The gas market

Natural gas is a key energy source for power generation, heating, industrial processes, and buildings in Europe and worldwide. The combustion of natural gas is one of the largest sources of greenhouse gas emissions globally. Therefore, significant resources are invested in reducing emissions by using alternative energy sources or capturing the greenhouse gas emissions from natural gas use.

At the same time, natural gas can also replace even more emission-intensive energy sources such as coal, which is why natural gas is sometimes referred to as a bridging technology between coal and emissions-free renewable energy.

Gas is central to the energy transition, and the energy transition to the gas market

The European and global efforts to reduce greenhouse gas emissions have significant implications for the gas market. In the short term, there is an upside in increased gas consumption in the power sector, as it helps to reduce coal-fired power generation, which is even more emission-intensive. However, in the longer term, the fight against climate change implies phase-out of natural gas use without CO2 capture and storage in all sectors.

In the EU, which is taking an international leadership role in the fight against climate change, these changes are already evident. In addition to a strong focus on expanding renewable energy production, strategies to reduce emissions associated with the use of gas in the industrial and building sectors are also being developed.

Natural gas can be used to produce hydrogen. If the greenhouse gas emissions from this process are captured using CCS, so-called blue hydrogen or low-carbon hydrogen can be produced.

THEMA closely monitors the development of the regulatory framework for the production, transportation, and use of low-carbon hydrogen in the EU and Norway.

A future role for Norwegian gas in Europe?

In Europe, energy security is an important dimension associated with natural gas, as the EU is dependent on imports via pipelines mainly from Norway, Russia, and Algeria, and via LNG ships from other parts of the world. Following Russia’s invasion of Ukraine, EU gas policy has focused on both reducing consumption faster and diversifying import sources. Norway has become an even more attractive supplier of gas to Europe.

For Norwegian gas suppliers, for Norwegian oil and gas policy, and for questions about electrification of the continental shelf, it is still important to understand how the European gas market will develop. How do the EU’s increasingly ambitious goals for emissions reduction and energy system transition affect the gas market and demand for Norwegian gas?

At the same time, the rapid technological development of low-emission technologies and the policy and market conditions in the EU also affect the demand for Norwegian natural gas.

The supply of gas and gas prices have a major impact on the power market and power prices

Understanding the drivers and framework conditions of the gas market is a crucial building block for the forecasts we prepare for the European power system four times a year. A deep understanding of the interaction between policy choices, global gas prices, and the European carbon market is essential to ensure solid analyses and forecasts.

We therefore work continuously to monitor political objectives with an impact on natural gas, technology development for alternatives to natural gas and market developments that affect gas prices.

Developments in the power sector are particularly important for upstream production actors that are looking at the possibility of cutting emissions through electrification, but also to understand the role that gas power can play as a flexibility supplier in a future power system dominated by intermittent renewable power generation.