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Role of gas in European power sector will likely evolve

Oil&Gas Materials 21 October 2019 14:02 (UTC +04:00)

Baku, Azerbaijan, Oct.21

By Leman Zeynalova – Trend:

Looking ahead, the role of gas is reaching a critical juncture in Europe, Trend reports referring to the Global Gas Report prepared by Snam, International Gas Union (IGU) and the Boston Consulting Group (BCG).

In the power sector, the potential phase out of coal power generation across multiple markets represents significant growth potential for gas, but just how quickly that transition occurs and the share of demand that flows to gas relative to renewables and battery storage is highly uncertain, according to the companies.

“Meanwhile, in the buildings and industry sectors, a move toward electrification could increasingly displace gas. The use of gas for transport (both road and marine bunkering) represents true growth potential, but it is a small market to date and growth is uncertain. While overall gas demand in Europe is unlikely to grow substantially given low growth of primary energy demand and improvements in energy efficiency, the composition of gas demand and the role it will play in Europe’s energy mix is likely to significantly evolve,” reads the report.

To understand this evolution, it is critical to both assess the role of gas on a holistic basis in Europe along with specific national and local drivers, according to the companies.

“The potential impacts of coal phase outs present the greatest opportunity for gas market growth in the near term. Countries with 96 GW of coal power generation capacity have adopted or are considering some form of a coal phase out, including Germany, Italy, France, and Spain. These policies could result in the growth of gas demand in the power sector by as much as 22 BCM in countries that have adopted coal phase outs and 60 BCM in countries that are considering coal phase outs.”

Coal-to-gas fuel switching represents the near-term energy transition impacting gas in Europe, but in the longer term, the role that gas plays will be increasingly shaped by how it complements renewables generation, reads the report.

“So, while gas is likely to gain share in the near term, that share may quickly shift to renewable generation if the role of gas moves from baseload to peaking. This is why multiple forecasts show flat demand for gas in power generation over the longer term. As an example, the IEA New Policies Scenario estimates European power sector gas demand will grow by only 5 BCM between 2017 and 2040.”

“Beyond implications for the level of gas demand, the role that gas plays in the European power sector will likely evolve. Given that gas is a dispatchable source of power, it is likely to play a greater role balancing the intermittency of renewable power generation. While this may result in lower aggregate demand for gas, the value that the dispatchability of gas provides to the grid is likely to grow as renewable capacity continues to expand,” the report says.

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Follow the author on Twitter: @Lyaman_Zeyn

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