Challenges for natural gas in the context of the Energy Union

Many scenarios for the European transition to a low-carbon energy system require a significant involvement of the gas sector. However, current regulation, market design and network operation should be revisited if Europe is to benefit from the advantages gas can offer during the energy transition. This is the key finding of this CERRE Energy & Climate report ‘Challenges for Natural Gas in the Context of the Energy Union‘.

The gas sector should be well-placed to play a role in Europe’s energy transition: it has a lower carbon content than coal, the sector has enjoyed a recent global growth in supply, and it can operate effectively as a back-up to intermittent renewable energy sources.

However, Europe’s gas sector is currently under pressure. Low prices for both coal and carbon call into question the competitiveness of gas, its role in security of supply and its role in the wider energy transition.

To shed light on these issues and assess the prospects for the European gas sector, this CERRE report examines recent market and policy developments. The report delivers a number of recommendations for regulatory and policy reform:

• EU energy regulation should better account for short-term gas trading, especially at the interface with power markets;
• Enhanced cooperation and information flows between system operators in power and gas markets are required, to allow gas to play a competitive role in energy markets;
• Where security of supply shall be enhanced and import routes diversified, a careful cost-benefit analysis is required for additional infrastructure investments;
• Crucially, the long-term involvement of gas in the energy system requires higher prices for carbon under the Emissions Trading System, as the low carbon content of natural gas is currently undervalued;
• Cost-effective and innovative gas products should be encouraged, e.g. biogas, biomethane, hydrogen, and CCS.