Fri, Nov 8 2024 8 November, 2024

Europe needs to decommission gas infrastructure as demand plummets

Gas consumption in the EU is set to decline by more than 70 percent through mid-century. A new paper argues that governments need to minimise investment in gas infrastructure and plan for decommissioning.

A new gas pipeline being laid in the German state of Brandenburg (Photo: Adobe Stock/CeHa)

With gas demand expected to fall steeply in the next two decades, the European Union needs to do much more to plan for the decommissioning of gas infrastructure, according to a new paper.

Consumption of gas across Europe is already declining, and those declines are expected to continue in the years ahead, due to a combination of efficiency, renewable energy, electrification, and to some extent, a loss of heavy industry. But the ongoing investment in gas infrastructure continues to build up stranded asset risk.

Against that backdrop, European governments need to step up plans for how and when to decommission gas systems, provide funding for disconnecting from gas, and minimise capital investments in new and existing gas infrastructure, according to a paper published in One Earth in June.

“Despite the outlook of limited alternative use of the gas grid, there is often a significant misalignment between climate targets and gas grid regulation,” the researchers wrote. “The expected decline in fossil gas, and the fact that gas transmission and distribution assets have very long lifetimes, around 80 years, imply early retirement and potentially stranded assets.”

Across Europe, there are 130,000 km of gas transmission pipelines, and 1.8 million km of local gas distribution lines.

But gas demand in Europe is expected to decline by more than 70 percent between 2019 and 2050, leaving vast networks of gas transmission and distribution lines unused and unneeded.

As customers leave the gas system, the cost of maintaining infrastructure is concentrated on a shrinking pool of customers that remain. These expenses for maintaining the grid will need to rise to offset the loss of paying customers. Over the next two decades, those grid network fees could increase by a factor of ten in the UK, by four-fold in Austria, by five-fold in Germany, and by three-fold in France.

“The longer regulation allows for the continued investment into the gas grid without a credible plan for decommissioning, the bigger the problem becomes,” the researchers wrote.

Electricity demand

The authors suggest several immediate steps for European policymakers. First, member states need to conduct integrated long-term planning. Gas demand is in decline, but electricity demand is expected to rise as buildings and the transportation sector switch over to electricity. Electricity demand could rise by 2.8 times by 2050. Ensuring that planning is integrated, across electricity and gas sectors, is necessary.

Second, governments could turn to accelerated depreciation to allow for investments to be paid off on a faster timeline, helping to mitigate stranded asset risk.

Third, regulators could begin setting thresholds beyond which gas service is no longer offered. For instance, if the number of customers per kilometre drops below a set limit, or the volume of sales per kilometre dips below a certain threshold, then the utility could terminate service for that geographic area.

Fourth, governments and industry should minimise the amount of investment in gas infrastructure. “Investment decisions need to take into account safety and performance requirements as the use of gas declines, but continued gas network investment represents a significant potential liability for consumers and taxpayers,” the paper said.

Finally, the researchers suggest governments should provide funding for customers to leave the gas grid. Typically, customers need to pay fees if they want to end gas service. If governments covered that cost, they could transition people much more quickly to cleaner alternatives.

Some of these suggestions are already occurring to some degree in a handful of countries.

“The Netherlands are indeed interesting both because of the accelerated depreciation approach and local heat planning being required at municipal level,” Jan Rosenow, principal and European programme director at the Regulatory Assistance Project, a global energy transition NGO, told Gas Outlook via email. Rosenow was one of the authors of the paper.

“In Germany, municipalities are required to provide detailed plans for heating decarbonisation in their respective areas and clarify where the gas grid will no longer be used in the future. This is already happening in cities such as Hamburg,” he said.

He added that Denmark “has perhaps gone the furthest of all countries and bought back the gas grid (it is now owned by the Ministry of Finance) and set a goal to completely phase out gas for heating by 2030.”

Hydrogen for heating

The authors offered a word of caution on the use of hydrogen, which they view as definitively not a solution for heating buildings. Hydrogen is technically complex and is economically a non-starter. Rather than using hydrogen for heating, it is much cheaper and easier to outfit buildings with electric heat pumps, or to buildout district heating systems. More than 50 peer-reviewed studies have looked at the issue, and none of them have concluded that hydrogen would be feasible for heating buildings.

The energy transition is already underway and to some extent the switch to electrification will happen regardless of policy. But more policy reforms are needed. “In many countries electricity prices are artificially high and gas prices artificially low because of the way how these fuels are being taxed and how policy costs are allocated,” Rosenow said. “Without resolving this challenge clean heating technologies will struggle.”

A separate report from the Regulatory Assistance Project recommends government overhaul energy tax, such as lowering tax on electricity used in heating and shifting tax from electricity to fossil fuels in order to further incentivise a transition.

“EU energy infrastructure planning has not yet integrated a consistent approach for managing the fossil gas phase-out,” Jörg Mühlenhoff, head of the European Energy Transition Programme at the Heinrich-Böll-Stiftung in Brussels, told Gas Outlook.

A 2022 report from Heinrich-Böll-Stiftung, the results of an expert group that convened to analyse the future of gas, also called for reforms at the Member State and EU level to plan for decommissioning gas infrastructure.

“Few Member States have started to oblige their energy infrastructure operators to plan and operate their networks more consistently across different energy carriers,” Mühlenhoff said.

“The revision of the Trans-European Networks for Energy (TEN-E) Regulation during the new legislative term of the European Parliament could be an opportunity to better align national and EU infrastructure planning to go beyond the silo-approach for distinct energy carriers.”

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