- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.

 Natural gas is back stronger than ever

Europe’s natural gas sector is in the midst of great change, thanks to recent developments in decarbonization and with increasing digitalization. After several years of sustained decline, gas demand in Europe recovered after 2015, reaching its highest volume in history to 548 billion cubic meters (bcm) by the end of 2017. Natural gas consumption has been boosted with energy transition, economic recovery, decarbonization as well as the challenge from harsh weather conditions in recent years.

Natural gas consumption growth in Europe from 2014 to 2015 was recorded as 3.9 percent; in consecutive years after that, it increased by 6.5 percent and 5 percent. Among European states, growth was mainly concentrated in Germany, France, the Netherlands, Italy and the U.K., but out of all, Turkey showed the biggest growth. In 2017 alone, demand grew by over 7 percent, despite a small consumption contraction over the previous years. 

 With an overall growth rate of 5.5 percent in 2017, total natural gas imports in Europe were recorded as approximately 410 bcm. While Norway and the Netherlands supplied 37.5 percent of natural gas to the European gas market, Russia by far continued to be the main gas supplier to the European market and supplied over 40 percent of the gas consumed to Europe. Russia exported 150 bcm of natural gas to the European market in 2016 and in 2017 the volume increased to 165 bcm. 

Giving the decline for indigenous gas production, mainly in the Netherlands, strong consumption trends will likely put Russia in a stronger position in Europe’s gas market. Although LNG demand is set to increase with robust infrastructure investment and a strong policy shift towards diversifying gas suppliers, Russia’s competitive price advantage will likely challenge policymakers and its supremacy in the European gas market share will continue for many years to come.

 Nonetheless, the major cause for a robust increase in gas demand is down to the ratification of the Paris Agreement, which set the framework for a major transformation towards shifting to a low-carbon system. The role of natural gas as a bridge fuel gained more vitality than ever before. 

 Following several years of mild weather conditions in Europe, overall gas consumption halted the steep increase in demand. But harsher weather conditions from 2015 throughout Europe saw three consecutive years of gas demand increases. In 2017, with a record of a minus 10-Celsius decrease in temperature, gas consumption for space heating intensified. In March 2016, the cold wave in Europe increased gas demand above 5 percent on a monthly basis. In addition to falls in temperature, heat waves have also put an additional burden on gas consumption and this is particularly applicable in southern Europe. 

 As economies in Europe continue to recover from the 2008 economic crises, increased electricity demand has also stimulated overall gas demand. Despite sizable measures of decoupling economic growth from carbon emissions, the successful implementation of energy efficiency programs, along with steady economic growth, have pushed gas demand upwards since 2015. A strong pick up in the European economy and continued expansion of electricity demand resulting from this growth have paved the way for a greater switch from coal to gas. After the coal-to-gas switch in many European states, the overall share of gas in electricity expanded by over 5 percent between 2015 and 2017. Currently, 20 percent of electricity is generated by natural gas. Over the same time period, while gas demand increased, coal demand dropped by approximately 5 percent. 

 Many natural gas demand outlook projections written prior to 2015 expected a contraction over the mid to long-term or else, they projected a stable trend. Many scenarios were pessimistic seeing no major increase in future gas consumption.  France’s decision to opt for nuclear safety testing, with reduced availability of nuclear capacity utilization provides an explanation as to an increase in gas demand. A strong growth pattern for gas was also seen when many other European states decided to switch from coal to natural gas with expectations of higher carbon prices, the implementation of which is soon expected under the EU’s Emissions Trading System scheme.

To enhance security of gas supplies in Europe, many regulations and infrastructure were implemented in recent years. To benefit from increased competition in natural gas, natural gas hubs in Europe, particularly the Dutch Title Transfer Facility Virtual Trading Point and the U.K. National Balancing Point have taken on a leadership role in the liberalization of gas markets. Continuous improvement in market design has paid off for consumers with lower prices at the expense of oil indexation.    

 The gas consumption trends in Europe after 2014 are more promising in comparison with previous years. With the help of stronger economic growth, a decision to switch from coal to natural gas, accelerated decarbonization policy measures, strong market rules, a growing hub-pricing mechanism, and harsh weather conditions have all helped the natural gas sector make a strong return.   

- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.