Duties, tariffs and energy: the triad of duties, tariffs and energy. How much will the insidious combination of the new global protectionist course and the increasingly complicated (and expensive) energy transition affect European industry? While waiting to find out theamount of duties that will be introduced by the United States in the coming months (and the consequent countermeasures), the only certain fact is that from 2022 onwards the geopolitical necessity of having to replace Russian gas has had a major impact on the competitiveness of a significant part of manufacturing in Europe, primarily in Germany and Italy. Despite the progress made in the energy transition roadmap, all forecasts suggest that the gas market will remain one of the key points to influence the competitiveness and security of the European economy.
“The conflict in Ukraine and sanctions on Russia have permanently reshaped gas markets in Europe and globally. Even if the war ends soon, there will be no return to the pre-conflict levels of 150-200 billion cubic meters per year of Russian exports to Europe. Although the Union's goal of eliminating Russian imports by 2027 may not be achieved, current volumes are already very low and set to decline further,” Professor notes. Jonathan Stern, one of the world's leading experts on natural gas, founder of the gas research program of'Oxford Institute for Energy Studies (OIES) and long-time director of the "Energy and Environment" programme of the Royal Institute of International Affairs in London.
Professor Stern, what role do you foresee for natural gas in the global energy transition after 2030? Will gas continue to be a key source?
“The future of natural gas hinges on three key questions. First, can natural gas decarbonise (and what contribution can low-carbon gases, such as biogas and biomethane, make to this process)? Second, can natural gas remain competitive in terms of price compared to other forms of energy? Third, can natural gas recover its reputation as a secure source of supply? The last two questions are particularly relevant for Asia, where natural gas still has room for demand growth. In Europe, and probably also in North America, demand for “unabated gas” is expected to be static or declining (ed. natural gas that is used without measures to reduce carbon emissions). This does not imply that natural gas will soon cease to be a key energy source, but its importance is set to decline in North America and, especially, in Europe.”
How are major natural gas producing countries adapting to growing pressures for decarbonization?
“Some countries are taking countermeasures, while others believe it is unnecessary, considering that unabated gas will still be in large demand, both domestically and for export. The world’s top ten gas producers can be divided into three groups: the United States, Canada, Norway and Australia, which have adopted policies to reach net zero emissions by 2050. Their governments and companies are participating in most global initiatives to reduce emissions. Then there are Qatar and Saudi Arabia: Qatar is a leader in carbon capture, utilization and storage by LNG plants, which will increase significantly in the next five years. All of Saudi Arabia’s gas is used domestically, and most is associated with oil production.”
And the third group?
“It is represented by Russia, China, Iran and Algeria: apart from China, these governments have not taken steps to decarbonise domestically and none have joined global initiatives to reduce emissions. It should be noted that only Russia and Algeria are significant exporters. Russian gas exports to Europe have fallen to very low levels since the war (and may be phased out), while those to China have increased. China, despite having significant domestic production, is a large importer both through pipelines and LNG: it is difficult to estimate whether imported gas will be able to compete with renewables or domestically produced coal. It is unclear, however, whether Algeria has plans to adapt its gas and LNG exports to the standards set by the European Union”.
Which of Russia, Iran and the Arab countries will be most impacted by the major global changes underway?
“Only Russia, Algeria and Qatar are significant exporters. Iran, the United Arab Emirates and Oman export gas on a smaller scale. The impact of changes in national decarbonisation will depend on the measures taken to reduce emissions from production and consumption. But for exporters, the impact must also be considered in relation to the markets that buy their gas and LNG. For example, in 2024 the European Union passed the Methane Regulation which, by 2030, will require emissions from gas and LNG production and transport to meet minimum greenhouse gas intensity standards.”
Do you foresee greater international cooperation among gas exporting countries in the future?
“When it was created in 2001, the Gas Exporting Countries Forum was hailed as a sort of “OPEC for gas.” It is an intergovernmental organization that promotes cooperation between exporting countries, but unlike OPEC it does not have production quotas and so its decisions have less of an impact on prices. The strategic objectives of the Forum are to promote long-term contracts and oil-indexed gas and LNG prices, but it is not about forcing governments or companies to adhere to these objectives.”
Compared to the climate neutrality policies of the USA, the European Union and China, obviously outlined with different intensity and variable pragmatism in each continent, what will be the near future of gas in the global energy market?
“In most energy perspectives, natural gas is the fossil fuel that will be maintained at the highest levels compared to oil and coal in the energy transition. However, the future of gas globally will depend on very different assessments in individual countries and regions. In the US, it will probably be influenced more by prices than by climate neutrality goals, especially in light of the priorities of the incoming Trump administration. If natural gas can compete with coal in power generation, then it will maintain its share in the energy sector. This also applies to the price comparison with renewables.”
In Europe?
“Climate neutrality goals will probably be much more important. If gas and LNG prices can return to pre-2021 levels, the future looks brighter, but much will depend on how low- and zero-carbon gases (biogas, biomethane and hydrogen) can make rapid progress.”
In China?
“The future of gas depends largely on non-energy sectors, especially industry, residential and road transport (due to urban air quality). Although climate neutrality goals may play a role in Chinese policy, natural gas is likely to play only a minor role in achieving these goals.”
What impact will these scenarios have on new gas infrastructure?
“There are very few new long-distance international gas pipelines under construction or seriously contemplated globally. The only exceptions are Central Asia-China and Russia-China. There may be 1-2 more such pipelines, especially the “Power of Siberia 2,” but it is difficult to think of others. Future international gas trade will focus primarily on LNG.”
What technologies could make gas more sustainable and attractive?
“Carbon Capture, Utilization, and Storage (CCUS) technology can play a significant role in making gas more sustainable and promoting the development of “blue hydrogen.” However, CCUS is generally considered expensive and does not yet play a significant role in decarbonizing gas. There have been several successful projects related to offshore fields, particularly in Norway, but few elsewhere. Onshore projects have been successful in North America, but there is substantial opposition in Europe to on-site carbon dioxide storage. For LNG, there is a plant in Qatar and new projects are underway. A major project in Australia is underway, but has encountered some setbacks.”
Can gas remain an affordable solution for low-income countries?
“A lot depends on the countries considered. What can be said with some certainty is that if a country (or city) does not yet have a gas distribution network, the costs of installing a new network are probably not competitive. However, the costs of installing (converting) a power plant or industrial plant in a coastal location, to be served by a floating storage and regasification facility, are probably still manageable. International gas and LNG price levels since 2021 show that gas competitiveness has suffered significantly, but these levels could improve in the coming years as more LNG projects come on stream. In Asia, much will depend on the price sensitivity of individual importing countries.”
How will LNG flows to India and China evolve?
“There is considerable uncertainty about the future of LNG flows to both countries, particularly to India. In China, many energy scenarios see LNG imports peaking around 2030 and then declining substantially. In both China and India, the main markets are unlikely to be power generation, where renewables (especially solar) and domestically produced coal will be more competitive than imported LNG. However, in the industrial sector (especially fertilizer in India) and especially in urban areas, gas is likely to be preferred to other fossil fuels to improve air quality. Where end-users are currently dependent on crude oil or petroleum products, the outlook for LNG demand is much more positive.”
