Fossil Natural Gas Exit – A New Narrative for the European Energy Transformation towards Decarbonization

Discussion Papers 1892, IV, 46 S.

Christian von Hirschhausen, Claudia Kemfert, Fabian Praeger

2020

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Abstract

This paper discusses the potential role of fossil natural gas (and other gases) in the process of the energy transformation in Europe on its way to complete decarbonization. Mainstream conventional wisdom has it that natural gas, perhaps in combination with other gases, should maintain an important role in the energy mix, first, as a “bridge fuel”, and then through a gradual transition toward decarbonized gases. This is most comprehensively rolled out in three consecutive discussion papers by Jonathan Stern from the Oxford Institute for Energy Studies (2017b, 2017a, 2019). Based on an in- depth assessment of the ambitious climate targets of the EU and the subsequent need for far-reaching decarbonization, as well as on results from energy system modeling, a contrasting result emerges, where the disappearance of fossil natural gas and its corresponding infrastructure is the next logical step of the transformation process in Europe. The lack of an economic perspective for nuclear power and the absence of a plausible deployment of large-scale carbon-dioxide removal technologies (CDR) imply that natural gas has no “sweet spot” any longer in the decarbonization process. In other words: Fossil natural gas is no longer part of the solution to the challenge of climate change, but has become part of the problem. Over the last years, the phasing out of natural gas in Europe has already started, and will continue until its complete phase-out, most likely in the 2040s, i.e. only two decades from now. The decline of natural gas in Europe has implications for the short- and longer-term aggregate and sectoral energy mix, but also for the future of the lumpy infrastructure, that has been developed over the last decades for a growing market. Today, investments into natural gas infrastructure are likely to produce stranded assets, as we show in three concrete cases: The € 10 bn. investment into the North Stream 2 pipeline are not necessary to assure European supply security, nor to make a return on investment; projects of new LNG terminals on the shore of the German North Sea (Brunsbuettel, Stade, Wilhelmshaven) lack a business case; and new natural gas power plants are likely to be unprofitable. The paper proposes to replace the dominant narrative (“natural gas in decarbonizing European energy markets“) with what we consider a more coherent narrative in the context of decarbonization: Fossil natural gas exit.

Claudia Kemfert

Head of Department in the Energy, Transportation, Environment Department



JEL-Classification: Q48;Q54;L52;L95
Keywords: Europe, decarbonization, fossil natural gas, energy gases