Future of Gas in Europe: A Vital Role in the Energy Mix
Natural gas is on track to overtake oil as the world’s primary energy source by the middle of the next decade. Of the major energy sources, gas is one of the cleanest, safest and most reliable ones. Natural gas can make a significant contribution to reducing CO2 emissions by complementing and supporting the expansion of renewable energies.
Deregulation of Markets
At the moment, there is a lot of discussion inside the EU concerning “sector coupling”, i.e. electricity, gas, heating and transportation sectors becoming more cross-integrated, both physically and market-wise. Since the entry of the Third Energy Package in 2009, major improvements have taken place in the Gas market:
- The liberalisation of natural gas and electricity markets, leading to increased competition and removal of obstacles to cross-border competition
- The renewable energy revolution, which has resulted in growing attention to the efficiency of the short-term market and the availability of transmission capacity
- The rising dependence on the import of gas with a need for gas infrastructure development and securing alternative supply routes
Historically, gas supply has been dominated by two major pipeline exporters (Russia and Norway) and one major LNG (Liquified Natural Gas) exporter (Qatar). But, since 2014, other sources have grown in prominence. A key contributing factor to the successful diversification has been the emergence of a liquid gas hub in the Netherlands, the TFF – alongside Britain’s established NBP. The Dutch trading hub, combined with Austria’s smaller Central European Gas Hub, have placed countries like the Czech Republic, Slovakia and Poland within range of a common market. Pipeline interconnectors have been built and more interconnection capacity is planned. The shale gas boom in North America has also had a significant impact on the global LNG market, including Europe.
We now have a real gas market in North West Europe and other parts of the continent, where prices are set by supply and demand. About 60-70% of all gas sold in Europe is being traded openly on competitive markets. Most gas incumbents have been unbundled, creating independent Transmission System Operators that facilitate market liberalisation and integration without discrimination between different suppliers, traders and shippers. Most industrial consumers and many households can now freely choose their gas supplier.
Nordic and Baltics have exciting years ahead
The Finnish gas market opened for competition starting on the 1st of January 2020, comprising new market rules, market roles, marketplaces and a new interconnector pipeline, called Balticconnector, between Estonia and Finland. At the same time, Estonia and Latvia established a common balancing zone between the two countries.
Consequently, we are likely to face a more competitive and consolidated market across the Baltics and Finland. This regional market will also be connected to the European internal market after the commissioning of a new interconnector, called GIPL, from Lithuania to Poland in 2022 and Baltic Pipeline from Norway through Denmark to Poland in 2021. Hence, we will most likely see new shippers entering the Nordic-Baltic market and several changes to requirements and regulations will follow in the region within the next five years.
Balkan region evolving
Gas from the Russian Federation dominates the South Eastern Europe (SEE) import portfolio. Gazprom is the main gas supplier to the entire region. Its gas export is associated with a network of subsidiaries, resellers, agents and sponsorships that are granted special rights in their respective countries of operation.
The European Union (EU) is looking toward this region as an option to improve its security of gas supply and diversify its supply portfolio. This encourages local expectations of transit rents and assumes that the region may host the following: Southern Gas Corridor, North-South Gas Interconnection and Central/South Eastern Electricity Interconnection. As a result, we expect the Balkan market to serve the rest of Europe as a working gas hub within the next five years.
Source: Kovacevic, A. 2017. Towards a Balkan Gas Hub: the interplay between pipeline gas, LNG and renewable energy in South East Europe. The Oxford Institute for Energy Studies, Oxford.
Decarbonisation at the Heart of Hansen
Gas is an essential element for future low-carbon mobility. Clean combustion, low CO2 emissions, mature technology, and availability and cost of fuels are key factors to boost the role of gas in both road transport and shipping.
A recent scenario study commissioned by Eurogas, an industry association, found that switching from coal to gas would help exceed the EU’s 2030 decarbonisation goals by 5 percentage points – allowing a 45% cut instead of the 40% the EU committed to under the Paris Agreement. Gas is 50% less carbon-intensive than coal when combusted, so switching between coal and gas in the power sector is the easiest way of reducing emissions at scale in the short-to-medium term.
Gas plays a vital role in securing the reliability of electricity transmission and distribution and providing flexibility to the energy system. Hansen takes pride in delivering a market enabled solution to Regional Gas Exchange GET Baltic in Finland.
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Want to know more about how Hansen approaches the ongoing energy transition? Please take a look at our Energy Transition paper for more specifics.
By Stian Madsen, who focuses on guiding utility companies through the ongoing industry transformation, where delivering energy consumers a personalised energy experience is a key factor.