6.4.1 Overview of the present situation and outlook for gas sales in the EU
According to a survey conducted in 2007 by Eurogas57, over the last 15 years, gas consumption in the residential and commercial sector has increased by 2.8% per year to 175 million ton oil equivalent (Mtoe). This rise is in line with the growth of the
infrastructure and the associated rise in the number of gas users. The share of gas in the residential and commercial sector is around 35%, making gas a market leader. In 2005, roughly 80 million households were supplied with gas in the EU27.
The EU27 population growth is expected to be moderate in the future, with some
countries experiencing a population decline. In addition, the rate of market penetration is already high in some major gas consuming countries, and other countries are expected to gradually reach saturation in this market segment. Moreover, in some countries the potential for market growth is limited due to low population densities, settlements structures and topographical conditions. Finally, improved energy efficiency in buildings is another factor likely to adversely impact further growth in this sector. The
implementation of stricter insulation standards, together with more efficient heating systems and an increased use of renewable energy sources will hamper further developments. The combination of all the above factors is likely to have a substantial
impact on growth. For the residential and commercial sector, Eurogas expects gas sales to increase by only 0.4% per year to 194 Mtoe by 2030.
However, the direct use of gas in the households and commercial sector can present advantages in terms of energy efficiency, relative to the generation efficiencies and distribution losses of the electric sector, through the use of micro Combined Heat and Power (micro-CHP) unit and high efficiency boilers and appliances58. The use of micro CHP units is however dependent on the right framework conditions and incentives for a development on a mass-market scale. In particular, the ability to sell the electricity surplus produced by supplying it to the grid is of importance.
In addition, the sector is looking into the possibilities offered by biogas, in particular of the second generation. Until now very small volumes of biogas have been fed in low pressure networks. Biogas being a renewable energy source, a further use of biogas could enable customers to choose a more environmentally friendly fuel. Further developments require biogas developments, strict gas quality monitoring and technical planning59.
6.4.2 Overview of natural gas supply in the EU
The EU27 used natural gas to cover 25% of its primary energy needs in 2007. Natural gas also represented 23% of the EU27 final energy consumption. The EU27 relies for 37% on indigenous production, and imports the rest of its supplies mainly from Russia (24%), Norway (17%) and Algeria (9%)60. The UK, Germany and Italy are the biggest consumers of natural gas followed by France, the Netherlands and Spain (in ranking order)61. Except for Spain, these countries are considered as the most mature gas markets, together with Belgium, in the region. Gas use per household is the highest in the
Netherlands and the UK62.
The development of the gas industry in Europe63 started with the use of manufactured gas, mainly produced from coal, for lighting from the beginning of the 19th century. From early in the 20th century, manufactured gas was also used for cooking. The gas was called town gas, in reference to the fact that it was produced and used locally. This changed at the start of the 20th century when the first long distance pipelines were built to distribute coke-gas to households. Manufactured gas was in part replaced by the use of electricity and petroleum and finally displaced by natural gas during the 20th century.
The UK started importing liquefied natural gas (LNG) in the 1950s before launching domestic production in the 1960s. Italy and France first discovered gas in the 1930s, while the Netherlands and Germany started production in the 1950s. Thus modest indigenous productions were in place before international gas trade started in the 1960s
58
Eurogas (2008), The role of natural gas in a sustainable energy market, March 2008.
59
Eurogas (2008), The role of natural gas in a sustainable energy market, March 2008.
60
Eurogas (2008), Annual report.
61
Eurogas (2008), Natural gas consumption in the EU27 in 2007, 13 March 2008.
62
IEA (1998), Natural gas distribution, Focus on Western Europe and Griffin, Harriet (2000), Appendix R: Development of the European gas Network, supporting document for a lower carbon future, Environmental Change Institute, University of Oxford UK, cited in VHK (2007)
and 1970s, when demand for natural gas in France, Italy and Germany started to outpace home supplies. The UK produced enough gas to match its domestic consumption and only started exporting in the late 1990s. The Netherlands started to export large volume of gas after the discovery of Groningen gas field. Thus the gas transportation network gradually expanded to trade gas internationally, first from the Netherlands, then from Russia and Norway, and later from the UK. In 1983 the Transmed pipeline connected Algeria to Italy. Around the 1990s production activities expanded in the UK, Norway, the Soviet Union and Algeria and important volume of gas were supplied to Europe.
