The transformation of the Gas Industry

Paths to a Resilient and Climate-Neutral Energy System in 2045

Gas is a key pillar in the German energy mix: today, it enables the supply of heat to around 21 million households and secures Germany's economic position.

Germany is aiming to be climate-neutral by 2045. The German gas industry supports this unconditionally. For companies in the industry, this means leaving behind previous business models in the medium term and transforming themselves. But above all, it means contributing unconditionally to the climate-neutral energy system of the future by transforming the production, import, transport, distribution and sale of new gases in a sustainable and future-proof way.

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By 2045, the use of fossil, non-decarbonized natural gas will become obsolete. New gases, such as hydrogen and its derivatives as well as biogas, will play the most important role in the future. The fact that they are indispensable for a climate-neutral energy system is now a matter of course. The future energy system is therefore based on a mix of electricity- and gas-based technologies. The gas industry is gearing its strategic decisions towards this climate-neutral system.

To ensure a successful transformation to climate neutrality by 2045, it must be accelerated. In addition, it is essential that the path towards this goal is structured in such a way that the energy transition is as crisis-proof and socially acceptable as possible. Recent experience has clearly demonstrated the importance of resilience: In the transformation process, we have to work together to handle energy price crises, challenges for the security of supply and setbacks in the reduction of greenhouse gas emissions.

The gas industry is committed to these goals, but cannot plan and complete its transformation alone. Instead, it needs to be the result of a close and cooperative exchange with private and commercial customers, with stakeholders from energy policy and energy supply as well as with other players in the energy industry, especially from the electricity sector. This is why we have joined forces with the energy and water industry associations Bundesverband der Energie- und Wasserwirtschaft (BDEW) and Deutsche Verein des Gas- und Wasserfaches e. V. (DVGW). In collaboration with them we initiated an intensive process in which we have developed the transformation path together with member companies and external stakeholders.

Working Together on the Path to Climate Neutrality

The transformation path describes the transformation of the gas industry and is based on established studies. It proposes a reformed framework and opens up possibilities for the development of an integrated renewable energy system with green electricity and green molecules.

We aim to ensure that the necessary policy decisions can be made in a timely manner. To this end, it is necessary to deal with the multitude of technical, economic, social, energy and geopolitical uncertainties in a safe manner. With the concept of the resilience of the energy transition, we are aiming for a transformation that is reliably and crisis-proof.

We consider the following six topics and the concluding offer to be a proposal for a new approach to one of the most important energy and climate policy debates of our time. We would like to get involved in the current political discussions: Specifically, we would like to mention, for example, the sustainable hydrogen strategy, the heat transition, but also the development and implementation of a carbon management strategy or the reconciliation of the corresponding European developments.

1. On the route to climate neutrality – a resilient system with green electricity and new gases is being developed.

New gases, such as renewable and decarbonised gases, are essential for a climate-neutral energy system. Where and to what extent new gases will be used in Germany in the future is still uncertain in some areas, as the uncertainties are too great in terms of technological, economic, (geo)political and social developments.

Due to the major uncertainties, it is necessary to manage the energy transition in a targeted manner. This applies both to the robustness of the transformation path and the criticality of the target system. Reliability is ensured by the provision of alternative solutions as well as sufficiently dimensioned infrastructures; together, this ensures a high degree of reactivity and reactive capacity in the event of a load. The ability of renewable and decarbonised gases to work closely together with renewable electricity generation makes a significant contribution to the development of a renewable energy system. Last but not least, the domestic production of new gases also strengthens the reliability of the overall system.

2. In a climate-neutral energy system, new gases are indispensable in certain areas of industry, transport, electricity and heat supply.

Climate neutrality makes the use of renewable and decarbonised gases essential. Uncontroversial applications include their use as materials in industry (e.g. ammonia, steel), in non-electrical energy consumption (e.g. aviation and shipping) and in the energy sector. (e.g. air and sea transport), as well as in the energy backup of electricity and heat supply (e.g. "dark doldrums").

