Additional reports by Chetan Patel
LONDON (ICIS) – Phasing out nearly 90 GW of coal, lignite and nuclear capacity across Europe by 2030 will boost demand for gas-fired power generation as markets seek to secure the production of basic electricity in a context of rapid expansion of renewable energies.
However, the growth of gas-fired electricity generation is expected to be limited by the faster development of renewables, leaving Europe with a thermal capacity gap to fill.
This analysis examines the evolution of energy balances across Europe and whether upcoming changes in regional gas dynamics can help close the necessary gap in thermal generation.
EVOLUTION OF ENERGY BALANCE
By 2030, European markets expect to phase out more than 50 GW of coal, 19 GW of lignite and 21 GW of nuclear capacity.
As the previous ICIS analysis suggests, while much of the withdrawal capacity is expected to be replaced by rapidly expanding renewable generation, on a decommissioned basis – see
German examples – this will probably lead to a generation deficit.
Gas production will therefore be essential to fill this gap, in particular given the need for base load in electricity systems with a high penetration of renewable energies.
With the expected changes in regional gas dynamics, this main source of gas will likely be LNG. Greater reliance on LNG will mean that European electricity markets are likely to be more affected by global LNG trade.
At the same time, the adoption of LNG in the power sector may be affected by the growing role of power interconnections.
GAS, LNG EVOLUTION
With baseload generation from coal and nuclear drastically declining in the coming years, the role of gas as a stable source of electricity generation will increase further.
However, with declining production from the continental shelf and land fields, much of the much needed gas supply is expected to come from LNG and Russia.
LNG has taken center stage across Europe, replacing local production to become the region’s marginal gas source with Russian supply.
Over the past three years, 22% of European gas consumption has been met by the supply of LNG, with North American volumes experiencing major expansion in Europe.
The current regasification capacity could see LNG represent nearly 45% of gas demand in the region. This could potentially exceed 50% by 2025 with more than 300 billion m3 of operational regasification capacity expected.
This would be used primarily for power generation, as gas-for-power is expected to increase by 5 percentage points between 2021 and 2023 to account for 24% of the battery across Europe.
This comes as nuclear, coal and lignite production fell by 2 points over the same period.
Up to 40 billion m3 of gas from fields is expected to be removed from Europe’s energy balance by 2025, making the increase in LNG supply even greater.
However, greater reliance on LNG will lead to increasing price volatility in energy markets, with piped gas being a more stable and immediate source of supply.
GERMANY: EMERGING SUPER HUB?
Germany is a prime example of a market where interconnections of gas pipeline, LNG, renewables and electricity will intensify to replace the decline of coal, nuclear and lignite.
By 2030, German electricity demand is expected to increase by 20%, the majority of which is expected to be met by the production of renewable energy. This is however only on the basis of a nameplate, and the grid infrastructure would require substantial investment to be able to handle such a high penetration of renewables.
For context, nearly 28 GW has been generated on average over the past five years from nuclear, coal and lignite – almost half of total German production.
Once removed, this will leave a supply shortfall close to 30 GW based on historical usage, with 7.4 GW being replaced by power interconnects by the end of 2024.
Gas will also increase its influence on the energy mix with Nord Stream 2 strengthening the annual supply of an additional 55 billion m3 and the first LNG import terminal in Germany.
At its peak, the German LNG terminal could supply 10% of Germany’s annual gas consumption
At the same time, growing German demand will see the country become a net importer as early as 2023, making the country one of the world’s largest electricity and gas markets.