The use of gas has increased considerably within the European Union (EU) over the past decade, most notably in the power sector. However, in accession countries, very little gas is used to generate electricity although some is used in combined heat and power (CHP) stations. It is expected that in the coming years however, natural gas will be widely used to fuel power stations across an enlarged EU.

In August 2000, the Member States of the EU were required to have adopted legislation to increase competition within their gas markets. This Directive is expected to accelerate the process of liberalisation, in a similar fashion to that of the Electricity Market Directive of 1996. While some industrial interests are keen to promote the wider use of gas, concerns are raised about its environmental impact, its impact on the development of renewable energies, and the potential for an over dependency on supplies outside the Union, particularly from relatively unstable regions of the world.

In the coming months, a number of important developments are set to take place which will impact upon the EU energy policy. Firstly, the EU needs to act quickly if it is to reach the 8% (of 1990 levels) reduction target for CO2 emissions by 2010 as laid out in the Kyoto Protocol, in particular as it relates to the Den Hague meeting in November 2000. Current predictions suggest that, if current trends continue, the EU will not meet its Kyoto targets and therefore action is needed, particularly in the power sector. A second important development revolves around the European Commission’s current preparations of a Green Paper on Security of Supply of Energy.

This report seeks to review the current status of the gas sector in light of these and other developments, and point to some of the problems and advantages of increased use of gas across Europe, particulary as regards enlargement.

Czech Republic
The consumption of natural gas is increasing in the Czech Republic and it reached 9 billion cubic meters (Bcm) in 1999. The vast majority of gas supplies (79%) are covered from Russia, with 16% being supplied from a pipeline with Norway (finished in 1997), 2% coming from domestic resources and the remaining 5% coming from Germany.

The gas is primarily used for industrial purposes and households. No projects exist, or are being planned, for power generation based on gas, but a small part of the total volume is used for combined heat and electricity generation.

Usage of natural gas has not been made a priority in the state energy policy, where the main emphasis is put on the use of domestic coal and nuclear energy. Currently, gas represents only 20% of primary energy sources. The use of gas for electricity generation is discouraged both because of the large installed overcapacity (the Czech Republic currently exports about 30% of its electricity production) based on very cheap (though mostly low quality) domestic coal and heavily promoted nuclear plants, built by the dominant utility company CEZ, in which the state has majority ownership.

It can, however, be expected that, with the liberalization of electricity and gas markets, rapid changes to the current situation are possible. The threat of competition to other “established” plants and to the dominant position of CEZ is often given as an official reason why the Czech government asks for transition periods in the implementation of liberalization of its energy markets (a 33% liberalization of gas market is to be reached by 2008, with full liberalization of the electricity market by 2008). It is therefore advisable to not allow these exceptions from EU Directives and to ensure that the Czech government complies fully with the rules set forth by the EU.

The existing coal power plants are scheduled to be phased out between 2015 and 2030, when the coal mines are expected to be closed. It is therefore very likely that replacement capacities will be based mostly on gas fired plants. By that time, the currently negligible role of renewables and efficiency must also dramatically increase.

Hungary
Beginning in the 1980s, Hungary’s gas distribution network has been developed rapidly. This has resulted in the current figures that show that 40% of Hungarian energy use is based on gas, which is, in terms of the primary energy portfolio, the second biggest share in Europe.

Consequently, Hungary now depends on imported gas for 60% of its requirements, and this figure is likely to increase due to the decline of domestic resources and an increase in consumption.

The inner structure of gas consumption is dominated by the residential sector, which has large seasonal fluctuations and consequentially large and expensive storage demands.

Bearing these conditions in mind, Hungary’s natural gas consumption should not be significantly increased by changes in current energy sources and consumption patterns.

The expected liberalisation of the Hungarian gas market must take into account the need for the changing use of gas and a prioritization of its efficient use.

Lithuania
The share of natural gas in Lithuania’s energy supply has decreased since the 1990s, during which time there has been an increase in the use of nuclear energy. According to forecasts, the demand for natural gas will more than double in the next twenty years, despite the operation of one unit at the Ignalina nuclear power plant.

In Lithuania, unlike in other countries in the region, residential consumers use only around 8% of the country’s gas. District heating and power production are the largest users, consuming 50% of the total.

Significant investment in the old and outdated transport, storage and distribution network will be required to meet the challenge of growing demand. The development of the Baltic gas ring and cooperation with the neighbouring countries to develop a regional gas network is essential for the region’s security of supply due to its current heavy dependency on Russian gas. Bearing these factors in mind, these investments should be planned using the least cost principle and implemented on a purely commercial basis, excluding state subsidies.

Poland
The use of natural gas in Poland is projected to grow significantly within the next decade from 12 Bcm to 22 Bcm. Of particular importance is the emerging market for combined-heat-and-power generation.

Currently, Poland does not meet EU requirements for NG storage facilities. Construction of new NG storage facilities is required by the EU and is necessary in order to increase security of supply. The storage capacity is predicted to grow from its current 1.1 Bcm to 4.5 Bcm in 2010.

