The role of natural gas in bridging the energy gap
Transitioning to renewable sources
Despite the global push towards renewable energy, coal remains a major player in electricity generation, particularly in large economies like China, India, and the US. As the world strives for net-zero emissions by 2050, natural gas can play an important role as a transition fuel due to its lower carbon footprint compared to coal. This chapter delves into the current energy landscape, the challenges of transitioning to renewable sources, and the pivotal role of gas in bridging the gap towards a fully decarbonised future where all fossil fuels need to be phased out.
Current situation and challenges faced
Coal still dominates the global energy mix, representing over a third of global electricity generation, especially in large economies like China, India and the US. Recent geopolitical events have also elevated the role of gas, notably from the Middle East and the growing liquefied natural gas (LNG) production and exports in the US.
Achieving global net zero by 2050 requires a shift from fossil fuels to increased renewable energy capacity, which poses challenges in the transition phase. The decommissioning of fossil-fuelled power plants and the phase out of nuclear power, as seen in several European countries, result in a lack of predictable and available baseload generation capacity. Consequently, natural gas is considered a transitional fuel due to its lower carbon footprint compared to coal.
Accounting for 20% of the fuel mix in 2022, coal plays a crucial role in the EU power sector. The initial strategy involves phasing out coal while increasing renewable capacity, with most EU member states targeting a coal phase-out before 2030, and the major coal-dependent ones by 2038. The recent agreement by the G7 nations to phase out coal power by 2035 could further accelerate this transition. Meanwhile, natural gas power plants will provide the necessary flexibility to bridge the baseload gap, especially in markets lacking hydropower. Eventually, natural gas will also be phased out, completing the transition to fossil-free energy sources.
Ongoing geopolitical tensions, such as Russia's war on Ukraine, put in question the possible role of gas in the energy transition. In an impressive turnaround, the EU has managed to tap into alternate gas sources and minimise imports from Russia. Whereas imports from Russia amounted to 41% in 2021, they were down to 8% in 2023. The imports were substituted by pipeline imports from partner countries or in the form of LNG. Norway now supplies 30% of European gas via pipeline, while 20% is imported from the United States via LNG terminals.
Planned coal phase outs in Europe
In 2021, the EU adjusted its climate targets by increasing from 32% to 42.5% renewable energy sources in its overall energy mix until 2030. Furthermore, CO2 emissions are to be curbed by a minimum of -55% by 2030 compared to 1990 levels. Currently, electricity and heat production account for about 50% of emissions in Europe. Critical to reducing emissions and reaching set targets is the rapid phase out of coal, which could reduce CO2 emissions by 1 billion tonnes per year.
Looking ahead
In a first phase, in order to bridge the transition away from fossil fuels, most markets require additional gas-fired capacity. Across the EU, an increase of gas power plant capacity by up to 26 GW (+15%) between 2023 and 2040 is expected to secure supply and provide the required flexibility for the power and heat sectors.
Gas is projected to be of major significance even after 2040, with a large proportion reaching carbon neutrality through the use of carbon capture and storage (CCS). Hydrogen is expected to only play a minor role in power and heat generation. Due to the increased penetration of intermittent renewable energy sources, the transition will increase reliance on storage systems, such as batteries and hydrogen, to provide flexibility. Furthermore, technologies such as heat pumps, solar thermal and geothermal must be increasingly rolled out. In this context, waste-to-energy technology to produce biomethane is also increasing in significance. The targeted annual biomethane production level of the REPowerEU package is 385TWh.
Transition of European gas supply due to Russia's war on Ukraine
A hot topic being debated on the level of investors and operators is making gas power plants “hydrogen-ready“, giving them the ability to be refitted to run on hydrogen produced from non-fossil energy sources. Currently, many of the gas power plants in operation run the risk of becoming stranded assets after 2040. Therefore, operational gas power plants must be gradually refitted, and most newly-built power plants will have to be hydrogen-ready in order to minimise the costs of the upcoming fuel switch. The installation of new hydrogen-ready gas power plants also necessitates actions by states.
A further potential instrument regarding the decarbonisation of the power and heat sectors is carbon capture and storage (CCS). In the “Industrial carbon management strategy” published by the EU in February 2024, the significance of CCS to offset the usage of fossil fuels after 2040 is highlighted. After 2030, gas usage will be increasingly linked with CCS.
Historical development and projections of fuel use in power & heat generation for EU27 countries (TWh)
The decarbonisation of the power and heat sectors poses significant challenges to companies operating in the sector, including energy providers, utilities, manufacturing firms reliant on energy-intensive processes, as well as technology providers. Regulatory compliance and balancing sustainability goals with operational efficiency requires substantial investment and strategic planning, impacting competitiveness and profitability in the transition to a low-carbon economy. Furthermore, transmission system operators (TSOs) of gas networks must also rethink their business model and adapt to the changing market landscape featuring LNG, hydrogen or biomethane.
The phase-out of fossil fuels demands concerted efforts from policymakers, industry players, and the public alike. Through fostering innovation, investing in renewable energy infrastructure, and enacting supportive policy frameworks, Europe can surmount the hurdles of its energy transition and emerge as a global leader in sustainable energy innovation.
Insights at a glance
- Infrastructure modernisation
Upgrading existing gas networks to accommodate renewable gases (such as green hydrogen) and implementing energy efficiency measures in the various sectors
- Regulatory support
Implementing policies and incentives to promote the production and integration of low-carbon and renewable gases such as biomethane and hydrogen into the gas grid
- Technological innovation
Advancing research and development to optimise gas production processes, and facilitating the transition to accessible and efficient low-carbon and renewable gas sources
- Collaboration
Fostering partnerships between governments, industry, and communities to coordinate and streamline efforts to drive collective action towards sustainable-energy goals
- Energy companies
Invest in renewable gas production and distribution infrastructure to enable a transition towards a sustainable energy future, as this will stimulate economic growth in the sustainable energy market and create jobs
- Industrial players
Implement energy-efficient technologies, integrate renewable gases into manufacturing processes to significantly improve sustainability, and retrofit process equipment, while ensuring a reliable and sufficient sourcing of renewable gas supply
- Governments
Enact policies that incentivise the adoption of renewable gases and promote cross-border cooperation to strengthen energy security, with the aim of achieving higher a diversification of energy sources and an increased resilience against shortages in energy systems