Royal Dutch Shell Plc, Europe’s biggest oil company, said Europe needs a price of $120 per ton of carbon dioxide for natural gas to compete with imported U.S. coal and subsidized renewable energy in power generation.
European electricity generators reduced purchases of gas by about 2.3 billion cubic feet a day this year, or about 3.8 percent of Europe’s total consumption, because of cheaper U.S. coal shipments, according to Andy Brown, upstream director at Shell. Demand for renewable energy is forecast to expand 2.9 percent a year through 2035 in Europe partly because of subsidies, according to the International Energy Agency.
European Union emission permits yesterday fell to an all-time low of 5.61 euros ($7.28) a ton on oversupply. Power generators prefer to burn cheaper coal, which emits twice as much C02 as gas, and offset pollution by buying permits.
Shell, based in The Hague, is budgeting $40 a ton costs of carbon dioxide emissions in its projects. The company said that even that price isn’t enough to stimulate competition between gas-to-power and cheaper U.S. coal or subsidized renewable sources of electricity such as offshore wind.
“Costs that we are looking at” are “significantly higher than $40 a ton, at least two to three times of that,” Ben van Beurden, executive vice president for Shell Chemicals, said yesterday in London. “That’s the sort of challenge that we are facing at the moment, not so much to develop essentially new technologies, because they are there.”
The Anglo-Dutch explorer, which is involved in carbon sequestration projects from Australia to Canada, estimated that U.S. coal exports to Europe increased fivefold since 2000.
“Renewables get incentives well over $100 a ton in Europe,” Brown said. “With the European trading scheme the CO2 price is insufficient to stimulate the kind of transitions we will all need to move to a lower CO2 footprint.”
The U.S. became the largest gas producer after companies ramped up production from shale deposits using rock fracturing to stimulate output. Gas prices in the country plunged to a decade low this year on increased supplies.
“What you see in America is coal being displaced by cheap gas, which is actually reducing the CO2 footprint of the power generation systems in America,” Brown said. “Because of the cheap gas in America, coal has been displaced out of America actually into Europe,” reducing demand for gas.
GDF Suez SA, Europe’s largest utility by market value, plunged the most in four years in Paris trading today after it forecast lower earnings next year because of slowing economic growth and the boom in U.S. gas extraction.
“We can only provide competitively priced gas to the power generators,” Brown said. “We could just make sure that the regulators, policy makers understand that gas has to play a significant role.”
The U.K. Department of Energy and Climate Change yesterday disclosed a gas-generation strategy designed to decarbonize the nation’s electricity mix. It announced a plan to build new gas-fired power stations with 26 gigawatts of capacity.
The U.K. in July granted permission for a Shell and SSE Plc-led venture to store carbon dioxide under the North Sea. The companies plan to add a carbon capture and storage facility to an existing power plant north of Aberdeen in Scotland.