Decarbonisation and industrial demand for gas in Europe

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David Ledesma, Energy & Strategy Consultant and Senior Research Fellow, Oxford Institute for Energy Studies
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In my first article for Gastech Insights, I discussed how the Oxford Institute for Energy Studies (OIES) has published papers on how the pace of energy transition towards low carbon fuels is one of the biggest challenges facing individuals, companies and governments today. The article concluded arguing that the gas industry needs to take decarbonisation more seriously or it risks being marginalized or removed from the European energy system.

In this second article, I am discussing decarbonisation and industrial demand for gas in Europe based on Anouk Honore’s paper of the same name that was published by the OIES in May 2019. This paper builds on her 2018 paper on the decarbonisation of the Heat Sector (32% of which comes from the industrial sector) that argued that if Europe wants to meet its long-term climate targets then the heat sector had to take some radical actions and even then reductions in gas demand would probably not take place as quickly as in the other sectors (power and buildings).

The electricity sector has been the main focus of EU low-carbon policies and the increase of renewables in the mix has already had an impact on fossil fuel generation, especially on natural gas. That said, if Europe is to meet its decarbonisation objectives it will need to focus on other sectors to achieve climate neutrality.

About a quarter (23 percent) of all energy consumed in Europe is used by its industrial sector with two-thirds of its supply coming from fossil fuels. Industrial activity represents about 16 per cent of the EU28’s GDP and the emissions associated with fuel combustion used in industrial production processes account for about 15 per cent of total greenhouse gas (GHG) emissions. The energy mix of the industrial sector will, however, need to evolve in the future if it is to meet its GHG emission reduction targets. Arguably, this transformation has already started, but the pace has been fairly slow. Both the level and the share of all fossil fuels in industrial final energy demand have declined over the period 2000–2016 (see figure below), from a total of 73 per cent (29 percent for natural gas) to 65 per cent (27 percent). As can be seen in the graph, these were replaced by cleaner fuels such as electricity (whose share rose from 21 percent to 24 percent), renewables (4 percent to 6 percent), and derived heat (3 percent to 4 percent).

EU28 industrial final energy demand by energy mix, 2000–2016 (Mtoe)

Source: OIES, Honore, calculated from Eurostat.

The reductions in the level of energy demand have been due to three primary reasons. Firstly, achievements in energy savings and the implementation of improved efficiency measures in energy-intensive industries; secondly a general shift in the EU economy (together with structural changes in the industrial sectors) towards less energy-intensive industries and services; and thirdly the consequences of the recession and the economic situation post-2009 (the impact of which should not be underestimated).

There will be no simple solution to reduce the use of hydrocarbons in the industrial sector in Europe, decarbonisation will require a combination of different options to be deployed and adapted to local circumstances. These options are essentially energy efficiency improvements, electrification of heat from zero-carbon electricity supply (and heat recovery techniques) together with fuel switching (to biomass or hydrogen as feedstock and/or fuel), and carbon capture utilisation and storage. This transformation is still in its early stages and is facing many challenges. This brings uncertainties on what can be done, when, and at what cost. It is clear that dramatic changes and innovations will need to happen soon (from the 2020s) if the EU is to achieve a decarbonised industrial sector by 2050. Several projects are being developed across Europe, but it is still hard to get a clear indication of what will happen, at what scale, and by when. Anouk Honore is of the view that further research, especially in the area of high-temperature process heat, is required in order to understand the full impact of decarbonization on industrial gas demand in Europe up to 2050 (and beyond).

For further discussion on this subject, please refer to the OIES website

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