CEDIGAZ Insights - Page 11

According to the latest CEDIGAZ report, the gas for heating market in Europe, for many years a stable and growing demand source, is on the cusp of significant change, which is likely to lead to major declines over the coming decades. Key uncertainties remain over the pace and extent of these declines, and gas utilities would be well advised to prepare for changes by involvement in district heating and other technologies which maintain gas as part of a lower carbon heating future.

Natural gas is the dominant fuel for heating residential and commercial properties in the EU, providing 47% of both input energy and useful heat in 2013. However, gas for heating faces major challenges in coming decades due to calls for greater energy efficiency and decarbonisation of the heating sector. Although, in the mid-term , expansion of CHPs and DHNs provide some opportunities for gas, long-term forecasts show gas demand for heating declining over the period to 2050, but there are significant variations in the future levels from a business as usual scenario which sees gas demand at 165 bcm in 2050 (compared to 195 bcm in 2013) to a high energy efficiency scenario which at only 44 bcm.

Based on case studies of four countries (UAE, Russia, Argentina and Pakistan), this new report by CEDIGAZ analyses the influence of subsidies on gas supply and demand dynamics.

EXECUTIVE SUMMARY

Gas price subsidies have a significant effect on the gas consumption. Simply put they embody the inexorable link between the price of a good and its demand. By artificially lowering the price of gas, it can become more competitive as a fuel, potentially even crowding out other fuels or technologies, as well as encouraging excessive consumption that would not have occurred in the absence of subsidies. The extent to which either of these situations are the case is dependent on the subsidies of a given country with two particular factors; price/level of discount and how much of the population it is available to. The cheaper the gas the more widespread and heavy its use (or the use of a byproduct of gas such as electricity, heat or water) will be. Additionally if subsidies are extended to larger parts of the population then not only does that increase the amount of users whose consumption may be wasteful but it also extends cheaper gas to richer households who are typically higher consumption users and therefore capable of wasting more. It therefore follows that any countries wishing to reduce or cut their subsidies will likely see their gas demand fall.