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In focus - Conventional Energy Sources

Gas

Introduction

Gas - Conventional Energy Sources; Source: Getty Images/Kroeger&Gross

© Getty Images/Kroeger&Gross

With a share in primary energy consumption of 20.5 per cent, natural gas plays a key role in the Federal Republic's mix of energy sources.

Natural gas has a wide range of possible uses

Natural gas will continue to make a significant contribution to energy supply in Germany over the coming decades. The heat market is still by far the most important market for natural gas. Nowadays, however, the use of gas is not restricted solely to heat generation. In addition to its role as a raw material primarily in the chemical industry, gas is a flexible and versatile energy source for generating electricity, storing energy and - looking to the future - as a storage facility for renewable electricity as well as for mobility. Natural gas is also more climate-friendly compared to other fossil fuels as it produces less CO2.

With the appropriate level of processing, biogas (biomethane) can be upgraded to the quality of natural gas and fed into the existing natural gas grids. It can therefore help to reduce the burden not only on the heat market, but also on electricity and fuels.

With the electricity generated from renewable sources varying considerably depending on factors such as weather conditions and season, natural gas-fired plants can play an important role in offsetting such fluctuations.

Another important and promising use for the natural gas grid is emerging. By converting electricity from renewable sources into hydrogen or methane and feeding it into the natural gas grid, the latter could serve as a huge reservoir for several billion kilowatt hours of energy. A number of very encouraging research and demonstration projects aimed at using this technology on a large scale over the next decade are currently underway.

Finally, as a cost-effective and climate-friendly fuel, natural gas is also playing an ever more important role in the area of mobility.

The strong dependence on imports means that the instruments for ensuring security of gas supply are vital.

Natural gas is the second most important primary energy source in Germany's energy mix, after petroleum. In 2014, its share of primary energy consumption (i. e. the total amount of energy used in a country each year) amounted to 20.5 per cent. Based on figures from Arbeitsgemeinschaft Energiebilanzen e. V. (AGEB), an energy industry working group, domestic consumption in Germany stood at 2,674 PJ (LHV).

Europe's biggest gas markets are Germany, the United Kingdom and Italy. Germany will in future continue to be highly dependent on imports of natural gas. In relation to this issue, serious consideration of whether and to what extent any future extraction of natural gas from unconventional deposits (tight gas, shale gas, coal gas [coal bed methane, firedamp], aquifer gas and gas hydrate) would be able to decrease this share further is still not possible at the present time.

The growth in domestic demand is largely determined by trends in consumption in the individual sectors. In private households, natural gas is the most important energy source on the heat market, accounting for approximately 40 per cent. Here, more than 90 per cent of natural gas is used as a source of heating.

Natural gas and biogas (biomethane) as fuel are important elements in the fuel mix of the future. According to the Federal Motor Transport Authority, 79,065 passenger cars powered by natural gas were registered on 1 January 2014. In Germany, there are currently 925 natural gas filling stations.

Infrastructure

The pipelines which go to make up the gas grid are essential for transporting and distributing natural gas. They enable widely varying quantities of gas to be transported safely over long distances. Considerable amounts of gas are transported across Germany to other EU states. In addition to this is a closely intermeshed network for distributing gas right through to the end consumer. The total length of the German gas network is more than 510,000 km.

The EU's Third Internal Energy Market Package created a planning instrument for setting up and preserving a network infrastructure required to achieve a unified single market. Under this package, the German transmission system operators (TSOs) are required to submit a Ten Year Network Development Plan on a regular basis. In accordance with the revised Section 15a of the Energy Industry Act which was enacted on implementing the Internal Energy Market Package, the transmission system operators submitted the first ever joint national Gas Network Development Plan on 1 April 2012.

The Gas NDP, which is updated each year, includes measures for the expansion of the network in line with demand and for ensuring secure supply and safe and reliable network operation. The first Gas NDP in 2012, which covers the period between 2012 and 2022, became binding upon the publication of the amendments requested by the Federal Network Agency (BNetzA) on 10 December 2012.