Meanwhile in Eastern Europe, the collapse of the Soviet Union, followed by a drop in industrial production, translated into a fall in gas consumption. Gas consumption in the former USRR returned to its 1991 level in 2005.
Figure 6.5 The European natural gas networks in 2002
Source: Eurogas
Today the gas industry is undergoing structural changes triggered by the European liberalisation agenda and the diversification of energy sources’ objective. Infrastructure investments are weak in regard to the growing European needs in natural gas. Demand is expected to rise by around 14% by 202064, mainly lead by the power sector65. This growth is expected to lead to an increase in imports representing 77 % of total demand under current trends and policies, and to 71 to 73% under the New Energy Policy scenario, which will curb demand from gas-fired electricity production.
64
EC (2008), Commission working document accompanying the Communication from the Commission to the EU, the Council, the EESC and the Committee of the regions, second strategic energy review, An EU energy security and solidarity action plan, Europe’s current and future energy position – Demand-resources-investments, COM (2008) 744.
6.4.3 The issue of gas quality
Natural gas is made up of a mixture of hydrocarbon gases, which can vary widely between sources. The quality of gas, including its caloric value, is determined by the relative quantities of these hydrocarbon gases, and therefore varies considerably. In addition natural gas as extracted from the field, formation or reservoir is not usually suitable for pipeline transportation or commercial use before being processed. Moisture and other components are removed before the gas is distributed and commercialised. Commercial gas is composed almost entirely of methane and ethane. Pipelines operate under set specifications for the quality of gas. Several European countries operate separate networks for high and low calorific natural gas66. Distribution networks operate with an operating pressure of 10 (polyethylene pipes) to 16 bar (steel pipes) according to European standards, although depending on national regulation it can also be 25 bar67. Domestic and industrial appliances are designed to operate within a certain gas quality specification range68.
The quality of gas is increasingly becoming an issue in Europe as its indigenous production declines and its imports needs rise. The differences in gas composition and pressure can affect the safe and effective operation of appliances burning gases of a related quality within a given distribution pressure range. As larger volumes of gas from various sources and thus quality are used, the need to agree on a definition and
measurement of natural gas arises to address the issue of gas interchangeability. Gas interchangeability is defined69 as the ability to substitute one gaseous fuel for another in a combustion application without materially changing the operational performance of the application in terms of safety, efficiency or emissions.
The concept of gas interchangeability dates back from the switch from manufactured gas to natural gas. As markets were mainly local or regional, local or regional based
parameters were defined, creating a wide variety of parameters and performance ranges used to assess the impacts of a given gas quality on gas supply and appliances operation. This variety throughout Europe has been identified as a real and potential barrier to an efficient internal gas market by the EU Gas Regulatory Forum (Madrid Forum)70. In 2002, the forum set up the EASEE-gas (European Association for the Streamlining of Energy Exchange), which provides a platform for industry participants to discuss the harmonisation and simplification of business processes and develop best practices. The EASEE-gas has discussed the harmonization of gas quality and proposed a specification based on the Wobbe index. Although at present most European countries operate under a narrower range than the one proposed by EASEE-gas, the Wobbe index is accepted as the primary interchangeability factor71.
66
Williams (2007), European gas quality, interchangeability issues reflect regional diversity, in LNG Observer, April 1 2007, Volume 4, Issue 2.
67
Eurogas (2006), How Distribution system operators contribute to the new European gas market, September 2006.
68
http://r0.unctad.org/infocomm/anglais/gas/quality.htm
69
Williams (2007), European gas quality, interchangeability issues reflect regional diversity, in LNG Observer, April 1 2007, Volume 4, Issue 2.
70
In the meantime, the CEN is currently working on a reference standard to serve as a basis for the elaboration of standards for gas appliances (CEN/TEC 238). One of the objectives is to avoid adding more new gas groups than strictly necessary as “a proliferation of gas groups and categories would not help in the certification and would limit the free circulation of the gas appliances in Europe”72. In the UK industrial and commercial gas- fired appliances are expected to have a higher capacity to adjust to changes in gas qualities thanks to their sophisticated control systems. However gas turbines for
electricity generation are expected to be more sensitive to fast changes in gas quality. In addition, new appliances with higher efficiency and lower emissions characteristics were found to be less adaptable as they are designed for a given gas quality specification73. The technical association of the European natural gas industry, MARCOGAZ, contributes to the mandate from the CEN to work on Gas quality in 2007, but activities only started in 2009. Gas appliances are first tested in different European laboratories with different gas qualities, to show whether and how certified GA operate under the different conditions. Any changes in the efficiency of the combustion process are also analysed within a certain range of the caloric value (Wobbe-Index). The test phase and results evaluation are expected to be concluded within two years. Based on these conclusions, the next step will be to decide on the gas quality and ranges for the caloric value to set up the necessary prerequisites for the interoperability of gas. However the Member States will still need to address the issue of the stock of installed GA that has not been certified under the GAD. It is not yet known whether this stock can be operated under a broadened range of gas qualities. Further, accelerating the renewal or upgrading of the stock of GA might become necessary.
