How is the European gas industry responding to today’s market challenges?

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Paul van der Laan, Manager Asset Exploitation & Business Development , Gasunie
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When Gastech News asked Paul van der Laan, Manager Asset Exploitation & Business Development at Gasunie how the European gas industry is responding to today’s market challenges, he said: “There are various deep changes in the market.

Firstly: until the recent past, gas had an undisputed reputation. But now we find ourselves in the same category as coal and oil. The distinctive advantage of gas, being the cleanest fossil fuel, is subject to erosion in the perception, although this differs significantly per region. In fact, natural gas has a meaningful and beneficial role to play in the energy mix, also in the foreseeable future.

The big challenge for the industry is to develop a relevant proposition for gas and gas infrastructure in the context of the energy transition. Several independent infrastructure companies are doing this for example in the context of the Green Gas Initiative. Companies from seven different European countries have committed themselves to a 100% carbon-neutral gas supply and recently published a joint vision to achieve this. This vision should help to accelerate the transition while making use of existing infrastructure.

Secondly, the industry has to deal with low gas and low energy prices. Yes, this affects the industry, but at the same time we should not forget that the industry is used to volatile oil prices. In 1998 it was $8 a barrel, we’ve had ‘peak oil’ and now oil price level fallen down again to very low levels. I believe the perception is more dramatic than the long-term situation. The impact of the current low prices has a more direct impact on investments in for instance LNG and shale gas, than on investments in infrastructure which tend to have a longer lead-time.

Thirdly, changing supply represents a challenge. We are shifting from indigenous production in Europe towards more imports, either Russian gas or LNG from various regions including the United States or perhaps from the Far East and Iran. This shift underlines the importance of diversification of supply. Additional imports will increase Europe’s dependency from external suppliers. Russian gas is expected to increase its share, because they have reserves and the infrastructure to bring the gas to the market. According to analysts, they will be able to offer it to the market at competitive prices. Ignoring the necessity of import increase is not the right thing to do for policymakers. Europe rightly commit itself to energy efficiency and increasing the share of renewables, but even if we achieve the ambitious goals, there will remain a surplus energy demand which has to be covered.

Finally, long-term contracts are increasingly being replaced by short-term contracts also as a result of regulatory changes, which increases the business risk. It is the challenge for the industry to cope with that, to adapt and look for new business models.”

To the question ‘is Europe responding well to these challenges or could something be improved?’ Paul van der Laan said: “We have to observe that the industry is not as strong as it was in the past. Europe once had strong gas companies, such as companies like Ruhrgas and GdF. Through mergers and unbundling the market looks fundamentally different. It’s the traders, with a diverse portfolio going beyond gas, but also the suppliers and transporters. So if you define the European gas industry as a combination of all the companies just mentioned, then you could say it has become more fragmented. Increasing short-term trading is driving the market with consumers mainly looking for low prices and security of supply no longer automatically being addressed by market parties.”

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Photo Courtesy of Gasunie.