In view of considerable uncertainties, the estimates of the corresponding figures of the results of recognised climate change studies vary, so that the following ranges for the demand of new gases are calculated: For the year 2030, this results in 49 to 133 terawatt hours (TWh) of "no regret" demand for renewable and decarbonised gases, and between 127 and 396 TWh for the year 2045.

3. New gases make the transformation and the energy system resilient.

The path to climate neutrality cannot be completely planned. It will always be challenged by external factors - the effects of Russia's invasion of Ukraine have demonstrated this impressively. And there are many other imponderables: Technological developments, acceptance, financial constraints, supply chains, availability of skilled employees, project schedules and, last but not least, the transformation paths of our European neighbours.

The best response to the uncertainties is to create as many options as possible. Action alternatives reduce the risk of high energy costs, limited availability and setbacks in climate protection, lack of acceptance among citizens and customers and, ultimately, decreasing support for the project of transitioning to climate neutrality.

In view of these challenges, it is important to utilise the availability of renewable and decarbonised gases and the existing infrastructure for this purpose. In this way, we create more options and strengthen the reliability of the overall energy system.

In addition to purely electrical decarbonisation solutions, applications with new gases create additional possibilities for minimising conversion risks. Examples of where new technologies are needed are in high-temperature control processes in the industrial sector, in heavy goods traffic on the roads and in the field of heat supply, where energy-efficient design and electrification are not sufficient solutions. Here, too, the projected demands vary; they are between 20 and 60 TWh for 2030 and between 80 and 434 TWh for 2045.

4. The future infrastructure for new gases will emerge from the current infrastructure as required.

The existing infrastructure (import terminals, storage facilities, transmission and distribution grids) is the starting point for the future gas grid infrastructure. The transformation includes the construction of new hydrogen infrastructure, the conversion of existing infrastructure to new supply tasks and the decommissioning of infrastructure where gas is completely replaced by electricity.

Feasibility studies as well as demonstration and pilot projects in the gas industry clearly show that nothing stands in the way of a successful and rapid transformation of the infrastructure. What is needed, however, are policy decisions and the further development of reliable regulatory framework conditions. Planning certainty is important so that the relevant infrastructure companies can make investment decisions quickly.

5. New gases will be available in sufficient quantities and at reasonable cost.

A study we commissioned shows that the demand for new gases required for climate neutrality and sustainability can, in all probability, be met to a sufficient extent and at reasonable cost.

Accordingly, 207 to 599 TWh of new gas (biomethane and hydrogen from imports and biomass generation) are expected to be available in 2030, and 631 to 1,029 TWh in 2045. The cost estimates for new gas are between EUR 37.5 and 134/MWh for 2030 and between EUR 36 and 93/MWh for 2045.

6. The transformation to new gases needs the right political guard rails.

All of the gas industry's sources of value are facing adjustments in the course of their transformation. Policy must pave the way for the wide-ranging decisions required for this and the associated investments. First and foremost, this concerns the elimination of the expected demand for new gases, including in the recycling applications. Other important steps in this direction are the expansion of climate protection contracts in the industry, the labelling of climate-neutral products, the incentivisation of H2-ready gas-fired power plants and the establishment of a lead marker for climate-neutral products. This is achieved, among other things, by means of public procurement.

The stronger the growth in demand, infrastructure and trading centres, the faster the global supply of raw materials will grow. At the same time, however, we must not neglect the cultivation of natural resources. A slow expansion of renewable power generation forms the indispensable basis for this. Building on this, further steps are required in order to achieve the declared target of 10 gigawatts of electricity generation by 2030. Biomethane production must also be given greater support. All of this applies to both large, centralised and small, decentralised projects.

To ensure that the increasing demand can also be met by a corresponding range of products, the framework conditions for the infrastructure transformation must be adapted. The planning for this must be carried out across all energy systems (natural gas, hydrogen, electricity). At the municipal level, close co-operation between distribution network operators and municipal heat planning must be ensured. Planning and commissioning processes need to be brought into line with the new "German speed". At the same time, it is necessary to organise the transformation of the gas industry in such a way that initial investments in the hydrogen infrastructure, which can be quickly commissioned, are reduced.

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