On 17 November 2014, the Federal Network Agency concluded the procedure for drawing up the third Gas NDP. The Gas NDP 2014 lists 51 measures for expanding the national gas infrastructure. The planned investments include grid expansion amounting to 748 km as well as the construction and expansion of compressors with an increase in capacity of 344 MW. The investment volume will increase to a total of 2.8 billion euros by 2024.

Further information is also available from the European Network of Transmission System Operators for Gas (ENTSOG) (PDF: 8.8 MB).

On 22 December 2014, the European Commission launched a pan-EU public consultation on potential projects of common interest (PCI) to modernise and extend the electricity and gas infrastructure. Some of the projects that have been put forward deal with a planned expansion of the gas network. Government agencies, companies, business associations, environmental organisations and private households wishing to respond to the consultation can do so up until 13 March 2015. For more information about the public consultation, please consult the website of the European Commission.

Regulation and trade

The Federal Network Agency and the regulatory authorities for the Länder are responsible for regulating the electricity and gas supply grids.

The German gas market is characterised by a large number of privately organised operators in the areas of networks, storage operations and gas trading. There are currently two market areas in Germany (NCG and Gaspool), each with their own coordinator who ensures that access to the gas grid and market activities are both carried out in an efficient fashion. As at 1 August 2013, there were 17 gas transmission system operators in Germany. Other players are the distribution system operators, storage facility operators and commercial enterprises.

The EU internal market package for the liberalisation of the market for electricity and natural gas, most recently amended by the Third Internal Energy Market Package, redefines the areas of activity of market players. To promote competition, the operators of gas supply networks and storage facilities are separated from natural gas trading activities.

Natural gas: import and domestic production

In 2014, overall consumption on the German gas market came to around 85 billion cubic metres. Demand for gas is forecast to fall slightly in future due, among other things, to technical progress and energy conservation.

Domestic production of natural gas, although falling slightly, is currently sufficient to cover just under 10 per cent of gas consumption. Germany will therefore remain highly dependent on imports of natural gas in future. At present, some 90 per cent of overall demand is supplied by other countries exclusively via pipelines. According to figures from Arbeitsgemeinschaft Energiebilanzen e. V. (AGEB), 38 per cent of the gas imported in 2014 came from Russia, 22 per cent from Norway, 26 percent from the Netherlands and 4 per cent from other countries. The Federal Office for Economic Affairs and Export Control (BAFA) publishes a monthly balance of how much natural gas is supplied and consumed on a monthly basis, as well as the price for German imports of gas.

Both biomass and its derivative, biogas, can be used domestically in helping to secure gas supply. In 2013, a total of around 520 million normal cubic metres of biogas with the quality of natural gas were fed into the grid. Further information can be found in the Biogas Monitoring Report published by the Federal Network Agency.

The Federal Statistical Office conducts monthly and annual surveys relating to the gas industry.

Prices and costs

As is the case for other goods and services, natural gas prices are not regulated but are set according to supply and demand. Prices are based on different cost components.

Acquisition costs include the gas purchase price as well as all transport costs. Distribution costs are all the costs involved in transmitting natural gas to the end customers. These costs also include all costs associated with the expansion and maintenance of the natural gas grid.

The natural gas tax is based on the Energy Tax Act under which the level of natural gas consumption in the various areas of application is taxed.

Network operators must pay the concession fee to the respective local authority as they use public areas for laying and operating gas pipelines.

Further information

In the United States in particular, a technique that has become known as hydraulic fracturing or "fracking" has been applied for a number of years now in extended reach drilling as a way of extracting natural gas from layers of rock deep within the earth. During this controlled process, the injection of a liquid (water mixed with additives) and the accompanying increase in pressure creates small cracks in the rock where the natural gas is contained. The process releases the gas so that it can then be carried to the surface via drill pipes. As far as fracking technology is concerned, a distinction can be made between applications in Germany which have been tried and tested over many years ("conventional fracking") and new applications ("unconventional fracking").

