European gas industry in "disastrous" state -trade chief Cirelli

BRUSSELS Wed May 15, 2013 12:37am BST

The site of a newly opened distribution hub of the gas pipeline Gazelle is pictured in Primda January 14, 2013. REUTERS/Petr Josek

The site of a newly opened distribution hub of the gas pipeline Gazelle is pictured in Primda January 14, 2013.

Credit: Reuters/Petr Josek

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BRUSSELS (Reuters) - The European gas sector is in a disastrous state and without policies to boost investment, the power supply of some countries could be at risk, a top industry official said on Tuesday.

Europe's gas sector has been hit by low growth in demand for electricity, the renewable energy boom and competition from coal-fired plants, Jean-Francois Cirelli, president of Eurogas, which represents the industry, said in a conference speech and in an interview with Reuters.

Cirelli said EU gas consumption dropped two percent in 2012 after falling 10 percent in 2011. Half of the decrease was caused by lower gas consumption by power plants, the other half to a structural fall in final gas demand, notably the effects of energy efficiency and substitution.

"The state of affairs in the gas sector in Europe is disastrous," said Cirelli, who is also vice-chairman of French gas company GDF Suez SA (GSZ.PA).

Cirelli said gas, which represents a quarter of EU primary energy consumption and is used by 200 million citizens for heating, is no longer competitive in Europe because of the influx of cheap U.S. coal and rock-bottom CO2 prices.

Cirelli's own company, GDF Suez, has mothballed or closed 7.3 gigawatts of power generating capacity during 2009-2013 and is set to take another 1.3 gigawatts offline, a total equivalent to the capacity of eight nuclear power plants.

Cirelli said that, in the UK, the share of gas in the generation mix decreased to 25 percent from 40 percent between 2011 and 2012, mainly in favour of coal, whose share went up to 42 percent from 30 percent over the same period.

As cheap shale gas displaces coal in U.S. power plants, U.S. coal exports to Europe rose 23 percent last year, pushing international coal prices lower. In some EU countries, the amount of electricity generated from coal is rising at annualised rates as high as 50 percent, Cirelli said.

"The exports towards Europe make a mockery of the green EU policy. We reject shale gas and we import coal," he said.

Cirelli said Europe's main climate policy tool, the CO2 market, has reached deadlock following the EU parliament's rejection of support for prices.

He called on European leaders to use next week's EU energy summit to find ways to restore investments. He said all investment in thermal power generation had ground to a halt, with only renewable energy still attracting investors, but only because of the associated subsidies.

Energy policy will be at the top of the agenda of the May 22 EU summit.

He said Europe needs gas-fired electricity plants as they alone are flexible enough to back up intermittent power from renewables and called for an EU-wide system to guarantee backup power.

Several EU countries could struggle to find sufficient back-up electricity as conventional power plants are decommissioned.

"The European market has the ingredients for a perfect storm," Cirelli said.

Cirelli also exhorted policymakers to stimulate the use of gas in transportation, notably in shipping and trucks.

He said a few countries are experimenting, notably the Netherlands, where some 300 gas-powered trucks are used for deliveries. They make less noise than diesel-powered trucks, which are banned from making night-time deliveries in some cities.

The industry also expects to see ships switch to gas from bunker as environmental regulations are tightened.

Another rare bright spot is the development of biogas and biomethane produced from landfills, wastewater plants and biomass.

Cirelli said these gases can now be injected into the gas networks almost everywhere in Europe. In France, for instance, this was not allowed until last year.

The European gas industry also hopes that U.S. shale gas, the source of much of its troubles, will benefit the EU gas industry when the United States starts exporting. But he added that, even if U.S. exports were approved, the earliest shale gas shipments would arrive in Europe in late 2016.

With natural gas prices in the United States currently around $4.50 per mmBtu (million British Thermal Units), liquefaction costs at $3 to $4 and transport at $1 to $2 per mmBtu, U.S. gas would cost about $10 per mmBtu, about a dollar less than European gas.

"A source of supply coming from the West is a plus because Europe needs diversification of suppliers," he added.

(Reporting by Geert De Clercq. Editing by Andre Grenon)

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