If you have ever shopped for a mountain bike you may have heard the decisions you face summarised with the maxim: ‘light, strong, and cheap – pick two’. It reflects the impossibility of getting everything you want, and the need to compromise in at least one area. Beginners typically leave the store with a heavy bike, while enthusiasts leave with a light wallet.
For years, many in the energy industry have viewed the energy trilemma as a similar scenario, implying a need to prioritize between: secure, clean, and affordable. The difference, which events in 2022 demonstrated, is that we cannot – for any extended period – have a strategy that compromises on any aspect of the energy trilemma.
Perspectives on the trilemma change over time. For example, in recent years renewables have become more secure and more affordable than in the past. Russia’s invasion of Ukraine, and the pandemic before it, have reminded us of how fragile energy security can be, as well as how it can impact affordability and access to clean energy – compromises have been needed across all areas. In 2022, this was especially the case in Europe, as consumers saw their energy bills rocket, coal plants were fired up, and there was a real threat of a gas supply shortfall (relieved only by LNG imports and an unusually mild winter).
However, the different sectors have varying biases. Energy security takes centre stage for oil and gas and electrical power, renewables respondents make clean energy the top priority, while industrial energy consumers prioritise accessible and affordable energy much more than the energy industry sectors.
“We need an orderly transition,” says Michael Cohen, Chief US Economist at BP, “so if supply-related pressure results in disruption or price spikes, we lose one foundation of the three-legged stool of the energy trilemma. As a result, we need to see more focus on policies, societal behaviours and preferences that help to reduce the demand for carbon-intensive fuels, so that we do not get misaligned in terms of supply and demand”.
Europe’s Biggest Sources of Electricity by Country
(prepared by www.elements.visualcapitalist.com)
It is not a simple case that energy strategies and projects have to prioritise one or two aspects over another. In the future, a renewables-based energy system – supplying both green electrons and molecules – has the potential to address all aspects of the transition, such as through greater electrification, energy storage and grid capacity, or through large-scale low-carbon hydrogen, both combined with low-cost renewable generation.
Indeed, 80% of renewables respondents believe energy security concerns will lead to increased investment in renewables in the year ahead. But will energy security concerns not also lead to increased investment in natural gas and LNG? “One of the big things for us is ensuring energy security,” says Daniel Toppin, Head of Data at National Gas, the operator of Britain’s gas transmission network. “Recent world events have certainly highlighted just how essential gas is across the world. This put gas back in the spotlight, because it shows how gas supply will become a major problem in future if we don’t do something different”.
National Gas ultimately sees hydrogen as the answer, but the extent to which this will (or should) scale is another area of debate.
Focusing on the benefits of incremental innovation, Philippe Kavafyan at Aker Horizons references the recent announcement of plans to build a hydrogen pipeline between Norway and Germany. “A year ago, the idea of discussing building a pipeline between Norway and Germany that would initially transport blue hydrogen and then moves to green hydrogen over time would have been unthinkable”, he says, “but the threat to energy security has driven us to pragmatism”.
Low confidence in meeting climate targets
Perhaps the most concerning finding of this research is that only 39% feel optimistic about reaching their organisation’s decarbonisation targets, with as many as 29% reporting pessimism. Similarly, just 38% feel that that net zero targets in their country are realistic and achievable.
Setting and meeting decarbonisation targets is not easy. Success in defining objectives, and meeting them, while also implementing a smooth transition is the great objective of our times for the energy industry. “We have to set targets to focus our business activities, and these need to be as realistic and achievable as possible,” says Michael Cohen of BP. “The challenge for all of us is how to get from the state of the energy system today to a revolutionary new energy system in 25 to 30 years’ time. It is going to take a lot of effort by a lot of different stakeholders, organisations, and companies. None of us are operating in a vacuum. We need investors, customers, suppliers, competitors, society and policy makers to support the targets, get behind the infrastructure, and align objectives to ensure that targets are achievable”.
In this regard, while the lack of optimism around decarbonisation targets should temper our positivity about profits, growth, and expansion, we can at least report that the level of optimism is similar across all sectors and regions. This represents common ground to build on and can help support agreement about the steps that we need to take to get closer to meeting our targets.
The above is an extract from ‘Energy Industry Insights 2023. Trilemma and Transition. The momentum to break barriers’ by Norwegian company DNV, a leading global quality assurance and risk management company. DNV’s Energy Industry Insights research – now in its 13th year – explores the confidence, sentiment, and priorities for the energy industry in the year ahead.
