Firing up gas investment would help keep the lights on

When natural gas was first found off Kinsale in Co Cork in the 1970s it was considered too valuable to burn. Instead, the government of the day deployed the gas to make fertiliser in Arklow, Co Wicklow. However, this fertiliser was loss-making, eventually ending 20 years ago.

Instead, Kinsale natural gas proved crucial in developing the Irish electricity system. Since the late 1980s, once Moneypoint in Co Clare was completed, all subsequent fossil fuel generation capacity that was built has been fired by natural gas. Of all fossil fuels, natural gas is the least damaging for the climate, limiting our emissions of greenhouse gases.

Gas-fired generation is quicker to get going than coal – think how much longer it takes to get useful heat out of a coal fire than a gas fire.

Electricity prices have been significantly higher in Ireland than in much of Europe in recent years

So, gas-fired generation is much more flexible than coal. This makes it a better bet to offset regular gaps in supply that arise from intermittent wind generation.

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However, to maximise the energy out of the gas, some of the heat from burning gas is used to boil water, and this technology makes gas slightly less responsive. As the share of electricity generation from wind has risen, it is now necessary to incentivise additional gas plants to be on standby to ensure that the lights stay on when the wind drops.

One of the reasons why Ireland’s electricity supply is now on a knife edge has been the failure to invest in sufficient natural gas buffer capacity.

Demand

The other challenge for the electricity system is that demand has risen very rapidly due to increased demand for electricity by data centres. However, this is a foretaste of the scale of increased demand that is to come, as heating and transport switch progressively to electricity.

Because it is such a flexible fuel source, gas has also tended to command a higher price than alternative fuels. Ireland is much more dependent on more expensive gas-fired electricity generation than other countries such as Germany and Poland, where coal dominates, or France, where nuclear dominates.

As a result, electricity prices have been significantly higher in Ireland than in much of Europe in recent years. However, the upside has been that emissions of greenhouse gases have been much lower than from systems dependent on coal.

Natural gas in Europe is more expensive than in the United States as there are more restricted sources of supply, mainly Russia and Norway, leading to less competition

This autumn, gas prices have risen sharply through a combination of increased demand to make up for the shortfall in wind energy, and reduced supply from Russia.

Below-normal wind speeds across Europe have meant that increased generation from fossil fuels has had to bridge the gap. This highlights a longer-term problem for decarbonising the electricity system: the intermittency of wind generation.

Because we can experience isolated prolonged periods of low wind, especially in winter when demand is highest, we need back-up. Batteries can only cover for short periods and currently gas generation is the only feasible alternative to cover long periods of low wind.

Therefore, a reliable supply of gas will remain essential for Ireland for at least the next decade, and we will continue to remain vulnerable to the vagaries of gas prices.

Investment

A challenge for gas supply is that current European and Russian gas fields are running down. Because of the imperative to reduce fossil fuel use, major investment in exploration or developing new Russian gas fields for Europe looks uneconomic.

There is a long lead-in time, of 15 years or so, from initial exploration to production. By the time any investment in new gas fields would come on stream, the 2050 target date for net zero emissions would be fast approaching, leaving little time to recoup the cost of development before fossil fuel prices collapse.

So even for an energy giant such as Russia's Gazprom, the huge investment needed to develop new gas fields would be exceptionally risky. In the interim Gazprom will try to maximise its profits from its existing gas fields, hence high gas prices.

Natural gas in Europe is more expensive than in the United States as there are more restricted sources of supply, mainly Russia and Norway, leading to less competition. If Europe were to invest in more liquefied natural gas storage, it could source and store additional natural gas from outside Europe. More competitive supplies could push gas prices lower.

This autumn's surge in gas prices will drive up the cost of electricity and of home heating, raising the inflation rate. October's Budget 2022 will need to mitigate the impact on low-income households, through improved rates of welfare payments funded out of the increased carbon tax.