Energy Industry - Nord Stream 2: Do We Need Natural Gas?

A geopolitical tool, a transatlantic bone of contention or a bridge to the green future - the 95 percent completed Baltic Sea gas pipeline Nord Stream 2 is always controversial. The USA even wants to prevent the completion of the 1.200-kilometer double line between Russia and Germany with sanctions or threats. But does the line make sense from an energy point of view? Here too, the assessments differ depending on the level of confidence in climate policy.

Claudia Kemfert from the German Institute for Economic Research (DIW) comes to a clear conclusion: “We clearly say no”. You don't need any additional infrastructure for natural gas. The contradict contractually guaranteed climate protection goals. Apparently the German government is not optimistic enough about their implementation. As early as 2018, a DIW report said that due to rapid advances in renewable energies and storage technologies, for example, “fossil natural gas will no longer be important as a bridging technology in the electricity industry”.

The state government of Mecklenburg-Western Pomerania assesses it differently, where the Russian natural gas is supposed to land. Assumptions that renewable energies and storage technologies will make gas superfluous very quickly are "very optimistic". Flexible gas-fired power plants could ensure energy security if enough electricity could not be generated with wind and sun. In addition, the nuclear and coal phase-out would result in supply gaps.

“There are basically two types of scenarios, reference and target scenarios,” explained Jens Hobohm, head of the energy industry at the consulting firm Prognos. The former were largely based on previous policy. Target scenarios were based on the achievement of the climate protection targets, for example, and took appropriate measures into account. Depending on the selected scenario type, one assesses the natural gas demand differently.

Climate protection goals tightened

Under his leadership, Prognos published a study on behalf of Nord Stream 2017 AG in 2. In order to be as objective as possible, a recently published EU forecast was used as the basis. Instead of a target scenario, a reference scenario was used to ensure security of supply even if certain targets are not achieved.

"You think about target scenarios a lot more now," said Hobohm. Climate protection goals have been tightened and more measures have been taken to achieve them. If you had known that before the project, you would probably have come to the conclusion that you don't need the pipeline. At that time, however, you had to be prepared for different outcomes.

Hobohm agrees with DIW's criticism that in the past the EU's forecasts for gas demand were often too high. The forecast used, however, even underestimated the demand in the short term. This increased from 2015 to 2019. In line with the scenario, Hobohm expects gas demand in Europe to largely stagnate over the next five years. After that it will probably go down - "because then the climate protection policy will also take effect". On the other hand, European gas production is falling considerably faster than assumed in the 2017 study.

In 2019, for example, the Netherlands announced that it would end production in Groningen, one of the largest natural gas fields in the world, in mid-2022. This was originally planned for 2030.

Lower gas prices possible

According to Simon Schulte from the Energy Economics Institute of the University of Cologne (EWI), Nord Stream 2 could ensure lower gas prices: "Nord Stream 2 creates additional import infrastructure and thus has a price-dampening effect on the European gas market." EWI, together with the consulting firm Frontier Economics published a study on behalf of Nord Stream 2 last year.

According to DIW, there will be no shortfall in coverage or a threat to security of supply in the future. There is sufficient infrastructure, said Kemfert. In addition, there are many liquid gas terminals that are underutilized. Liquefied natural gas (LNG) can be transported by ship from countries further afield to Europe - for example from the USA. The Americans justify their rejection of the project on the grounds that their European partners are too dependent on Russian gas. Critics accuse the USA of only wanting to sell their liquefied gas better in Europe.

With a view to security of supply, Hobohm said: You could say that it is obviously currently possible to transport the Russian gas to Europe without Nord Stream 2, and the rest will come as LNG. "But I would say that we would increase the European security of supply if we had the pipeline." (Dpa)