Natural Gas
Although global consumption of natural gas is still rising, the production of natural gas from offshore fields in the North Sea region is in decline. Across the North Sea as a whole, the four major producing countries are expected to decommission about 215-280 wells over the period until 2026. To put this in perspective, we have seen more than 4,000 wells drilled since the UK Continental Shelf Act came into force in 1964. This declining trend is in line with the latest IEA connotation to stop the development and exploration of new oil and gas fields and the Danish governmental decision to cease all exploration and production activities by 2050.11 New exploration activities within the North Sea Region – which has a lower carbon footprint than imported gas – could slow down the decline. Supporting and regulatory mechanisms such as the recent increase in the investment allowance from 25% to 40%, or the enabling of offshore power offtake can promote incentives to the upstream oil and gas market to start/continue exploration activities. The energy crisis that started earlier this year has shifted the expectations and need for natural gas production. As a direct response to the crisis, Norway has increased export potential where possible and countries are researching options for new explorations, even in Germany, to reduce import dependency of natural gas.
The carbon intensity of oil and gas extraction activities is expected to decrease over time. The North Sea transition deal supports continued oil and gas exploration in the United Kingdom continental shelf, but at the same time targets a 10% reduction in offshore production emissions by 2025, some 25% by 2027, and up to 50% by 2030, against a 2018 baseline. Offshore drilling activities are expected to recover after the Covid-19 dip and given new exploration activities in UK and Norway to continue for some time.
The described developments and resulting pathway are in contrast to the declining natural gas production in North Western Europe sketched by the European TYNDP as the UK and Norwegian gas production is not included in EU estimates. The TYNDP scenarios, Global Ambitions and Decentralised Energy, indicate a rapid decrease in natural gas production in the period 2020-2030, followed by a slower decrease in the period thereafter. The sharp decline encompasses the cessation of Groningen gas field production by 2023 or 2024.
The demand for natural gas – for instance due to blue hydrogen production and the German transition away from coal and nuclear – is expected to decline at a slower pace. Higher imports of liquified natural gas (LNG) – recognized by the build-out of LNG terminals – will be needed to close the growing gap in supply and demand of natural gas in the North Sea Region.
The role of biomethane in the gas mix of the future
Biomethane is expected to help to achieve EU’s 2030 GHG reduction targets as well as 2050 net-zero emission targets. Based on statistics prior to Russia’s invasion of Ukraine, ENTSO-G recommended a combined biomethane potential of around 41 bcm/yr (400 TWh/yr) for the North-Sea-countries (Belgium, Germany, Denmark, France, Netherlands, and Sweden) by 2050. However, since the invasion, biomethane is also viewed as one of the resources to help achieve energy security by reducing dependency on natural gas imported from Russia. The REPowerEU plan suggested an additional 17 bcm of biomethane production potential in the EU (in comparison to the Fit-for-55 plan) by 2030, totaling up to 35 bcm. A new study by ‘Gas for Climate: a path to 2050’ reflected on the REPowerEU targets and recommended a 2050 biomethane production target of 75 bcm/yr (738 TWh/yr) for the North-Sea-countries (Netherlands, Belgium, France, Germany, Denmark, Sweden and the UK). It also includes an intermediate target of 24 bcm/yr (230 TWh/yr) by 2030. The highest growth potential (2030-2050) in biomethane production is expected in France, Germany, Sweden and the UK.
Historical Demand (top figure) and Production (bottom figure) of Natural Gas in the North Sea Countries vs the Demand in EU Plus United Kingdom and Norway
Highlights of the natural gas transition pathway towards 2050
On- and offshore production in North Sea countries is in decline (from 2 PWh/yr) in most countries and a projection of phase out towards 2050 and beyond is very likely. A complete phase out before 2050 is not considered likely, but largely depends on Norway’s long-term strategy.
Early 2020s see a decline in production in Netherlands and UK with a gradual phase out towards 2050; despite ambitions to reduce import dependency for the short term.
Biomethane production in North Sea countries expected to grow to 500 TWh/yr in 2050
Big impact for the Netherlands is the closure of the onshore Groningen field planned for 2023/2024
Denmark most likely to peak at end 2020s, ends new oil and gas licenses and stated cessation of production of domestic oil and gas by 2050
Exception is Norway with a forecasted increase in natural gas production towards 2025 and a longer term steady state towards 2040; then starting a decline in production towards 2050.
The uncertainty in the gas transition pathway is very high considering the absence of long term strategies for natural gas production for the countries under study and the high volatility in current policy development as a response to the energy crisis starting in 2022.
Natural Gas Production Forecast in the Exploratory North Sea Energy Pathway
Regional Molecule (Natural Gas, Biomethane and Hydrogen) Supply, Demand and Import Pathway