Mckinsey and Company’s Energy Insights European Gas Buyers Survey shows that around 90% of gas buyers aim to achieve net-zero goals by 2040 but are yet to implement any efforts to achieve the same.
Some companies are reverting to coal, whereas 42% have neither finalised nor begun operations to achieve climate goals. The survey observes “the energy security crisis may have forced a pause in decarbonisation”.
The Russian invasion of Ukraine in February 2022 disrupted global energy supplies, causing prices to spike. According to the company’s report, gas prices peaked at $100 per million metric British thermal units, while Brent crude oil prices reached $130 per barrel and coal prices $441 per ton.
Europe spent more than $1trn (€920.57trn) more on oil, gas and coal in 2022 than in 2021. “Although energy prices started to decline in the last quarter of 2022, the tight balance may continue, resulting in higher prices which may, in turn, cause Europe’s energy spend to remain above pre-war levels until at least 2025, placing further pressure on Europe’s energy market,” the report reads.
Gas consumption in buildings saw a household reduction in demand throughout Europe’s winter months in 2022, suggesting a behavioural change in response to spiked prices. Countries such as Germany, France, the UK and France saw gas consumption decline by 15–20%.
More than 75% of gas buyers expect to reduce their gas usage over the next few years and 40% plan to reduce consumption by up to 10% in the next five years.
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“Most popular potential alternative” to natural gas
The global management consultancy’s survey showed that green hydrogen and biogas emerged as the “most popular potential alternative” to natural gas for 62% and 60% of buyers, respectively.
Major energy suppliers have recently joined mergers & acquisitions (M&A) activities to expand their portfolio in biomethane and biogas. This creates a space for liquefied natural gas (LNG) suppliers to partner with buyers to achieve decarbonisation goals.
“Oil and gas supermajors have been active in the M&A space to expand their roles in biogas, among the most popular alternatives to natural gas,” says Nicholas Browne, global gas & hydrogen solution leader at McKinsey. “Suppliers could help buyers overcome decarbonisation bottlenecks by developing physical infrastructure and pressing for consistent policy support.”
Decarbonisation and drop in fertiliser production
Around 27% of the participants see certified lower-carbon natural gas as a “viable alternative” as demand rises for suppliers to “bring back carbon-neutral LNG cargoes using offsets”.
On the other hand, energy-intensive industries such as fertilisers, chemicals and steel saw “significant curtailment” in 2022. Aluminium and zinc production in Europe stalled at around 70–80% of total production capacity in the second half of 2022. Fertiliser production also dropped to 30% of total production capacity in the third quarter of 2022, which was 80% down from the level before the Russian invasion of Ukraine.
“With gas buyers adopting ambitious net-zero targets but lagging on implementation, there is a clear opportunity for gas suppliers to partner with buyers on navigating the energy transition,” Browne added.
Mckinsey & Company conducted the 2022 Energy Insights European Gas Buyers Survey in December 2022, which included 73 respondents from 15 European countries. The survey’s findings “indicate that the energy efficiency levers are increasingly exhausted and that further reduction of gas supply to Europe could substantially impact economic activity”, the report said.