Jeremy Pafford is Head of North America, Market Development, ICIS.
getty
The conflict in Ukraine has roiled natural gas markets in an unprecedented fashion. As the European Union has attempted to wean itself off its reliance on Russian gas and lean on U.S. liquefied natural gas (LNG) to help fill the supply gap, U.S. natural gas prices have skyrocketed.
While U.S. Henry Hub natural gas prices look to remain elevated in the near-term, the focal point of energy instability is squarely in Europe, where EU countries have agreed to voluntary cut in gas consumption by 15% through spring 2023, with the possibility that the curbs will be made mandatory should supply concerns deteriorate further.
The TTF European natural gas benchmark price assessed by my company, Independent Commodity Information Services (ICIS), has hit record levels this summer as the flow of Russian gas from pipelines such as Nord Stream slows to a trickle, and prices could go higher as the weather turns colder and home-heating needs increase.
Facing an energy crisis in the fallout from a war in its backyard, EU countries face a winter season in which the first priority will be to keep the lights and the heat on—two frequently taken-for-granted tasks often fueled by natural gas, in part because it provides energy density without the carbon footprint of its fossil fuel brethren crude oil or coal.
Governmental interventions are underway.
Amid the abrupt change underway in the European energy landscape, governments there are making plans that a couple of years ago would have been unthinkable, including contingency plans based on carbon-heavy coal.
Several EU governments are extending the use of their coal-fired power plants in case further gas supply challenges disrupt natural gas-fueled power production. Some such as Germany have already been putting more coal to work, with power output from such conventional sources rising and renewable sources such as wind continuing to drop.
Additional use of coal—a fuel whose use had been in decline due to its carbon intensity—may help power Europe through the winter, but it presents a challenge to those supply chains working toward net-zero carbon emissions in their own operations.
Meanwhile, industrial greenhouse gas (GHG) emissions face increasing scrutiny from customers, investors and regulators—scrutiny that will not dry up with Europe’s Russian gas flows. An increase in reliance on coal for power generation impacts the Scope 2 emissions for industries such as chemical producers, plastics processors, brand owners and more, as Scope 2 pertains to indirect emissions from purchased energy such as electricity.
This means there should be an increased importance in the near-term in reducing emissions from direct operations (Scope 1)—and especially from the upstream supply chain (Scope 3), which is the origin of about 65% to 95% of a product’s carbon footprint.
Now is the time to prepare.
Some companies understandably will attempt to take the easy path by explaining away in the short-term the slower reductions in their own carbon footprints—or their possible increase, due to extenuating circumstances in the energy marketplace.
Smart companies, however, will take the current obstacles emanating from the Scope 2 electricity realm as representative of a challenge to successfully offset the impact of their current operations as well as their upstream supply chain. Doing so will give savvy companies an advantage over their competition in the eyes of sustainability-conscious customers, investors and regulators in the near -term as well as a leg up in the journey to net-zero emissions.
Those industries whose Scope 3 emissions include any of the 71 chemicals and polymers analyzed in studies such as ICIS’s Supplier Carbon Footprints tool have the ability to uncover opportunities to reduce their upstream carbon footprints by choosing different suppliers for the materials, or pushing for the materials to come from a suppliers’ plant with lower carbon emissions.
We can build a carbon-neutral future—together.
The challenges surrounding energy and power generation should not be a deterrent in the road to net-zero. Rather, they should serve as catalysts for bolder strategies and and opportunities to lead in the evolution toward a carbon-neutral industrial future.
Forbes Business Development Council is an invitation-only community for sales and biz dev executives. Do I qualify?