Crogga, the Isle of Man’s energy transition company, is a ‘real economy’ actor joining the largest-ever alliance committed to achieving net zero carbon emissions by 2050 at the latest and is fully engaged in the challenge of the energy trilemma for the Isle of Man and beyond. “Natural gas is seen as a reliable, affordable energy source which enables innovation. It acts as a bridging ingredient for green energy and the hydrogen revolution. It is a key tool in the fight against energy poverty and lack of energy security. Along with carbon capture and storage, it can transform the energy sector” (International Energy Forum, 2021).
Manx natural gas is the fuel to enable the Island’s transition to a zero-carbon economy in line with UNESCO Biosphere Isle of Man principles.
Security of Supply
The Isle of Man currently generates 92% of its power from imported energy (Ove Arup, 2021). The Island is heavily reliant on imported natural gas, with the bulk of the remainder imported as electricity via the 65 mile 60 MW UK Interconnector. Crogga’s view is that it is in the Manx National Interest to appraise and develop the Isle of Man’s only known natural gas field to seek energy independence. The 2023 Crogga Independence 112/25a-2 appraisal well will answer the security of supply question for the Island and if successful, the Crogga gas field will provide:
- 20 years of energy independence for the Isle of Man
- very significant increase in GDP for the Island – the field is potentially a GBP 12 billion asset
- a Government Take of 42% provides a game changing opportunity for the Manx Treasury
- the Crogga field provides a very attractive investment opportunity for Crogga shareholders
Affordability
Crogga Directors and the Isle of Man Government agreed a Licence Amendment in 2022 which requires Crogga to cap the price for wholesale gas sales to Manx utility companies at 80p/therm for the next 10 years. Beyond that any increase will be in line with the Manx Treasury price index. By comparison, UK gas future prices are currently around 120p/therm (March 2023) and during 2022 gas prices spiked above 600p/therm.
In the event the 2023 Independence Well proves the Crogga gas field is commercial, full field development will commence immediately with a target for first gas by 2026. At that point, Crogga will be in a position to offer pipeline natural gas to the Manx Government (MUA), capped at a wholesale price of 80p/therm (2.7p/kWh). As a rule of thumb, wholesale prices are typically 70% of the retail price, but this varies significantly according to the nature of the local infrastructure.
Current (March 2023) retail prices on the Island are 14p/kWh for natural gas and 22p/kWh for electricity. Given that natural gas from the Crogga field can power both the Manx natural gas grid and the Pulrose Power Station, generating the Island’s electricity, we believe Crogga’s price cap of 80p/therm (2.75p/kWh) can provide the Isle of Man with the cheapest gas in Europe and potentially the cheapest electricity too.
Given that less than 5% of the estimated Crogga field natural gas production will be required to satisfy local demand, Manx natural gas production will also be welcomed by countries surrounding the Irish Sea at a time of urgent need. Crogga revenues and Manx tax revenues from the Crogga natural gas field could be used to fund the Island’s green energy transition, leading to a very significant wealth generation for the Isle of Man.
Transition to Cleaner Fuels
Natural gas is now a key component in the global energy transition due to emissions that are 30% lower than those from burning oil and 50% lower than burning coal. Recently, the UK has been obliged to burn coal for power generation. The EU has officially classified natural gas as a “transition fuel” via the “Complimentary Climate Delegated Act” dated February 2022, on condition that extraction and consumption adheres to strict emissions targets and that gas displaces traditional, more polluting methods of power generation. Although not everybody agrees with this and the taxonomy was legally challenged in July 2022 in the European Parliament, it survived to become legally enacted as of 1st January 2023.
In term of Fossil fuel CO2 emissions, we see the following trend; (lbs/BTU)
- Coal – 214 – 229
- Oil products; Gasoline – 157, Diesel (heating oil) – 161, Propane – 139
- Natural gas – 117
Energy and electricity supply have become vital for nearly every European nation over the past year as the region shifts away from its dependence from Russian gas imports. While many countries have been making progress in their transition away from fossil fuels, 10 European countries, including Germany, are still dependant on coal as their primary source of electricity generation as shown above.
The role of natural gas in the energy transition is clear to see given the large amount of coal still being burnt for electricity generation in Europe today.
In Summary, Crogga is offering secure, affordable and cleaner energy bringing significant wealth generation to the Isle of Man.