To increase the level of legal certainty involved in fracking for citizens, enterprises and authorities, on 4 July the Federal Ministry for Economic Affairs and Energy (BMWi) and the Federal Environment Ministry (BMUB) agreed on a set of shared principles, which are to serve as the basis for drawing up a regulatory package. The two ministries want to not only tighten but also supplement the rules on fracking.

The measures taken by Germany's gas providers in order to secure supply are based on a broad package of measures. In addition to providing support for domestic producers, these measures include in particular:

  • the diversification of supply sources and transmission routes
  • stable relationships with supplier countries
  • long-term gas supply contracts and
  • a highly reliable supply infrastructure which includes underground storage facilities

Access to LNG (liquefied natural gas) terminals is also increasingly important.

Diversification of foreign supply sources and transmission routes

In relative terms, Germany's gas supply is broadly diversified. An extensive system of pipelines is used to both import natural gas into Germany and to distribute it around the country.

Natural gas is transported from a number of Norwegian gas fields to Emden/Dornum via three pipelines (Norpipe, Europipe I and II), with a total capacity of 54 billion cubic metres.

Russian gas is transported via the Yamal-Europe pipeline (capacity of around 33 billion cubic metres, crossing the border at Mallnow) and the Ukrainian gas transmission system (capacity of approximately 120 billion cubic metres, crossing the border at Waidhaus/Sayda) to Germany and Western Europe. Construction and planning is already underway in order to further expand the system of pipelines for importing gas to Europe. This system also enables the Nord Stream pipeline to bring Russian gas directly from Russia. Both strands of the Nord Stream pipeline, each of which is 1,224 km in length, run from Portovaya Bay near Vyborg, across the Baltic Sea to Lubmin, near Greifswald, on the German coast. The first pipeline, with the capacity to carry up to 27.5 billion cubic metres of natural gas, was commissioned in November 2011. Completion of the second pipeline in October 2012 saw annual transmission capacity double to as much as 55 billion cubic metres of natural gas. Imports of natural gas from Russia to Europe via Ukraine have fallen following the commissioning of the Nord Stream pipeline. Only around 50 per cent of Russia's gas exports to Europe still come via Ukraine. The remaining 50 per cent is transmitted via the Nord Stream and Yamal pipelines. Russian imports account for approximately 35 per cent of Germany's natural gas requirement.

In addition to this, there are many pipeline connections with the Netherlands, including the Groningen gas field.

Future plans will focus on developing the Caspian region ("Southern Gas Corridor") as a new source of supply for Europe and, indirectly at least, for Germany too. From 2019 onwards, the Trans Adriatic Pipeline is set to carry gas with an initial capacity of 10 billion cubic metres from Azerbaijan to Europe.

Stable relationships with supplier countries/long-term gas supply contracts

Long-term contracts for importing gas give producers security as regards future sales volumes and are used as an instrument to finance the considerable investments required in exploration, production and infrastructure. For the countries importing gas, these contracts are a key component in securing supply in the long term. Some supply contracts have terms of 20 years and longer.

European Commission gas stress test

In order to analyse and draw conclusions from potential scenarios at European level involving a shortage in the natural gas supply, gas stress tests have been carried out in 38 European countries. The tests simulated two specific disruption scenarios: first, a complete halt of Russian gas imports to the EU; and second, a disruption of Russian gas imports through the Ukrainian transit route for a period of one or six months.

The European Commission published the results of the gas stress tests on its website in October 2014.

Storage capacities

Data: Monitoring Report on the security of the natural gas supply (Federal Ministry for Economic Affairs and Energy); Source: BMWi

Data: Monitoring Report on the security of the natural gas supply (Federal Ministry for Economic Affairs and Energy)

© BMWi

Natural gas storage facilities play an important role in balancing out the seasonal fluctuations in production and consumption, and in guaranteeing security of supply.

Germany's favourable geological conditions make it a good location for the construction of storage facilities.

