The role of gas in the

European energy transition:

risks and opportunities

Centre Energie - Centre for Energy

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Marc-Antoine Eyl-Mazzega,

Director

Russian Gas Society, Berlin, 16 May 2019

US experiencing an industrialization with a growing trade deficit while Europe sees industry coming out of its decline

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Evolution of industrial production in selected economies, 2010-2018 (2015=100)

Source: OECD

Natural gas is now part of the geoeconomic battle, a stake is the competitiveness of key European economies

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Evolution of average gas prices for the industry sector in a selection of countries, 2013-2017 ($/MWh)

Source: IEA, OECD, Gazprom, Ifri

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2013 2014 2015 2016 2017

Germany France Italy Russia USA Japan Turkey Canada

4BP Databank & World Development Indicators, World Bank, OECD

The evolution of gas demand points to a defensive position, yet with a temporary twist since 2015 in spite of higher prices

Evolution of selected economic and energy indicators in the EU, base 100, year 2007

UK coal phase out: 80% coal generation decrease only leads to 30% gas generation increase as renewables pick up

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Evolution of electricity generation in the UK by type of fuel, base 100 Reference year 2007

Source: BP Databank

Spain: large renewables deployment pressures gas, yet demand varies depending on wind & hydro availability + GDP

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Evolution of Spanish gas demand and share of renewables in total power generation (2008-2018)

The key challenge for energy systems in transition is flexibility.

Intermittent renewables and variable hydro require much more flexible

gas demand patterns… and are harder to predict.

Source: ENTSO-E

EU expected to phase out 50% of coal fired power generation by 2030, up to +20 bcm/y demand for power generation

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3500

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2010 2011 2012 2013 2014 2015 2016 2017 2018

Renewables Nuclear Coal Gas Other fossil fuels

EU power generation mix in TWh (2010-2018)

2.2

46.530

9.7

8.9

9.5

4.8

3.9

4.9

4.1

2.3

0.84.6

Source: ENTSO-E Transparency Platform

Source: Eurostat, Agora Energiewende & Sandbag

Installed coal power generation capacities in

selected EU states 2019 (GW)

Yet the call for CCGTs can also be offset by larger hydro availability, very productive

renewables, nuclear, interconnections as well as demand side management measures

EU emission allowance prices rise while REN auctions bids fall: bad for gas unless it is more competitive than coal

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EU ETS settlement prices, March-2018 to February-2019 (€/tCO2)

Source: Market Business Insider, European Energy Exchange, Market Data, 13.03.19

• EUA prices at 7 years high

• Around 20€/ton since mid-August 2018

• The best-performing « commodity » in 2018

Greening the gas: biomethane + H2O soften the fall in natural gas production and help support demand

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Development of biogas and biomethane plants in the EU, 2011-2017

Source: European Biogas Association

EU green gas production @ 23 bcm in 2030 and helps to push gas use in the

transport sector (CNG and LNG) which can increase from 2 bcm/y currently to

18 bcm/y by 2030, including 10 bcm of LNG, driven by heavy duty transport.

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2011 2012 2013 2014 2015 2016 2017

Biogas plants in the EU Biomethane plants in the EU

• 2 bcm/y production in

2018

• 65 GWh electricity

production

• New push in Italy,

France, Denmark, UK

• Costs in France must

fall to 60 EUR/MWh to

reach 22 TWh by 2028

Biomethane

plants

Biogas plants

Outlook to 2030: demand overall flat until 2025, before progressively & slowly declining

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Evolution and estimate of EU-28 gas balance, 2007-2030 (bcm)

Source: Ifri

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

EU-28 gas demand EU-28 total gas production (natural gas + green gas) EU-28 net gas imports

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Outlook uncertainties (1/2)Stronger EU gas demand:

Global economic slow-down + China slowing on gas expansion, leading to a

global LNG glut, low prices which help push gas for power generation

Producers decide to cut prices and opt for a volume based strategy, credibly

reduce their methane emissions, start greening natural gas

France, Belgium, Poland, UK do not build new nuclear reactors beyond those

in construction & limited life time expansion

Delays in energy efficiency efforts and slow down in renewables deployment

due to costs, lacking interconnections and acceptance challenges

Stronger extreme weather conditions strengthen peak system loads, number of

cooling degree days and reinforce the role of CCGTs and gas storages for

electricity supply security

Climate change leads to lower hydro availability and a stronger call for gas-

fired power generation

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Outlook uncertainties (2/2)

Weaker EU gas demand:

Gas prices continue to rise in the EU as pipeline exporters cut back on volumes,

Asian price premium expands again

Global geopolitical crisis affecting one large LNG exporter or trade route,

leading to a surge in prices

Methane emissions from natural gas are not addressed rapidly enough

Nuclear new builds and life time expansion

Breakthrough in small modular nuclear reactors

Breakthrough in electricity storage technologies and demand side management

systems

Low GDP growth in Europe and low industrial production

Climate change leads to milder winters & less heating degree days

Coal phase out is pushed back

December 2019 gas negotiations: avoiding miscalculations so that gas is an enabler of the transition and not a toxic fuel

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NS2/Turk-Stream

Assessment of respective gains and losses in a crisis scenario

RU-UA S&P agreement (duration, take or pay, price,

currency, paymentconditions)

Transport tariffs, ship or pay

level, flexibility, duration

Politics in UA and EU and geopoliticsbetween

RU/UA/USA-EU

Arbitration proceedings

Externalpressures or facilitations

Enforcementguarantees

Source: Ifri

Ifri Centre for Energy

27, rue de la Procession, 75740 PARIS CEDEX 15Tél. +33 (0) 1 40 61 60 00 • Fax : +33 (0) 1 40 61 60 60

www.ifri.org

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