The security of supply is an important issue discussed in the political arena in Poland as it relies on Russia for 70% of its gas. A search for potential new directions of NG supply (e.g. Norway or Denmark) is widely discussed. However, some argue that all the demand for NG within next ten years can be covered under the existing long-term contracts with GazProm.

Introduction of the CO2/energy taxes might be an opportunity to promote natural gas use as a cleaner energy option than the use of coal.

For the last decade, Poland has made crucial steps in fighting the problems of low atmospheric emissions and has introduced many programs geared towards replacing coal with gas. Further programs to replace coal with natural gas should be developed. However, where feasible, renewable energy sources should be given top priority.

Slovakia
Natural gas is the most important energy source in Slovakia. Currently, 97% of gas used in Slovakia has to be imported from Russia. There is only one gas fuelled power plant (excluding CHP) in Slovakia and thus gas use in the power sector is negligible.

Two thirds of total consumption is undertaken by the industrial sector, but the main area of growth is in the residential sector. The number of communities connected to the gas distribution system has tripled over the last seven years. Slovakia has the second densest gas distribution system in Europe.

The main transmission pipes from Russia to EU Member States pass through Slovakia, carrying 25% of Western Europe’s gas supply.

Currently, one company (SPP) owns and operates all facets of the country’s gas sector. Due to this monopoly structure, the development of the distribution systems is subsidised by the income obtained from gas transition through Slovakia.

Sales prices for domestic customers do not fully cover the supply and imports costs, and are therefore subsidized by transit fees.

Transformation of the gas industry and the entire energy sector in Slovakia is inevitable. Its success will depend on the fulfilment of four important issues: the restructuring and privatization of energy companies (Slovenský plynárenský priemysel – SPP and Slovenské elektrárne – SE, a.s.), the establishment of an independent regulatory body, the setting of energy prices on a real level for all consumer categories and the completion of an energy legislative framework. Government proposals are to privatise and liberalise the Gas markets in the coming years.

E.U.
Even with the passing of the deadline for Member States to implement the minimum market opening requirements of the EU’s Gas Market Directive, it is clear that the majority of Members have gone far beyond the minimum market opening requirements. As a similar situation occurred in the staged opening of the Electricity Markets, the European Commission is preparing an accelerated market opening time-table for both the Gas and Electricity markets, due to be published in March 2001.

Gas consumption in the power sector is set to increase ten fold between 1995 and 2030, while installed capacity is predicted to rise from 45 GW to 450GW. This phenomenal increase is the result of an increased power demand and the closure of coal and nuclear power stations.

Gas is now the fuel of choice for newly built power stations in the EU, due to its lower construction costs and shorter construction times, its largely lower production costs and its aerial emissions levels that are lower than those in other fossil fuel plants.

EU domestic production covers 52% of its consumption, with 12% coming from Norway and 21% from Russia. The decrease in domestic reserves and increase in consumption will result in a much higher dependency in the future.

Russia and Gazprom
Russia has over 56% of the World’s proven gas reserves, equaling over 50 trillion cubic meters.

Unlike a number of State oil concerns, Gazprom was not dismantled during the Russian privatisation process and continues to run on a highly centralised basis.

Despite its high (by Russian standards) revenues, Gazprom lacks investment in its infrastructure, which results in high leakage levels and lower environmental performance. It is estimated that between 6-50 Bcm is lost from its pipelines annually, representing considerable lost revenue and damage to the environment.

To increase its diversity, Gazprom and its partners are constructing additional pipelines to Western Europe including the Yamal Pipeline, which is estimated to cost $35 billion.

Conclusions – The Role of Natural Gas in the Transition to a Sustainable Energy System in Europe
Current trends suggest that the EU will not meet even the first CO2 reduction target proposed under the Kyoto Agreement, an 8% reduction of 1990 levels of CO2 emissions by 2010. Current emissions scenarios predict that the power sector, along with the transport sector, will fail to meet their indicative targets.

Modern natural gas fired power stations produce around 2.5 times less CO2 per Kwh of electricity than equivalent coal stations. If gas stations replaced coal stations across an enlarged EU it would significantly reduce the region’s CO2 emissions and enable Kyoto targets to be met.

Such savings are so great that, even if all operating nuclear power stations were also closed and replaced by gas power stations – which would lead to an increase in CO2 – there would still be an overall 6% decrease in CO2.

Such a rapid introduction of gas is not desirable from an economic, environmental or long-term security of supply perspective and there are many other options that are more appropriate. In particular, investment should be prioritised first in energy efficiency and then in renewable energy.

A policy needs to be elaborated which allows the widespread and appropriate introduction of energy efficiency and renewable energy technologies. Only a policy that has these technologies at its centre can pave the way for a secure and sustainable energy future.

However, if used in an environmentally responsible and appropriate way, natural gas can play a role, for the short term, in reducing CO2 emissions.