Decarbonization and industrial demand for gas in Europe
The EU is committed to reducing its greenhouse gas (GHG) emissions to 80–95 per cent below 1990 levels. So far, the electricity sector has been the main focus of EU low-carbon policies, but if Europe is to meet its objectives, decarbonization efforts will need to expand to other sectors. Heat and transport are the next two sectors to be targeted in public discussion about climate change, while emissions from the industrial sector rarely feature on the agenda. Approximately 65 per cent of the energy used in the industry is derived directly from using fossil fuels, including natural gas (27 per cent). Transitioning to a low-carbon industrial sector will change this mix and lower fossil fuel demand as shown in scenarios published by Shell, Equinor, the IEA and the EU. One problem is that these models tend to simulate the industrial sector in an aggregate way that obscures the sectoral diversity of the sector, and as a result, the capacities for (or the constraints on) replacing fossil fuels to abate emissions. They do not provide much detailed information about the evolution by country and by sub-sector. The objective of this paper is to propose a simple analytical framework to get some granularity into the possible evolution of industrial gas demand as a result of decarbonization policies in Europe. There are many uncertainties on what can be done, when, and at what cost, but fossil fuels can be more easily displaced by traditional renewable energies and heat pumps for low-temperature applications. These technologies already exist and can be deployed in the coming years if adequate support is in place. As a result, about 43% of the industrial gas demand (about 48 bcm) could, in theory, decline as soon as the 2020s. Conversely, high-temperature heat processes and gas used as a raw material (feedstock) are more complicated to decarbonize as most of the options would necessitate dramatic investments, changes and innovations which are going to take time. As a result, the impacts on level of methane demand are likely to be felt much later, well into the 2030s or even the 2040s.