Natural gas

What is natural gas?

Natural gas (gas), a fossil fuel energy source, is formed through the decomposition and transformation of organic matter beneath the Earth's surface. It comprises various compounds, primarily hydrocarbons, which consist of hydrogen and carbon atoms. Despite its name, “natural gas” is a fossil fuel that releases greenhouse gasses. In Europe, gas is commonly used for heating and cooking as well as a fuel in industry and power generation. Natural gas comes in different forms:

• Also known as pipeline gas, dry gas primarily consists of methane and is transported through pipelines to consumers. A significant portion of the EU's gas consumption consists of dry gas imported from countries such as Norway.

• Wet gas contains both dry gas and other components. It is often separated and sold as pure components like ethane, propane, and butane.

• Liquefied Natural Gas (LNG) is fossil methane gas that has been cooled to -162 degrees Celsius, transforming it into a liquid state. LNG is transported with ships and sold on the global market. 

Gas is also found in other places, such as in shale, a common rock type that can contain both oil and gas. The gas and oil found in shale and other tight rock formations are identical to those in other strata, such as sandstone or limestone.

Is natural gas green?

Despite having somewhat lower combustion emissions than oil and coal, leaks of methane, which is a greenhouse gas 84 times more harmful than CO2, can make gas worse for the climate than oil and coal. To meet the goals of the Paris agreement, both the supply and demand for gas must be eliminated along with other fossil fuels. In 2021, gas was responsible for 22% of the world GHG emissions globally, while contributing 16% of the total climate emissions in Europe. 

For oil and gas companies to align with the Paris Agreement, the production of gas has to be eliminated. Using the International Energy Agency’s Net Zero by 2050 scenario as a benchmark, there is no room for new oil and gas fields to be approved for development.

Blog: 5 reasons why ‘natural’ (fossil) gas is no better than oil and coal

Where do EU countries import natural gas from?

The far biggest exporter of gas to the EU is Norway. In 2023, close to 30% of pipeline gas imported to the EU came from Norway. In addition, the US supplied nearly 20%, North African countries 14%, and 5% came from Qatar. Almost 50% of imported LNG came from the US. 

Europe's gas consumption hit a 10-year record low in 2023. Since Russia's full-scale invasion of Ukraine, gas demand has declined by 20% across the continent. While gas-demand is at a record low, LNG imports is forecasted to peak in 2024. The EU is currently increasing its import-capacity and steering for a massive overcapacity by 2040. 

What is natural gas storage?

Gas storage is when gas is stored, typically in underground reservoirs, in geological formations and saved for when demand is high. In the EU, gas storage is normally built up during summer and saved for the winter season when heating requires more gas. Normally, 25-30% of gas consumed in the EU during the winter comes from gas storage.

What is the forecast for natural gas in the EU?

The Russian invasion of Ukraine significantly disrupted the EU energy market, leading to new policies and regulations aimed at curbing the fossil fuel market. This disruption resulted in a 15% decrease in gas consumption in the first half of 2023 and caused high energy prices across Europe. 

To address the energy crisis, the European Commission introduced its REPowerEU strategy in March 2022. This plan outlines steps to diversify energy supply, reduce dependence on external suppliers, and strengthen infrastructure resilience. The ambitious strategy compliments several other initiatives aiming to reducing dependency on fossil fuels in the EU, such as Fit for 55 package and the Net Zero Industry Act. 

These new policies send clear signals to natural gas producers that the EU is committed to reducing its dependence on fossil fuels, whether it is supplied from Russia, Norway or the US. As a result, the EU’s reliance on natural gas is forecasted to be drastically reduced in the coming years.

The demand for natural gas will decrease 

In February 2024, the European Commission put forward a proposal to cut the region’s greenhouse gas emissions by 90% by the year 2040, using 1990 levels as the baseline. Achieving this target would significantly reduce EUs natural gas consumption. This reduction implies that the demand for gas from countries such as Norway will also be drastically reduced. The commission's scenario forecasts a 66% reduction in gas demand from 2023 levels, and conditions a successful transition away from fossil fuels. 

Even under currently adopted policies, gas demand is expected to decrease. The International Energy Agency’s Stated Policy Scenario (STEPS) predicts that oil and gas demand in the EU will decline by 15% by 2030 from 2022 levels. These current policies include investments in renewables, wind and solar to account for most of the new electricity capacity towards 2030. 

For Norway, currently being the largest exporter of gas to the EU, the union's demand for gas is used to justify exploration and expansion of oil and gas activities. Both Norwegian officials and the oil and gas industry have used EUs gas demand to argue for enhanced oil and gas exploration in Norway. However, as the figure above shows, EUs demand for gas is forecasted to be drastically reduced from 2030, years before the potential new fields from Norway would start producing oil and gas.