At the end of 2013, Germany had 51 natural gas storage facilities in operation (21 pore storage facilities and 30 caverns). The maximum volume of usable working gas is currently 23.8 billion cubic metres. Germany has the largest natural gas storage capacity in the EU and the fourth largest in the world, after the United States, Russia and Ukraine. Statistically, the total storage capacity could, at present, supply the whole country for 80 days on average. This storage volume is set to be increased further over the next few years.

In November 2014, the Federal Ministry for Economic Affairs and Energy commissioned a study entitled "Possibilities to improve gas security and crisis prevention via regulation of storage (strategic reserve, storage obligations), including the costs and the economic effect on the market". The study is to be completed in May 2015 and is to serve as a basis for policy decisions on possible storage rules.

LNG - liquefied natural gas

Access to LNG terminals is also becoming increasingly important for Germany. LNG ("liquefied natural gas") is natural gas that has been converted into liquid form by cooling. Its low volume makes it particularly beneficial for transportation and storage. Worldwide, liquefied natural gas is playing an ever greater role and also presents an opportunity for German companies. Although Germany still does not have a reception terminal for LNG, access to LNG can theoretically be secured for the German market through its neighbours Belgium (Zeebrugge), the Netherlands (Rotterdam) or other European countries. German gas companies have acquired stakes in LNG terminals abroad and are planning to acquire further capacities (in Belgium, France and the Netherlands).

Monitoring security of supply

Pursuant to Section 51 subsection 1 of the Energy Industry Act (German version), the Federal Ministry for Economic Affairs and Energy will monitor the security of the network-based supply of electricity and natural gas.

The natural gas supply in Germany is largely secure and reliable. This is especially true for supply to private residential customers who are afforded special protection under EU and national law. However, as is the case in every other energy sector, the need for intervention by the competent authorities in the event of a serious deterioration in supply, in addition to market measures (i. e. measures for which businesses themselves are responsible), cannot be ruled out completely. Even though the likelihood of such a severe crisis in supply actually occurring is very small, precautionary measures have to be taken for such an event so as to ensure not only the necessary cooperation between all involved parties but also the availability of the relevant measures.

Against this background, Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC ("SoS Regulation") provides for an extensive range of instruments designed to strengthen the internal gas market and to take precautionary measures for the event of a supply crisis. To this end, the requisite national framework conditions and the rights to establish or modify a legal relationship which apply to businesses and authorities are firmly established in the legal frameworks pertaining to Germany, most notably in the Energy Industry Act, the Energy Security of Supply Act (1975) and the Ordinance to Ensure the Supply of Gas in a Supply Crisis.

A collection of the relevant legal documents for carrying out emergency planning can be found here (only in German, PDF: 970 KB).

In the European Union, security of gas supply is a shared responsibility of natural gas undertakings, Member States, notably through their competent authorities, and the European Commission (EU-COM) within their respective areas of activities and competence. This shared responsibility requires a concerted exchange of information and cooperation between stakeholders.

When a crisis in supply occurs, the SoS Regulation essentially distinguishes between three crisis levels (early warning level, alert level and emergency level). The Regulation provides for market measures on the part of gas companies under the first two levels as well as for opportunities for top-down intervention - as a supplementary measure - only in emergencies. In this regard, it sets out the areas of competence and duties of undertakings, national authorities and the European Commission and calls on Member States to set out in advance, and within the framework of Preventive and Emergency Action Plans, how they envisage managing a crisis as well as the preventive measures they will take. The competent authority for ensuring the aforementioned measures is the Federal Ministry for Economic Affairs and Energy. Responsibility for regularly establishing and updating the risk assessment with regard to security of the natural gas supply in Germany has been transferred to the Federal Network Agency (BNetzA).

As provided in the SoS Regulation, the plans were updated in December 2014.

The national Emergency Plan for gas can be downloaded here (only in German, PDF: 277 KB).

The national Preventive Action Plan for gas can be downloaded here (only in German, PDF: 559 KB).

