Natural gas, mostly imported, has been a mainstay of the European Union’s energy sector for decades. With stringent de-carbonization goals set to be reached already by 2040 and even more demanding goals foreseen for 2050, how will the European Union’s patterns of natural gas supply and demand evolve? How will demand and supply of renewable gases (biomethane, synthetic methane and green hydrogen) develop?
In a de-carbonized future, what role can be construed for the existing (natural) gas infrastructure and what new kinds of infrastructure would be needed? What evolution can one expect of gas system development instruments, regulations, and investment frameworks, in support of a cost-efficient transition to a decarbonized gas future in a competitive market environment, to the benefit of the consumer?
What risks and barriers can one expect on the road to 2050?
Last but not least, what is the outlook for the coming winter amid gas price surges?
We have tried to answer some of these questions in the SAEE/IAEE webinar The Future of Gas in Europe and the winter supply outlook, moderated by Ana Vučina Vršnak, the Executive Director of Energy Industry Chamber of Slovenia (EICS).
Market conditions expected to relax in spring
“Gas prices reflect record volatility. As of mid October 2021, electricity prices have increased by over 200% since April 2021 and the main driver has been high gas prices, which have increased by over 400% in the same time period. No reaction from pipeline imports, low storage levels and declining domestic production, and post COVID demand recovery all contributed to very high gas prices,” said Dennis Hesseling, the Head of Infrastructure, Gas and Retail Department at EU Agency for the Cooperation of Energy Regulators (ACER) at the Future of Gas in Europe and the Outlook for the Coming Winter webinar, organised by the Slovenian Association for Energy Economics (SAEE), in cooperation with dr. Boyko Nitzev, and the International Association for Energy Economics (IAEE).
Hesseling added that tight market conditions expected to relax in spring. Currently we are witnessing more an issue of high prices and high volatility than of actual shortage of gas. “The current EU gas market design is resilient and has delivered significant benefits to consumers over the last decade. A balance needs to be struck between efficiency and flexibility of market operation and insurance mechanisms to dampen price shocks,” said Hesseling, adding that there is a question whether a more harmonised storage regulation could efficiently support security of supply and that various regulatory options are available and need to be analysed.
Currently, the gas sector accounts for roughly one quarter of the EU’s carbon emissions. Volume of low carbon gases doubled in the last decade, starting from a low base. Production has focused on biogas and biomethane, which account for 15% of EU domestic gas production and 3.8% of consumption in 2019. Most biogas is consumed close to production site, for heating, electricity generation, or combined heat and power (CHP). Biomethane injections are generally lower, due to higher production costs, gas quality and other technical constraints.
In the future, there is room for increase of supply of biogases: EU production of biogas could double by 2030, quadruple by 2050, covering 25% of demand.
The majority of hydrogen consumption is associated with two industries: oil refineries and ammonia production facilities. Hydrogen is set to total 13% of EU’s gas consumption by 2030 scaling much faster than RES-E: first for demand from refineries and ammonia production, then other hard to electrify industrial sectors like steel, iron and cement. Hydrogen will be a key element to decarbonise the gas sector.
“In line with the EU policy objectives, ACER is committed to fostering the decarbonisation at least cost of the energy sector in general and of the gas sector in particular by tackling the relevant aspects in its regulatory tasks,” also stressed Hesseling.
New paradigm: Shorter gas contract periods
Götz Lincke, the Managing director of PRISMA European Capacity Platform GmbH, the plaform for the auctioning of natural gas pipelines capacities, pointed to the new paradigm of gas markets in the form of ever shorter contract periods. The contracts with duration of 15 or 20 year were in place in the past, however, these contracts are expiring. He sees that the volatility of prices are also linked to a changed behaviour of traders and users. In the future, there shall be a balance between the risks and the low prices of gas.
“The gas system will continue to exist after 2050, but it will keep pace with the times. Today we are witnessing two major epochal changes in the energy world: on one hand, the digital transformation in each piece of the energy supply chain and, on the other hand, the energy transition. In this context, hydrogen and renewables will be increasingly important in powering the transition, and in the long term the only possible scenario will be carbon free electricity and a decarbonised gas sector,” said Lincke, adding that every meaningful change arises from the people. “So, for us, sharing ideas, debating solutions, and fostering unity are paramount to present and future innovations,” concluded Lincke.
The European Hydrogen Backbone Project
The president of the Slovenian Association for Energy Economics (SAEE), Sarah Jezernik Konovšek, the Deputy General Manager of Plinovodi, said it is clear now that gas will be a part of the energy mix in the future, for decades to come. “We follow and support various projects in the field of renewable gas and hydrogen as much as this is possible. This year we also joined the European Hydrogen Backbone Project which assumes 40.000 km of hydrogen pipelines across the 21 participating countries by year 2040. Almost 70 % of the hydrogen pipelines are planned to be repurposed from already existing natural gas pipelines, thus dramatically reducing the investment costs,” said Jezernik Konovšek.
Next year, SAEE will organise the Third national scientific academic conference, under the patronage of the School of Economics and Business, University of Ljubljana, which will bring together students, academics, researchers and business experts. SAEE will also give the Best Student Paper Award.
Note for editors:
Head of Infrastructure, Gas & Retail Department at EU Agency for the Cooperation of Energy Regulators (ACER), where he’s been working for the last 9 years. Dennis Hesseling joined ACER in 2012. His work focuses on the monitoring of the implementation of the Gas Network Codes, on issuing opinions, reports and decisions on Infrastructure, and on publishing the yearly Market Monitoring report. He is a member of the ACER Management Team and (since 2016) the ACER representative to the Energy Community Regulatory Board.
Before joining ACER, he worked for The Netherlands Authority for Consumers and Market, being responsible for merger control and antitrust enforcement in the Dutch energy, telecommunications and media sectors. Before that, he worked in its Energy Regulation department from 2002 on, mainly on gas. Mr. Hesseling holds a PhD in Mathematics.
Lincke has been the managing director of PRISMA European Capacity Platform GmbH for a decade. With almost twenty years of experience in the energy sector and a passion for innovation, he is currently committed in his role as MD to the strategic and operational development of PRISMA, the leading platform for gas capacity trading in Europe.
Before joining PRISMA, Götz was the Head of Market Regulations at Alpiq Trading AG/Switzerland and prior this Vice President Market Regulation at E.ON AG/Düsseldorf. He also worked for Centrica plc and for Duke Energy Intl. in the UK.
Götz holds a PhD from London University/England, a Master in European Energy from Dundee University/Scotland and an undergraduate degree from the University of Göttingen/Germany.