Hydrogen will not be a significant source of demand for new gas

Instead of exporting gas, countries such as Norway can burn gas to produce hydrogen, which is again being supplied to the EU. Hydrogen used as fuel produces no harmful climate emissions when burned. However, its total emissions depend on how it is produced. Hydrogen is often labeled as green, gray, or blue. While green hydrogen is produced using renewable energy, gray and blue hydrogen is produced by burning fossil fuels. Most of the hydrogen currently on the market is made with fossil fuels.

For hydrogen to be climate friendly, it needs to be produced without releasing greenhouse gasses. Green hydrogen is climate friendly as long as it is produced with renewable energy and can be transported without leaks. Blue hydrogen, produced by burning gas with carbon capture and storage (CCS), is not clean. It can even have higher amount of emissions than burning the gas directly depending on the extent of methane leakage are throughout the supply chain. 

Companies such as Equinor use the EU’s demand for hydrogen to justify exploring for more gas. However, the future demand for hydrogen by the EU is uncertain. The RePowerEU strategy aims to import ten million tones of clean hydrogen by 2030, but it does not not specify whether this hydrogen is blue or green. Additionally, BloombergNEF forecasts that green hydrogen will become cheaper than blue hydrogen by 2028, and thereby outcompete the climate harmful blue hydrogen.

Blog: Equinor´s Rosebank project

How much gas does Equinor export to the EU?

While Norway is the fourth biggest exporter of gas in the world, its majority state owned company Equinor is the country's biggest gas producer. Most of this gas is pipeline gas exported to the EU and UK, covering nearly 30% of the gas marked in the EU. Equinor also produces LNG from its Snøhvit facility in Northern Norway, shipping gas to the global market. 

In 2023, Equinor reported to have sold 58.9 bcm of gas. This equals more than 117 million tons of CO2, or more than 2.5 times the emission from Norwegian territory. Equinor reports that their scope 3 emissions in 2023 was 250 million tons of CO2. Scope 3 emissions are the emissions from when the oil and gas that Equinor sells into the market are burned by the consumer. 

Blog: Equinor not on track with energy transition plan

Equinor is lobbying to avoid climate progress in the EU

While the EU is implementing strategies to meet its climate goals, oil and gas producers like Equinor are lobbying for more gas production. Campaigners fear that lobbying efforts from companies such as Equinor can put the EU's climate goals at risk and lock it into a fossil fuel based future. 

Research from the non-profit InfluenceMap reveals that the most used argument by oil and gas companies is that gas is needed as a bridge fuel to low-carbon options. This argument contradicts scenarios from both IPCC and IEA, which rule out gas together with other fossil fuels. Reports indicates that Equinor investments in fossil fuels lock up resources that could have been used for the energy transition. 

Supply of natural gas doesn’t match the demand

The majority of gas exported to the EU is transported through a network of pipelines from Algeria, Libya, Norway, Russia and the UK. These pipelines aren't flexible, as the gas must be sold to the country on the other end of the pipe. In 2023, Norway sold 95% of its gas production through pipelines to EU countries and the UK, taking high risk considering EUs pledge to reduce its dependency on gas.

Currently, the EU has contracted gas or has secured supply from internal production to cover around half its demand. This production is scheduled to decline over the next decades due to structural decline in production. However, depending on the EU’s success in achieving its climate goals, contracted and existing fields might meet all demand by the early 2030, leaving no room for additional supply of gas to the union.

Future scenarios for EUs gas demand, aligned with the EUs climate pledges or the 1.5°C limit, indicate that supply from existing contracts and internal production will exceed expected demand. This means that no new contracts need to be signed, existing fields may close early, and that the EU could potentially end imports of Norwegian gas when current contracts end in 2035. 

Risking overcapacity of LNG to the EU

The EU is massively building out its LNG-capacity. However, if the union reach its goals in its RePower EU strategy, demand for LNG is set to peak in 2024 and then half by 2030, according to EUs Agency for the Cooperation of Energy Regulators (ACER). Several of the new projects to increase capacity might end up as stranded assets. 

Equinor is continuing producing natural gas 

Despite presenting itself as a broad energy company, Equinor is actively supporting projects like the Peterhead power station in the UK and exploring for more oil and gas in Norway, signalling its plan to continue oil and gas production and consumption well into the future. Some of these projects are scheduled to operate for decades. However, to avoid dangerous climate change and reach the goals of the Paris Agreement, there is no room for new oil and gas fields to be approved. 

In 2030, Equinor intends to maintain current production levels, around 2 million barrels every day. They continue to invest in oil and gas fields despite warnings that the world's climate cannot handle more oil and gas. Alongside Equinor and Norway, other gas producers supplying the EU are also planning to increase their gas production, despite EUs falling demand. Within the EU, countries are also planning to boost production, with Cyprus having the largest new production plans. Production from these new fields is expected to peak in 2040, jeopardizing the goals of the Paris agreement and increasing the risk of harmful and dangerous climate change. 

This article is written based on the report “On Thin Ice” by Zero Carbon Analytics and others and the briefing “Existing gas supplies to meet EU demand under 2040 emission target” from May 2024 from Zero Carbon Analytics. 

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