Natural gas - the end of an era?
A year ago, we discussed in the blog whether the thesis of the dead combustion engine in 2025 was too daring. Almost a year later, this discussion seems strange to us: On the one hand, due to ever new sales records, on the other hand, due to carmakers and countries announcing the end of the combustion engine. Could something similar now be happening in the gas market? Is this the end of the natural gas era?
For a long time, gas was seen as a low-carbon technology of the future, then became a bridging technology in the transition to 100% renewables and is now seen by many as part of the problem of a "net zero" society. To quote the Intergovernmental Panel on Climate Change (IPCC), "The survival of mankind is at stake." The war in Ukraine, the associated uncertainty and the enormous increase in prices are currently further accelerating this change of mind. In this article, we will discuss how the change of mind came about in the first place and what this means for gas suppliers.
It should be noted in advance that the gas market is fundamentally different from the vehicle market. Gas, like electricity, is pipeline-bound and the infrastructure required for distribution is therefore subject to long investment and depreciation cycles (around 50 years versus 10 years in the vehicle sector). Gas pipelines therefore have roughly the same technical lifetime as new nuclear power plants. Furthermore, this article refers to the "area network" for supplying end users with heating energy (gas for cooking is not relevant in terms of quantity and can be replaced by electricity very quickly). The industry, which is dependent on large gas/energy quantities as process gas in a small space, will not be discussed in more detail here, since the focus there is not on the networks, but on the quantities.
- Cash cow:
As in the electricity network, good margins have been earned in the gas network in recent decades. These margins are threatened and - unless measures are taken - will disappear without replacement as soon as energy suppliers move away from gas. These profits are not only missing from the general "company budget", but also specifically for the conversion of the energy supply.
- Long-lived infrastructure:
As mentioned above, however, gas networks are not depreciated to zero and never will be, due to necessary maintenance and replacement investments. This means that in the event of an exit, sunk costs (i.e., expenditures in the past) will inevitably have to be converted into stranded investments (extraordinary depreciation), possibly even increased by costs for dismantling the network.
- Area-specific infrastructure:
The situation is complicated by the fact that no continuous decommissioning can take place. A pressure reducer from high pressure to low pressure is needed, even if only one building is supplied. This can lead to erratic stranded investments.
- Reliable communication with customers:
Investments in heating on the house side are long-lasting, typically over 20 years. When building or renovating a house, it must therefore be clear whether gas will still be supplied for the next 20 years. If a premature end of supply occurs due to political or economic decisions, the gas supplier is obliged to find a solution with the homeowner or even to provide financial compensation.
To answer the initial question: Yes, the natural gas era is about to end.
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