6.4.4 Natural gas grid access
Domestic customers connected to the natural gas grid (EU15 and EU25)
According to the Preparatory study on Eco-design of water heaters74 and based on Eurogas data, the number of domestic customers connected to the natural gas grid was around 82 million for the EU15 and 97 million for the EU25 (excluding Malta and Cyprus) in 2004. The rate of growth in the number of connected domestic customers for the EU15 declined from 2.5% in 2000-2001 to 1.1% in 2003-2004. Growth rate stood at 2% for the EU25 (excluding Malta and Cyprus) in 2003-2004. This means high growth rates for the new Member States.
Among EU25 countries in 2004, the UK ranked first with over 21 million connected domestic customers, followed by Germany (over 17.5 million), Italy (15 million) and France (over 10.5 million); Poland (6.9 million), the Netherlands (6.3 million) and Spain (5.3 million); then Hungary (over 3 million), the Czech Republic, Belgium (over 2.5 million each), Slovakia (1.4 million) and Austria (1.2 million). Greece, with 31 thousands of domestic customers, experienced a very important growth from 2001 that reached
72
CEN (2006), CEN/TC 238 Business plan, 21 September 2006, Version 2.
73
Williams (2007), European gas quality, interchangeability issues reflect regional diversity, in LNG Observer, April 1 2007, Volume 4, Issue 2.
almost 95% over 2003-2004. Other countries that experienced an important growth are Poland (15% in 2003-2004), Spain (6.7%) and Portugal (8.9% with 744 thousand customers), but also Ireland (5.1% with 472 thousand customers) and Slovenia (5% with 105 thousands customers).
A study by Griffin and Harriet75 collected data, for some EU countries, on the total number of households living in gas supply areas that are connected and not connected to the grid. The data was collected over the years 1997-2000, and results do not take into account obstacles for dwellings to get connected. This set of data shows that almost all households are connected to the grid in the Netherlands, over 80% in the UK, 70% in Italy and around 55% in Belgium. Germany, France and Austria have around 40% of their households connected, and Spain around 25%. The data further shows that in Germany and Greece, around 50% of households are within the gas supply area but not connected. In Austria, Belgium, Denmark, Finland, France and Spain, around 30% of households are within the gas supply area. The Netherlands and the UK, together with Denmark, Finland and Sweden were identified as countries where developments would be inexistent or limited. These expectations appear to be in line with more recent data on the growth of gas customers (See Table below, based on Eurogas Annual Reports data). Finland has even known a negative tendency over 1995-1998 and in 2005 at -0.87% per annum on average. Data for domestic gas customers alone is not available for the Netherlands. However the rate of growth for the number of both domestic and non- domestic gas customers over the 1995-2005 period is limited at 0.42%.
Table 6.4 Developments in the number of domestic customers and distribution grid lengths in the EU from 1995 to 2006
Countries Number of domestic gas customers at 1st January 2005 (thousands) Rate of growth (customers) over 1995-1998 % Rate of growth (customers) over 2000-2005 % Length (km) of distribution pipelines at 1st January 2008 Rate of growth (pipelines) over 1995-2008 % Austria* 1,338 2.34% 1.51% 26,000 2.54% Belgium* 2,591 1.86% 1.74% 62,518 3.81% Denmark 340 3.86% 1.55% 17,000 0.46% France 10,731 1.17% 1.52% 193,330 2.95% Finland 34 -0.92% 0.02% 1,660 3.59% Germany* 17,730 2.26% 1.23% 314,000 1.99% Greece 31 n.a. 43.17% 4,239 12.40% Ireland 472 7.76% 7.61% 10,062 7.05% Italy 15,050 1.49% 0.71% 229,542 3.07% Portugal* 744 n.a. 13.14% 11,021 5.40% Spain* 5,552 7.82% 8.04% 53,795 11.40% Sweden 52 4.35% 0.00% 2,150 -1.45% United Kingdom 21,378 2.78% 0.98% 132,000 -4.77% Czech Republic* 2,592 3.28% 1.65% 70,787 9.04% 75
Hungary* 3,106 4.90% 3.10% 81,335 3.60%
Slovak Republic* 1,440 n.a. 1.61% 31,537 7.07%
Estonia* 63 n.a. -1.56% 1,395 -10.23%
Lithuania* 518 n.a. 0.00% 7,500 4.04%
Slovenia* 105 n.a. 5.00% 2,600 1.61%
Switzerland* 435 0.50% 1.19% 14,838 2.17%
The data is based on Eurogas Annual Reports for the years 1995 to 2008. The split between domestic and non- domestic gas customers is no longer available after 2005. For countries with an asterix, data was not fully available for the two periods covered, and so the coverage is done over shorter periods. EU 27 countries with no data or data presenting discrepancy are left out 76. There is no data available for Turkey.
