During the last century, natural gas was among the primary sources of energy for billions of people. However, nowadays, its future is unclear. On one hand, being the fossil fuel in the world, which moves towards net-zero emissions level, natural gas faces existential questions. On the other hand, Ukraine, like many other developing countries, still remains highly dependent on the blue fuel.
Many countries have pledged to become carbon neutral in the next 30-40 years.
The US, which recently rejoined the Paris Agreement under President Joe Biden, targets to finish the transition to net-zero power generation by 2035.
In the European Union, the European Green Deal pushes countries to decarbonize the economy by 2050, implying massive addition of renewable energy, improvement of energy efficiency, and construction of green hydrogen electrolysis capacities, totalling 40 GW (already by 2030).
In Asia, Japan and South Korea have targeted the early retirement of coal-fired generation by 2030 and have pledged to reach carbon neutrality by 2050. China aims to do the same by 2060. In addition, India has committed to cut its carbon footprint by increasing the share of non-fossil fuel power generation to 40% by 2030. Ukraine like many other countries also pledged to cut down its carbon emissions. Although natural gas is environmentally safer than coal, it is important to remember that gas is still a fossil fuel that emits substantial amounts of CO2 and methane. Hence, there’s a certain degree of concern when it comes to the future of gas.
Natural gas has traditionally been an essential energy source in Ukraine. Nowadays it constitutes 27.3% in total final consumption and 26.3% in total primary energy supply. However, despite the importance of gas, the volume of Ukrainian own production is far from being sufficient to satisfy national needs and, hence, Ukraine remains dependent on the imported resource (of 12-14 billion cubic meters a year).
Taking into account the ongoing decarbonization and other factors such as the recent production decline as well as insufficient gas supply, Ukraine faces many challenges.
How to maintain the national gas transportation system after 2024?
Will Russia continue its export through Ukraine regardless of the alternative routes?
How can the Transmission System Operator can manage all those risks?
What are the alternative sources of gas for the Ukrainian gas transportation system?
LNG is a marginal power in the transition towards lower-carbon energy
The pandemic, which froze the world’s production for a couple of months last year, gave countries both a chance and an incentive to become more environmentally clean. In some way, the pandemic accelerated energy transition and significantly strengthened already established decarbonization trends. At the moment, it is impossible to develop renewable energy without a robust firming capacity. And as, on most markets, gas is by far the cheapest source of firming capacity, the last two years of pandemic were accompanied by rapid policy changes and active coal-to-gas switching.
Competitively priced LNG facilitated and accelerated coal-to-gas switching in the European power sector, as it was able to compensate for the declining domestic gas production and pipeline gas imports. Moreover, over the next three to five years, LNG can play a significant role in meeting not only Europe but also the world’s need for reliable, low-carbon, and low-cost energy supplies.
Greater role of gas in the power mix.
The long-term outlook for LNG, however, is brighter than that of other fossil fuels because of its comparatively lower cost and lower emissions from production and combustion. Gas will be the only fossil fuel that would grow for the next 10-15 years, as it complements the climate change regime rather than conflicts it.
Despite the vital role, gas will soon be in oversupply around the world
The US, European Union, Japan, Korea, and even China – all of them and many other countries pledged to achieve net-zero in carbon emissions in the next 30 – 40 years. During the last decade, the world saw a rapid shift towards green energy policy and is currently actively seeking ways to reduce their emissions. Therefore, naturally, with the growing share of renewables in countries’ energy balances, the demand for gas is starting to see a slight decrease. Hence, in the medium term, experts expect to see an oversupply in gas, as the major gas supply would not be able to adjust promptly to the falling demand. At the same time, this is a great opportunity for Ukraine to buy gas at a lower price, so the country would be able to switch from coal at the cheaper terms, as part of the decarbonization process.
Regional energy-based partnerships and big infrastructural projects would be essential for the future of the Ukrainian gas industry
The alliances established on the shared economic and energy interests would play a significant role in the Ukrainian future. Ukraine must start looking into big infrastructure projects that would increase interconnectivity, such as a large-scale FSRU LNG terminal in the Black Sea, to create additional supply road and a new source of gas. Apart from energy, such a large project can strengthen regional cooperation and trade. A good example is the Three Seas Initiative, one of whose main projects is the development of LNG terminals and connecting pipelines around Europe. Furthermore, developing an LNG terminal would allow Ukraine to connect not only with the neighboring EU but also solidify relationships with the US, Middle East countries, and other LNG suppliers.
