The structure and power of the fossil gas industry

The fossil gas industry faces strategic choices. If it projects itself as a transitory fuel on the road to 100 per cent renewables it will have to answer a lot of questions from investors and others. If it intends to stay for a long time, it will have to fight against all scientists and most world leaders on climate change by December 2015.

On 1 June 2015, six gas company executives wrote a letter to the Financial Times about the role of gas in relation to COP21 in Paris. They represented Statoil, Total, BG, Shell, ENI and BP. Their message is that renewables will grow fast, and that their companies are investing a lot in them. But that the “need to cut emissions is so essential that we have to pursue all options to lower carbon”, and gas power emits half the carbon compared to coal.

This obviously sets gas against coal, not a popular message everywhere. Less obviously, they state that gas will just have a transitory and limited role. This message is problematic for employees and for investors. Who wants to invest their time and money in a business for a dying swan?

Two companies that did not sign the letter, and actually opposed it, were the US giants Exxon Mobil and Chevron. Exxon’s official line1 is that the movement to stop investment in fossil fuels is “out of step with reality”, and that in fact the share of renewables in the world energy mix will hardly even grow through 2040, and that fossil growth is the only way to beat world poverty!

Exxon does not come out against coal. This is unsurprising as the company has some coal assets. It has invested in coal-to-liquid, a particularly dirty way to produce petroleum products. They are also into coalbed methane, which often means that first you take the gas, then you mine the coal. It expects gas to grow fastest of all fuels2 at 65 per cent from 2010 to 2040, while coal also grows. That leaves only three ways to handle climate change: deny it, ignore it and CCS. Exxon has financed climate deniers, but the present line is to just ignore it, while CCS is getting nowhere. They still give a lot of money to obstructionist politicians in the US.
Exxon leaders must have as a working assumption that they can defeat any effort to limit fossil use or hold back growth of natural gas.

Grant King, CEO of Origin Energy in Australia, was more explicit than the letter to FT. He said3 that “the Greenies” loved gas ten years ago, but that that changed with fracking: “there is a lot of gas out there… it’s not a transitional fuel and people will be switching to gas for hundreds of years.”

The European gas industry do not deny or ignore. They say what is politically correct, which is that they will survive even under a strong climate policy regime, at the expense of coal, and that this will be achieved through “widespread carbon pricing in all countries”.

All countries, high carbon prices? Not likely anytime soon. So if it is a bluff it will not be called.
The difference between the ignorers and deniers of climate change is not so big. They are all playing for time, aiming for more gas and ensuing greenhouse gas emissions for the foreseeable future – while saying one thing or the other.

Even if Exxon is less anti-coal they all use the same selling point: that fossils are absolutely required, and that gas is much better than coal. This is not necessarily true, but the gas lobby is very strong and has strong political links. This follows from the structure of the business.

Gas is fed through pipelines. The transport and distribution grids are monopolies, either owned by governments or private monopolies supervised by governments. A gas user, whether it is a private home or a big power station, will then have little choice once it is hooked up to a distribution point. They can’t change fuel and they can’t change access point. They can change supplier, but only if they have not signed a contract for a very long time. But the pipe is where it is, the sources are where they are, and the suppliers are few and large. The ultimate supplier, even if the gas is resold under different brands, is usually Gazprom or any of the six companies that signed the letter to FT.

Some gas is imported by LNG tankers. This introduces some supply competition, but LNG terminals and ships are few and expensive. During 2015, US gas will be introduced to Europe, but the previous high hopes of large amounts of very cheap US fracking gas have vanished. However much LNG gas is fed into the European system, it will still pass through the same grid.

In order to make investments, the gas companies want long-term contracts (captive customers), political backing, and political stability. So would any business, but the gas industry has more clout.
The gas companies are often also oil companies and in the power business. Some of them are among the biggest companies in Europe and the world. In Europe, the gas industry is represented by two large organisations: Eurogas and GasNaturally.

The career of Gerhard Schröder is illustrative. As Chancellor of Germany he was a strong advocate for the NordStream pipeline from Russia to Germany though the Baltic Sea. His government granted a one billion euro credit guarantee for a share of the project. Soon thereafter, Schröder stepped down and took up a position as chairman of NordStream AG shareholders’ committee. The majority owner of NordStream AG, which first built and now operates the pipeline, is Gazprom. Other shareholders are E.On, Wintershall (BASF), GDF Suez and NV Nederlandse Gasunie.
The Schröder story invites questions, but it is not certain that Gazprom bought him. It is bad enough that such a thing even could be alleged. A more generous interpretation is that Schröder’s energy and climate policy required more natural gas for the phase-out of nuclear power and further CO₂ cuts, or so he believed. And that he saw nothing wrong with working to that end even after he quit politics.
He is not alone.

Former UK Prime Minister Tony Blair and German ex-foreign minister Hans-Dietrich Genscher are advisers to the consortium behind the Trans-Adriatic Pipeline from Azerbajan to Italy4. The consortium is owned by the authoritarian Azeri regime, BP and others.

The gas industry in Sweden managed to recruit another top politician, the previous Minister of Finance, Pär Nuder, as advisor for the venture capital group ECT, while ECT acquired grid company Swedgas and used Guernsey as tax haven.

The gas industry even bought one of the most respected NGOs, US Sierra Club. Their anti-coal campaign was secretly but massively funded by gas company Cheaspeake. That stopped in 2010. The campaign goes on, but is now directed against coal, gas and nuclear.

Some NGOs still think it makes sense to see increased gas use as a way to phase out coal and nuclear. B.U.N.D Friends of the Earth and Greenpeace Germany5 in Germany are examples.
All serious NGOs aim for 100 per cent renewable energy by mid-century globally, and earlier in rich countries. The case for a long transition seems to have weakened over the past few years, as renewables, storage, and efficiency are advancing rapidly. Smart grid technology and other demand-side measures can push the limit for the renewable share of electricity even in a country such as Germany with little hydro and modest wind and solar potential.

Such technology is in high demand in other countries for other reasons, such as aging or inadequate power infrastructure.

If Germany can cut coal, gas and nuclear at the same time, most other countries can do so more easily. And Germany is doing it right now. Between 2010 and 2014, fossil power decreased from 361 to 330 TWh, nuclear from 141 to 97 TWh and net energy exports went up from 18 to 36 TWh. The trend has continued in the first six months of 2015.

Fredrik Lundberg
1.http://www.exxonmobilperspectives.com/2014/10/10/some-thoughts-on-divest...
2. http://corporate.exxonmobil.com/en/company/news-and-updates/speeches/nat...
3. http://www.afr.com/business/energy/gas/energy-giants-turn-on-coal-before...
4. http://www.theguardian.com/politics/2014/aug/02/tony-blair-gas-pipeline-...
5. https://www.greenpeace-energy.de/engagement/unsere-gasqualitaet/erdgas-a...