3. North-western Europe’s gas flex: Still fit for purpose?

Introduction

North-western Europe’s natural gas infrastructure has been a key enabler of a well-integrated and tradable regional gas market.14 The high level of interconnectivity, spare import capacity, local production capabilities and availability of storage capacity have all contributed to providing flexibility – both in space and time – to the natural gas grid, facilitating the development of liquid and tradable gas markets. Meanwhile, security of supply is reinforced by adherence to market rules.

The import requirements of north-western Europe are expected to increase by almost 40 billion cubic metres per year (bcm/y) in the next five years, as indigenous gas production enters a phase of rapid decline while domestic consumption is set to remain flat. Moreover, the direction of natural gas flows within the region is expected to gradually change, mainly driven by the decline in natural gas production in the Netherlands. This raises the question of north-western Europe’s gas infrastructure adequacy for future market conditions, i.e. its ability to accommodate greater natural gas imports with different flow directions and profiles.

The flexibility of the region’s gas grid is also gaining importance in the context of the profound changes in the European power sector. North-western Europe is set to phase out almost 45 gigawatts (GW) of coal-fired and nuclear baseload power generation capacity in the next five to six years. This means that the linkage between electricity security of supply and natural gas deliverability will become more intimate: gas-fired power generation has a growing role in ensuring the “thermal swing” as backup for the increasing share of intermittent renewables and in supplying a larger share of peak demand.

Moreover, the global natural gas market is becoming increasingly interlinked via flexible and divertible LNG cargoes, increasing the influence of events in distant markets on the European gas market. These rising interdependencies are further amplifying the importance of north-western Europe’s “gas flexibility”, ensuring that its gas markets can react in a timely manner to changing global supply–demand dynamics, without putting at risk domestic gas deliverability.

Gas flexibility toolkit

Natural gas consumption in markets with cold winters demonstrates a strong seasonal pattern, driven primarily by the heating needs of the residential and commercial sectors.

In addition, shorter-term variability of demand (volatility) is usually present, driven in the winter by the variation in temperatures and across the year by the fluctuating needs of the power sector (where gas-fired power plants play a balancing role in supporting intermittent renewables and meeting peak demand).

The need for flexibility to satisfy natural gas demand can be met through a combination of upstream and downstream flexibility tools, including a seasonal swing in domestic production, spare import capacity and storage (Figure 36). Moreover, spare capacity in downstream interconnectors is

14 Northwest Europe refers to Belgium, France, Germany, the Netherlands and the United Kingdom.

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