Natural Gas and Hydrogen: Bridging the Regulatory Gap

Natural gas currently represents a significant pillar for our energy system. In 2018, important coal-to-gas switching took place in the power sector and, by 2019, natural gas accounted for 23% of total EU primary energy consumption. Natural Gas accounts for more than 20% of electricity generation, and more than 40% of it is being consumed in buildings.

Today, the European Commission is committed to delivering a long-term vision on climate neutrality by 2050, with a target of at least 55% reduction in greenhouse gas emissions by 2030. This will hinge upon a host of new initiatives such as the renewable energy directive and energy efficiency directive, expected during the second quarter of 2021, so as to address system integration and the hydrogen strategy. Further legislation due in the fourth quarter will provide an opportunity for the gas sector to demonstrate its commitment to fighting climate change, as will the new market rules, by focusing on decarbonising gas.

This new climate ambition is a driving force for change and Eurogas, which represents more than 50 companies and industry groups from 24 countries in the European gas wholesale, retail and distribution sectors, stands committed in supporting the transition.

Hence, we undertook a study with DNV GL – an independent risk management and quality assurance consultancy – to determine how the EU could deliver on its climate ambitions. The study assesses a pathway to a carbon- neutral future, comparing it to the European Commission’s 1.5TECH scenario, outlined in the 2050 long-term decarbonisation strategy. What we see is that we could achieve the EU’s climate goals at significantly lower costs than European Commission estimates, as long as we develop the hydrogen economy in the 2020s.

Natural gas has a key part to play in reducing EU emissions, and has been since 1990. By 2030, in parts of Europe, using natural gas will displace coal and oil thereby improving air quality and reducing carbon emissions contributing to increased ambition for GHG reduction. More quick wins could be achieved by replacing oil with LNG in maritime transport, or using gas as a transportation fuel which would require CO2-emission mea- surement to occur via the well-to-wheel approach rather than the tailpipe one.

Despite this, however, natural gas will have to ultimately decarbonise itself in order to help deliver on a bona fide carbon-neutral economy, and several options to achieve this are being produced today such as biomethane and hydrogen (both blue and green).

Many of our members are developing both blue and green hydrogen projects and biomethane, which contribute to Europe’s leading role on clean gas technologies, providing jobs and securing economic growth.

Kickstarting the hydrogen economy needs to take place as soon as possible therefore, with a homogenous regulatory framework to back it including: a binding EU-level target for renewable and decarbonised gas consistent with the existing targets; a harmonised framework for Guarantees of Origin to ensure transparency and tradability; fostering the blending of hydrogen and methane so as to drive market uptake and ensure infrastructure interoperability.

If we do not build now, we will miss out on the chance of achieving carbon neutrality in any cost-effective way. Many EU countries recognise that hydrogen will be part of the future energy mix. There are projects in Germany, France, The Netherlands, Belgium, Spain, Portugal, to name just a few. Eurogas will be working on making sure hydrogen is deployed at scale. There is 33 bcm/year of grey hydrogen produced in Europe and, if we were to work that into blue hydrogen quickly, it could already be a big win.

In this respect, and according to all credible studies from the European Commission to International Energy Agency, the Intergovernmental Panel on Climate Change and our own, Carbon Capture and Storage is a necessity if we are to reach carbon neutrality by 2050. The chemicals industry, for example, considers natural gas with CCS and later Carbon Capture and Utilization to be a promising pathway to transition their operations towards climate neutrality. While the large-scale realisation of CCS has been met with challenges in the EU, a positive, stable regulatory environment would enable the sector to play its part fully on the path to carbon neutrality.

Renewable hydrogen will be key to achieving the EU’s 2030 climate ambitions and climate neutrality by 2050.

This will be driven by the massive build out of intermittent renewables and the difficulty to store electricity will result in the need for seasonal storage through hydrogen production, which in turn will help renewable developers to realise profits from their parks.

Ultimately, the bridge lies in a cohesive, single policy framework. This is needed to enable the development of new value chains for renewable and decarbonised gases. All options must be considered. In parallel, clear technical rules will facilitate hydrogen’s integration. Over time, this will allow the steady growth in final demand for pure hydrogen, in sync with the development of infrastructure, ensuring the transition to the clean energy economy.