For some time now favourable predictions have been made for the European energy market regarding the growing demand for gas.
The World Energy Outlook (WEO) estimates that gas in OECD Europe will be the only fuel that will grow continuously until 2030, and by 36percent. This appears to be good news for the suppliers. They have large gas reserves and due to an increasing profitability of Liquefied Natural Gas (LNG) these reserves are being made available to the international markets.
However, according to a new report “Security of demand and supply: different sides of the same coin?” from the management consultancy Booz Allen Hamilton these forecasts are too optimistic. This is a disappointment from an environmental point of view as gas is the cleanest fossil fuel available. What is more, this results in great uncertainty in the international gas industry which together is preparing to invest E150billion in infrastructure. Dutch companies in particular are noticing this: The Netherlands wishes to develop into the ‘gas hub’ of Europe and many projects are in the pipeline for the import of gas in the Netherlands, including LNG terminals.
The greatest growth for gas is expected in the generation of electricity. The WEO expects that in Europe alone electricity generation will increase by 40percent (60billion cubic metres) by 2015; a volume that almost equals total Dutch gas production in 2006. It is becoming increasingly uncertain, however, whether this prediction will be realised: “The main reason for the disappointing demand is the fact that in Europe the gas price is linked to the oil price, and the current high price level makes both building and running gas power stations less profitable,” according to Otto Waterlander, partner and energy expert at Booz Allen Hamilton and one of the authors of the report. “As long as the oil prices remain high, gas will remain less profitable than coal and other fuels in the generation of electricity.” Gas would only become economically interesting once environmental costs are considered more important. With CO2 prices above E45 per ton, the advantage of gas over coal in the generation of electricity quickly increases, as in the combustion of gas almost 50percent less CO2 is released compared to when coal is burned.
Due to divergent forecasts regarding the sale of gas, questions are being asked about the E400billion long-term investments in the European gas infrastructure over the coming 25 years. “This concerns not only new projects such as the Eastern Sea pipeline or the Nabucco natural gas pipeline. The profitability of numerous LNG terminals that enable the Netherlands and Europe to gain access to new gas sources, such as in Qatar and Nigeria, is also doubtful,” explains Waterlander.
Large-scale users particularly in heavy industry (such as Metal, Paper and Chemical) are continually on the lookout for cheaper solutions to their energy consumption. Booz Allen Hamilton also expects a reduction in gas consumption here. This may result in about 25percent of the demand that is now expected in 2030 remaining unrealised. In the Netherlands a similar trend among domestic customers could also lead to a lower demand, particularly if the government manages to succeed in actually stimulating energy-saving measures. At a European level such a decrease will, however, be compensated by an increase in the number of domestic consumers.
Consumers and countries are looking for security of supply by spreading their supply over several sources. Following the conflict over gas prices between Russia and the Ukraine in 2006 the demand in Europe for becoming less dependent upon one single gas supplier has increased further. Suppliers are looking for security of demand to safeguard their large-scale investments in the development, production and transport of gas. With current prices the desired security of supply is hard to find, or is extremely risky. Gas producers and consumers, however, have a common interest and can work together more closely to realise spread of risk.

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