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Coal is ‘king’ as gas prices skyrocket, Total CEO says – and it backfires cleaner energy goals

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Steam rises from the cooling towers of the Turow coal-fired power plant, operated by PGE SA, in Bogatynia, Poland.

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Soaring natural gas prices have led to increased use of coal, with power plants in Europe and Asia restarting as temperatures drop and the world grapples with worsening gas shortages.

TotalEnergies CEO Patrick Pouyanne on Wednesday stressed the need to achieve price stability, saying lower gas prices would reduce reliance on more polluting coal, but the shift to cleaner energy has also created a imbalance in the market.

“The high prices are not good news – of course my business results immediately better, but for the customers,” is it not, Pouyanne told CNBC’s Hadley Gamble during a panel of Russia Energy Week in Moscow.

Replacing coal with gas “is good for climate change, but to do that we need to have a lower price,” the CEO said. “Because coal is king today, because coal is cheaper than all other sources of energy.”

Coal-fired electricity has exploded in Europe and European coal futures have more than doubled since the start of the year. And the irony is clear, because it is happening just as Europe tries to reduce its use of polluting fuel. Gas prices in Europe, meanwhile, have almost quadrupled since the start of the year.

“So, for us today, the prices are too high. We have to find stability, get back to something more normal,” said Pouyanne.

He added that it is not just a European gas crisis, but a global one, resulting both from a “sharp rise in demand for gas from China and Asia”, as well as ” an increase in demand for gas due to the energy transition from coal to gas, which is good for climate change. “

“So that’s, I think, a lesson,” Pouyanne said. “Another is that the more we put renewable energy into our electrical system, we put intermittent sources that depend on the weather.”

Pouyanne, like many other executives of oil and gas companies, noted the risk of renewable energies that depend on the weather. Brazil, which has increased its dependence on hydropower, has seen less rain this year, while other regions of the world that have invested heavily in solar and wind power have seen less sun and wind.

BP CEO Bernard Looney, speaking on the same panel, echoed Pouyanne’s concern.

“I think this crisis in Europe has reminded us that energy is part of the lifeblood of society and that the use of energy only goes one way – and that is upwards”, Looney said. “We all understand that the sun doesn’t shine at night and the wind doesn’t always blow, so we have this issue of intermittent renewables to deal with.”

“A more volatile system”

Speaking of pressure from governments to reduce the production and use of fossil fuels, Looney said: “Ultimately, if supply disappears and demand does not change, it only has one consequence, and it’s a price escalation. So I’m not suggesting that the responsibility lies with the customers or the company, but it’s a system, and supply and demand have to work together. ”

“Just correcting a problem on the supply side without affecting demand will not result in a more stable system, it will result in a more volatile system,” Looney added.

The increase in gas consumption due to the colder weather at the start of the year “has reduced all gas stocks, and so today we see an exceptional circumstance,” said Pouyanne. “I think after the winter we should be able to come back to lower prices, which would be good for everyone.”

Gas prices are reaching record levels in Europe. Power shortages are also impacting households and businesses across Asia and have forced factories to close.

This was brought on by supply shortages and the shift to cleaner energy, which spurred higher demand for gas, seen as a cleaner fuel. Demand is also rebounding after its Covid-induced slowdown as economies reopen and travel picks up around the world.

Other energy commodities, including oil, have also skyrocketed in recent weeks, with international benchmark Brent crude trading at $ 83.37 at 12:00 p.m. ET, its highest level since 2018 and up 64% since the start of this year.

The US benchmark West Texas Intermediate hit a seven-year high this week and was trading at $ 80.63 at noon ET.

The surge in energy prices comes amidst supply chain disruptions and a shortage of shipping containers, both of which have contributed to rapidly rising inflation.

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