As production levels of low-calorific gas (L-gas) from the Netherlands and in Germany are falling, Germany is making a gradual switch-over to high-calorific gas (H-gas). Thanks to its higher methane content, high-calorific gas has a higher heating value. The transition began in 2015 and is likely to be completed in around 2030. Most people's gas-fired appliances will need adjusting. This includes gas condensing boilers and cooking stoves. The grid operator will cover the costs of the adjustments, but consumers can instead swap their old appliance for a new one and receive a cash incentive of 100 euros. The idea behind this incentive is to encourage greater use of energy-efficient appliances. Owners of a gas-fired end appliance who decide to replace it with a new one rather than having the old one adjusted can claim 100 euros from their grid operator. This is not a government grant, but rather reflects the cost savings made by the grid operator who does not have to adjust the old appliance. For further information on the transition from L-gas to H-gas, please click here (in German only).

The switchover will affect the states of Bremen, Hesse, Lower Saxony, North Rhine-Westphalia, Rhineland-Palatinate, and Saxony-Anhalt. The Federal Ministry for Economic Affairs and Energy is planning to propose that Section 19a of the Energy Industry Act be amended so as to facilitate the transition and the way in which the costs are to be borne. On 3 August 2016, the Federal Cabinet adopted draft legislation on the stockholding of oil, on the collection of data on mineral oil, and on the transition to high-calorific gas. Click here (PDF: 209 KB) (in German only) to read the text of the draft legislation. For the comments submitted by industry associations, other associations and the Länder (in German only), please click here. Comments are available subject to stakeholders' approval.

The Federal Ministry for Economic Affairs and Energy has launched the Round Table on Gas-based Mobility chaired by State Secretary Rainer Baake to promote gas-based mobility.

Fostering the use of natural gas as a fuel

The Round Table aims to foster the use of natural gas as a fuel. Gas-fuelled vehicles are characterised by low CO2 emissions, and they emit no particles and hardly any nitrogen oxides. Therefore the use of natural gas as a fuel can considerably contribute to reducing emissions of fine particles in our cities and help to trigger a turnaround in CO2 emissions in the transport sector. The Round Table has agreed to elaborate a package of measures to reach a share of natural gas of four percent in energy consumption in the transport sector by 2020. This target was agreed upon at the end of 2015 between the Federal Ministry for Economic Affairs and Energy and the automotive industry.

Participants at the Round Table

Representatives of vehicle manufacturers, gas suppliers, operators of fuelling stations, retail trade customers, fleet operators and the public sector attended the first meeting of the Round Table. The participants at the Round Table intend to elaborate a package of measures by the end of January 2017. The identification of focus regions in Germany is one important step. The intention is to press quickly ahead with the use of gas-fuelled vehicles and the expansion of the related infrastructure in these focus regions. Working groups have been set up on these and further issues; they will present their interim results at the second meeting of the Round Table in November 2016.

The gas industry is already feeding gas from biogas into the gas network. The plan for the future is to use the network of gas pipelines as a composite system in which natural gas, biogas as well as hydrogen and synthetic methane produced from renewable electricity are combined to form one huge energy source. The natural gas pipelines in Germany have a total length of more than 505,000 km and are already transporting double the amount of energy than the entire electricity grid.

Much more promising is the option of converting renewable electricity into gas and storing it in the gas pipelines. This would make it possible to use demand side management (adjusting the demand for electricity to the amounts being generated at that time), for instance at times when the wind is blowing so hard that more electricity is being produced than can be taken up by the grids, or to render the production side more flexible. It would also be possible for excess electricity to be converted into other forms of energy. One option here is power-to-gas technology. This technology uses electricity to split water into hydrogen and oxygen (electrolysis). The hydrogen is then fed into the gas network. In a second step, additional chemical reactions can be triggered to produce methane from the hydrogen. The gas that is produced in this way can then be used for industrial purposes, for heating, and for transport. It can also be used to power turbines, which convert the energy back into electricity.

Multiple conversions do, however, result in high levels of energy loss. This is why this solution is not yet economically viable. In the medium-term, however, power-to-gas technology could provide an affordable solution for storing large amounts of electricity in way that is economically viable. It would also forge a strong link between the gas network and electricity from renewables.

Further information on power-to-gas and on other storage technologies is available here.

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