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Interview with Jean-Marie Dauger, President, GIIGNL

You’re speaking on ‘The Big Discussion’ on the future of gas at the CWC World LNG Summit in Barcelona this December, how do you see the role of gas in a low-carbon global economy?

The trend towards a low carbon economy may have become an irreversible trend due to the convergence of factors including a) the ratification of the agreement reached in Paris during the COP 21 through a general consensus of governments, companies and public opinions that it was urgently needed to tackle the climate issues, b) the emergence of technological breakthroughs both in non-fossil energy cost (solar, ….), as well as 3) digitalization of the energy sector and 4) energy efficiency.

Only a few years ago, experts announced a golden age for gas, natural gas being considered as the ideal bridge for energy transition. The situation today is somewhat less positive in some markets where gas is struggling to grow its market share but the present situation is influenced by factors that may not last and in mid to long term gas is well positioned to solve a complex equation: reducing emissions while ensuring economic prosperity and security of energy supply.

In most energy scenarios, natural gas is the fastest and even the only fossil fuel whose share will continue to grow and as such we believe it is promised to a bright future. It can also complement renewable sources whose share is poised to grow steeply in the power generation sector. The gas future will, however, differ from one region to another.

What more needs to be done to promote gas as the energy source of the future in developed and developing nations?

Several actions may be required to speed up the development of natural gas:

The first one is of course to continue to improve natural gas competitiveness so as to reduce the cost of access for final customers relative to other energy sources. This will be achieved by reducing the cost of the total value chain, by adapting contractual prices and other contractual conditions (flexibility of volumes, of destination….) to the needs of customers, as well as by innovation in technology and in business models.

The second one relates to the opening of new markets both by opening up new territories to gas and by developing new usages for gas (transportation, maritime, trucks,…)

The third one will consist in designing the market adequately in order to maximize the use of natural gas along with renewable energy sources.

Finally, the consensus reached for energy policies calling for a more decarbonized society would not be consistent without a correct price signal for CO2 emissions. Today, this is far from being the case: actions are needed if we want gas to substitute coal since such substitution is one of the most efficient ways to approach the objectives defined in Paris last year.

Finally, in the future, electrification should grow dramatically, from roughly 20% of energy demand today up to maybe 40% in the next coming 30 years. This is good news and a fantastic opportunity but it will not materialize without determined actions from all stakeholders.

Of course, our industry also needs to be more vocal to make sure that the benefits of switching to gas are correctly understood, be it for power generation, heating or transport. Gas brings flexibility as it can be transported and stored in many forms, from gaseous to CNG or LNG. It is also much more environmentally-friendly than other fossil fuels. In particular, LNG has a great role to play in helping to develop the use of gas, whether it is in the transportation sector or in other sectors for customers who are not connected to pipelines.

Finally, we need to develop the proper tools and the right commercial approach in order to unlock new markets and reduce market risks. In this respect, LNG also has a great role to play, as it allows to increase international gas trade and supply options. FSRUs, flexibility of contracts and better adjustment to the commercial needs of gas buyers will be key to grow gas demand worldwide.

Are gas and renewables the perfect partners or are they mutually exclusive? 

Natural gas is the best complement of RES since it can cope with the intermittency of wind and solar energy. However, the general assumption that intermittent RSE will be “naturally” complemented by gas which is flexible should not be taken for granted.

Intermittency of renewable energy sources in Europe, where electricity networks are connected, is managed through gas, but also through coal and through imports and exports of electricity. In theory, gas should complement renewables, but in practice this does not necessarily happen: indeed, so far the development of renewables on the European continent has been at the expense of natural gas. Over the last ten years, gas has lost about 100 Bcm of consumption, either because renewable energy sources were highly subsidized or because the marginal cost of natural gas was not competitive enough, or because of political incentives for other sources such as coal. In some countries, Germany for instance, this has led to situations where renewables have reached a high level of market penetration without any reduction in CO2 emissions because coal was favoured. This kind of policy incoherence needs to be addressed.

That being said, the scale and timing also matters: energy requirements cannot be entirely met by renewables and energy transition will take a long time before it fully materializes. In California, where politicians announced that they wanted to shut down nuclear plants and replace them with renewables, they are actually bringing more gas-fired power generation online. If gas becomes more competitive, its versatility (the fact that it can be used for a variety of uses including heating, cooling, transportation,) its flexibility and its performance characteristics make it a great partner for renewable energy sources in the short to medium-term.

How likely is it that coal will be removed from the energy mix in the future? 

Coal is used for almost 40% of the world’s electricity generation; therefore it seems doubtful that it will be removed from the energy mix within a day. But indeed the objective towards a decarbonized energy system calls for a drastic reduction of coal consumption. In some countries, the role of coal has decreased very quickly, essentially because of policy actions and incentives for energy transition. A consistent price signal for CO2 cost is also needed.

We have seen a big shift to a buyers’ market in the global LNG industry. As the incoming President of GIIGNL, how do you see the role of buyers adapting in the next 5 years ?

Energy issues are of a long term nature and the energy markets are confronted to long investments cycles.

As a result and despite the fundamental changes that the energy markets are facing now, keeping a long term vision and strategy is of essence.

In that respect, expressions such as a buyer’s or seller’s market are relative because equilibrium changes over time.

However in the present circumstances where markets are globalizing and where risks are increasing, there is a need for more flexibility and fluidity at each and every level of the market. That is the reason why buyers require more flexibility (volumes, destination, price,…) in their portfolio. If security of delivery remains essential both for sellers and buyers and if security for financing investments requires long instruments, the importance of liquid markets and market instruments will be more and more required.

In addition, buyers will continue to reduce the cost of access to LNG, and technology might bring new concepts along the line of floating infrastructure for which unit size (and consequently cost) as well as reduced time to market might bring more flexibility and reduce the risk attached to the build-up of new markets or projects.

Even if this trend may not appear as colliding for buyers and producers the same way, the dialogue and cooperation between both of them remains essential for the success of the LNG industry in the future.


Jean -Marie Dauger will be speaking at the CWC World LNG Summit in Barcelona, 12-15 December 2016.




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