Transitional Role of Gas: Reflections on Gas Industry and its Lingo

As COP28 outcomes were sifting through today, one of my favorite writers on energy, Javier Blas, in Bloomberg's opinion today offered a view that one of the conclusions of COP28 may well be to position natural gas as a “transitional fuel” for many economies.

In parallel, ENTSOG, the EU gas grid operators association, celebrated online a reflection on what has happened in EU gas markets and policy in the last two decades, and the way ahead. Here are a few reflections from my side, as someone who has been in and out of the industry for over 20 years, adding to the debate through the prism of "industry lingo" – as the question is now, as ever, actual.

"Evolution of the European Gas Market: A 20-Year Perspective"

Twenty years ago, the European gas market was a very different place. Ruhrgas, Statoil, and Gazprom were leading players, LNG was still a niche in Europe, and long-term contracts were the norm. Terms like "NBP," "Zeebrugge," and "Eurohub" were common, but "TTF" and other hubs were not yet in use. Information was primarily shared at broker trading parties, with no public gas maps - one had to buy one at a material price, transparency was very limited.

Building upon this context, let's explore how the industry transitioned from this point.

"From National Markets to a Unified European Gas Market"

Over the last two decades, the European gas industry, along with policymakers, navigated the trilemma of competitiveness, energy security, and decarbonization - taking the separated national markets to a single transparent EU gas market - as was apparent today at reflections of the ENTSOG conference. This journey was tested, especially when the energy crisis hit EU gas markets, which Europe managed - with some limited interventions.

Transitioning from these historical developments, the Paris Agreement and subsequent global COPs have significantly altered the industry's landscape.

"Impact of the Paris Agreement and COP on Industry Vocabulary"

Today, the Paris Agreement, its European implementation in "Green Deal", and global COPs have necessitated a new vocabulary. Terms such as "hydrogen," "CCUS," "carbon offsets," and "biomethane" are now crucial. These terms set the pace for demand and flow changes towards net-zero globally. Decarbonizing gas, electrification pace, and themes like resilience, volatility, and flexible volumes dominate today's discussions.

In this evolving context, the role of policy as a bridge across various industry stakeholders, and energy vectors, has become increasingly critical.

"The Future of EU Gas Industry: Decarbonization and Emerging Terminology"

The European gas industry is entering a new era focused on decarbonization. Terms like “decommissioning” and “repurposing” are becoming commonplace. Understanding these changes is essential. Offtakers are deciding their future energy consumption paths, influenced by terms like “CBAM/EU ETS/fitfor55.” These changes, clear in today's ENTSOG discussions, are shaping the industry throughout this decade.

In conclusion, policy and its ever-complex lingo continue to set market boundaries.

“Transitional” has become a global term since today's COP28 conclusions, and the natural gas sector in Europe is set to define this term's definitive role for Europe in the forthcoming final Gas And Hydrogen Package, and its implementation. My take on it - transitional may at the least mean only abated gas will remain, including low carbon Hydrogen. WDYT?