Low natural gas prices in the U.S. and weak prices for carbon permits in Europe are pushing more polluting coal into Europe where it is being burned to generate electricity, Royal Dutch Shell PLC's (RDSA) Upstream International Director Andy Brown said Wednesday.

The shift in energy flows comes as Europe is trying to reduce its emissions of greenhouse gases to meet climate targets and highlights how North America's shale gas boom has rewritten the global energy map, in some cases to the detriment of regional energy policy.

Before the shale gas boom, the U.S. power sector predominantly burned coal, which produces roughly twice as much emissions as gas, to generate electricity. But a surge in unconventional oil and gas production has forced U.S. gas prices down to 10-year lows this year, stimulating demand for gas across many sectors.

Ironically, as natural gas demand in the U.S. power sector has increased due to the low prices, demand for coal has strengthened in Europe, where it is cheaper than gas, which is mostly priced against oil.

Since the start of this decade, coal exports to Europe from the U.S. have increased five fold. This has resulted in a reduction of around 23 billion cubic meters of gas being burned in the European power sector this year, Mr. Brown said at Shell's natural gas strategy briefing.

"We have to make sure that the regulators and policy makers understand that gas has to play a significant role and although [gas is] not zero carbon, it is competitive versus coal when you take a reasonable carbon price," Mr. Brown said.

Weak prices for European carbon permits, which Wednesday fell to below EUR6 a metric ton, are another factors making coal a more attractive fuel to burn than the higher priced, but less polluting, gas in Europe, Mr. Brown said.

"If there was a carbon price at $40 a ton, then [fuel] switching wouldn't take place. You can see there are some economics that aren't quite working out," he said.

Mr. Brown's comments come as the U.K. government said Wednesday it wanted to see a big expansion of gas-fired power stations in efforts to meet demand as old coal and nuclear plants close and to provide flexibility when supply from intermittent renewables such as wind is unavailable.

The U.K. government has proposed measures to incentivize the construction of new gas plants, which aren't being built now because coal is a cheaper fuel and the recession has negatively impacted electricity demand.

The Anglo-Dutch energy giant is expanding its global gas operations aiming to capitalize on rapidly growing demand in Asia, in particular China, where the country is industrializing at a furious pace. Shell's Chief Executive Peter Voser said recently that the company expects to invest more than $20 billion in natural gas projects through 2015.

Write to Selina Williams at; Twitter: @selinawilliams3

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