(Bloomberg) — Shell Plc signed a 27-year deal to buy Qatari liquefied natural gas for the Netherlands, two days after the European Union announced it would push for a global phase-out of most fossil fuels before 2050.
It is not the first multi-decade deal linking the block to dirty fuel beyond the targeted time frame – just last week France’s TotalEnergies SE signed a similar contract. The agreements highlight the challenge in reconciling the EU’s ambition to reach climate neutrality by 2050 with the need to ensure energy security after last year’s historic crisis.
“It seems that energy companies are betting that Europe will need more gas than politicians predict,” said Christian Eggenhofer, senior researcher at the Center for European Policy Studies.
While Europe has made progress in replacing the cheap Russian gas imports that power its economy – mostly by buying liquefied versions of the fuel from places like the US or Qatar – starting its transition to cleaner alternatives has proven difficult.
Governments across the region have prioritized the expansion of renewable energy, which also causes less harm to the environment, after Russia’s invasion of Ukraine highlighted Europe’s need for independent sources of energy.
But high borrowing costs and uncertainty about the commercial feasibility of some technologies have deterred investment and raised questions over the reach of Europe’s climate targets. The EU aims to cut greenhouse gases by at least 55% from 1990 levels by 2030 and have no net emissions by mid-century.
On Monday, the EU endorsed a global phaseout of “sustainable” fossil fuels, meaning countries can only burn coal, gas and oil if they use technology to remove the resulting emissions, such as carbon capture and storage. . Such methods are currently on a limited scale. The condition will form part of its negotiating mandate at this year’s UN COP28 climate summit in Dubai.
Tim McPhee, EU energy and climate spokesman, said, “Long-term gas supply contracts between producers and market participants do not lock the EU into dependence on natural gas, as they do not necessarily allow the EU to consume it domestically. “Commit to.”
Under the two deals signed with Shell, starting in 2026, QatarEnergy will deliver 3.5 million tonnes of LNG per year to Rotterdam’s Gate import terminal for 27 years. The same amount will flow to France, which made a U-turn on long-term LNG deals last year when it revived a supply agreement with a US producer that it had terminated in 2020.
While there is currently no legal limit for private companies to sign long-term agreements, some EU diplomats are worried that the deal suggests a bright future for top buyer gas despite the bloc’s bet on renewable energy. lets see. Other observers say it poses a risk to the companies concerned if the transition to clean energy proves successful.
“There is a risk of private investment being trapped in fossil gas distribution after mid-century,” said Matthias Buck, Europe director at Agora Energiewende. “Particularly because there are many questions surrounding the availability and cost of carbon capture and storage in the future.”
Meanwhile, Qatar is increasingly looking for customers and taking advantage of growing fears over energy security to strike long-term deals. It has invested tens of billions of dollars to increase production 64% by 2027. While European companies were initially reluctant to sign long-term deals, Shell has bought shares in major Qatari LNG projects, and Italy’s Eni SpA is also a stakeholder. The latter has not yet announced a similar deal.
It’s possible the companies may have got the agreements just in time, as the EU is seeking to ban deals for uninterrupted fossil fuel supplies beyond 2049. The draft legislation is being negotiated by member states and the European Parliament. A decision on its final form is expected before the end of this year.
Other European energy companies refuse to sign such long deals in light of the region’s climate goals. Germany’s Uniper is not ready to end supply contracts that run until 2050, according to a spokeswoman.
EU policymakers acknowledge that some energy-intensive industries will need fossil fuels for a longer time and will have to rely on emissions-removing technologies, but insist that delaying climate action in those sectors They should not be used where effective alternatives are available.
According to Meg O’Neill, chief executive of Woodside Energy Group Ltd., there are signs that European buyers are beginning to embrace such options. He said that while long-term gas contracts are still in play, “no one is saying they have no interest in other fuels in the future,” adding that buyers are also asking for hydrogen, ammonia and carbon capture and storage.
Still, according to Peter Clark, senior vice president of global LNG at ExxonMobil Corp., the urgent need to secure energy supplies leaves buyers with limited room for maneuver because renewables have not yet been able to fill the gap.
“I hope that one of the lessons we have learned from the current geopolitical crisis is that it is important to have sufficient energy supply and security to meet supply needs,” he said at the Energy Intelligence Forum in London on Wednesday. “We can’t predict the future, but we can certainly prepare for challenging times.”
Source: Biz Crast