6.4.5 Non-grid gas access
Besides the use of gas from the natural gas network, Liquefied Petroleum Gas77 (LPG) can also be used outside areas provided by the network. Access to LPG is done via three main forms: stationary containers, portable cylinders or cartridges and, more recently, local LPG networks.
World LPG demand reached 113.2 million tons in 2005, and is expected to reach 135.7 million tons in 2010. The domestic sector consumed almost half of the LPG produced worldwide in 200778. In Europe, LPG accounts for 1.6% of total energy consumption. The domestic sector consumed 50% of LPG in Europe in 2006 79. European domestic consumption amounted to 12.3 million tons in 2001 and is expected to reach 19 million tons in 203080.
In Portugal LPG was the most used form of gas, mainly for heating purposes (64% of households) in 1998-199981. Today France is one of the most important LPG markets in Europe, with a consumption of around 2.6 million tons, of which about 60% is used for residential and commercial purposes82. Over 70% of sales were in bulk and over 20% in the form of portable cylinders and cartridges in 2007. In addition to the two traditional forms of LPG access, local propane networks are starting to develop in France. The Dutch based company SHV Gas is the world leader for LPG supply.
76
. The rate of growth for the number of domestic gas users is based on the average of the annual change [AVERAGE ((Vx- Vx-1)/Vx-1)]. The rate of growth of the distribution pipelines is based on the difference between the first and last value and time [(V2/V1)^(1/t)-1].
77
LPG mainly refers to butane and propane, but also to ethane and condensates, which have their own distinctive markets. LPG is a mixture of third family gases (propane 70-80 vol.%, butane 20-30%) that comes from petroleum distillation or from natural gas fields as a by-product. In Europe, it is most known for its use in cars. However, it is also used in residential gas appliances, such as boilers. Generally, the LPG storage tank is filled before/during the heating season by a delivery truck, similarly to the practice with oil-fired boilers. LPG has a negligible sulphur content and low emissions
78
Comité Français de Butane et du Propane, http://www.cfbp.fr/?p_idref=867.
79
Domestic sector includes leisure. Source: European LPG Association (AEGPL), LPG, The Immediately Available Clean Alternative, 2007.
80
European LPG Association (AEGPL), The LPG Industry Roadmap, 2007.
81
Environmental Change Institute, Lower carbon Futures, Country Profile Portugal, Oxford, cited in Van Holsteijn en Kemna (VHK) BV (2007), Preparatory study on the Eco-design of Water Heaters, Task 3, p. 60, 30 September 2007.
Stationary containers
Storage tanks are usually located outside dwellings, above or underground, and are periodically filled. The Eco-Design of Water-Heaters study highlighted the fact that data on the number of LPG consumers in Europe was difficult to assess and the end-use hard to differentiate. From BRG data the study estimates at 4% of sales the use of LPG for central heating boilers. The main areas of demand are found in areas with no access to the grid in Italy, Spain, France, the UK and Portugal.
The study further investigates the cost of installing a LPG storage tank and compares it with the equivalent based on heating oil. Costs cover the tank, tank installation, boiler, annual service and tank maintenance. They amount to €5, 560 for a heating oil tank and €2, 435 for a LPG tank, which results in a €3, 000 difference between the two sources of energy for the same end-use. It must be noted that usually the tanks are owned by the supplier, which also takes care of the maintenance.
The various requirements attached to gas tanks in terms of safety, inspections, tank access and so on imply that the setting of stationary containers are in practice limited to rural or