulgaria) will diminish the challenges that come with the transition such as unemployment. According to the Commission, one region in Poland, might lose up to 41,000 jobs by 2030, and two others in Bulgaria and Romania are likely to each lose an estimated 10,000 jobs.

Poland, Hungary, Romania and Bulgaria to invest in gas market

According to national official plans for their energy and climate sector submitted to the Commission, Poland, Hungary, Romania and Bulgaria envision a large role for gas in their energy systems in the upcoming 5 to 10 years. All countries are planning to increase their domestic production of natural gas, with Romania having the largest potential in terms of accessible reserves making it the second largest gas-producing EU country. With respect to their domestic gas infrastructure, all countries envision measures to develop and upgrade the existing gas infrastructure in order to improve energy efficiency. New infrastructure for international interconnections will also be built to facilitate import diversification, which will assist energy security and contribute to an integrated and competitive gas market in Central and Eastern Europe.

EU Finance provides opportunity for modernisation

The European Union still provides funds that can finance gas projects until 2025, if their emission do not exceed 270g CO2e per KWh. The 4 Eastern European countries could take advantage of this opportunity and use EU funds for achieving the least damaging outcome in respect to climate when (re)structuring their gas infrastructure. To achieve this the countries must:

  1. Give priority to the modernisation of the gas production and distribution systems to reduce the risk of methane leaks as much as possible.
  2. Any new extraction of natural gas should be achieved such that methane emissions in the process are kept at a minimum.
  3. Invest in renewable sources of electricity which will ensure that clean forms of hydrogen produced through electrolysis processes can be increased in scale, and thus, replace natural gas in upcoming years.
  4. Investments in research and development on how to scale up production of clean hydrogen should be encouraged.

The future of natural gas in Eastern Europe does indeed represent both a risk and an important opportunity for the region.

Sources

Alvarez, R. A., Pacala, S. W., Winebrake, J. J., Chameides, W. L., & Hamburg, S. P. (2012). Greater focus

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Euractiv. (2020, December 18). EU agrees to set aside 37% of recovery fund for green transition.

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Euractiv. (2021, February 9). EU does not exclude funding gas, highways under green recovery plan.

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exclude-funding-gas-highways-under-green-recovery-plan/

Euractiv. (2021, May 7). Using hydrogen fuel risks locking in reliance on fossil fuels, researchers warn.

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Howarth, R. W., Santoro, R., & Ingraffea, A. (2011). Methane and the greenhouse-gas footprint of

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