New Normal on the Gas Market: Gas Remains Important, but Long-Term Strategy Missing

• The Gas Review for 2024 shows a clear stabilization of the gas market after the crisis years, but also ongoing structural challenges for the industry.
• Dunkelflauten highlight the need for gas-fired power plants and new gases.
• Kehler: “Stabilizing the gas market in 2024 is not enough to ensure long-term security of supply and competitive energy prices. Therefore, immediate measures such as tendering for new gas-fired power plants, enabling CCS and a gas import strategy are essential.”

In 2024, gas was once again the second most important energy source in Germany. This further consolidated the role of gaseous energy sources, which will also play an important role in a future climate-neutral energy system. Climate neutrality, security of supply and economic strength can be reconciled through the interplay of electrons and molecules. Measures that can be implemented quickly are essential for this: “The tendering of new power plants, the enabling of CCS and political support for long-term import contracts are crucial in order to combine climate protection and competitiveness,” emphasized Timm Kehler, CEO of the industry association Die Gas- und Wasserstoffwirtschaft at a press conference at the start of the “E-World” energy trade fair in Essen.

Gas consumption in Germany rose by around three percent in 2024 compared to the previous year up to 835 TWh (previous year: 813 TWh) and accounted for 25.9 percent (previous year: 24.5 percent) of primary energy consumption. The most important consumption sector provided impetus here: sales to industry increased by eight percent year-on-year to 301 TWh (2023: 278 TWh), but are still almost 19 percent below the pre-crisis level due to the decline in production in energy-intensive industries.

Electrolysis on the Ascent

The implementation of the hydrogen strategy is having an impact: the announced projects to build up electrolysis capacities result in a planned generation capacity of 11.3 GW. This means that the German government's target of 10 GW has been exceeded for the first time. The output of installed electrolysers has risen by 83.3 percent compared to the previous year to 110 MW.

Further political support is needed to drive the ramp-up of the hydrogen market forward, says Timm Kehler: “The trend in the hydrogen sector is very encouraging, but there is still a very large gap between realized and planned projects. Accelerated, unbureaucratic approval procedures and stable demand for hydrogen through climate protection contracts and lead markets are needed to turn planned projects into real electrolysis capacity.”

Power Mix 2024: German Power Generation Declines, Gas as a Stability Factor

In 2024, German power production fell by around three percent, while the share of gas in power generation increased slightly. A total of 77 terawatt hours of electricity were generated from natural gas, with an annual average of 33 GW of gas-fired power plant capacity available for this purpose. At the same time, the contribution of coal and lignite-fired power plants fell considerably.

In the first year after the nuclear power plants were shut down, the importance of gas-fired power plants as a safeguard against Dunkelflauten became clear: in calendar week 45, when solar and wind contributed only 13.9 percent to electricity generation, gas-fired power plants supplied 26.8 percent of the electricity consumed. As the coal phase-out progresses, the importance of these power plants will continue to increase - additional plants are needed.

Clear political guidelines for tenders are required quickly for this: “We recommend that the first tenders for hydrogen-capable power plants be carried out quickly and without delay in accordance with the regulations proposed by the BMWK last year and that a capacity market be created quickly - based on the Belgian model, for example,” explained Kehler.

CCS as a Location Factor for Industry and Basic Technology for Hydrogen

In addition to investments in new technologies and infrastructure, carbon capture and storage (CCS) is an essential building block for achieving the climate targets. In order for the technology to be used efficiently, the London Protocol must be ratified as soon as possible to enable CO2 exports abroad. Likewise, the Carbon Storage Act must be implemented quickly in order to drive forward storage projects in Germany.

“The departing government has failed to make CCS possible. The continued lack of legalization blocks access for energy-intensive industry to a cost-effective decarbonization solution and hinders the development of blue hydrogen. The present draft law should be adopted and implemented one-to-one by the new government in order to send a quick signal against the economic crisis,” emphasized Kehler.

For Stable Energy Prices: Organizing Gas Imports for the Long Term

Following the extreme price increases as a result of the war in Ukraine, the European wholesale price stabilized between 30 and 40 Euro per megawatt hour in 2024. Nevertheless, a rising price trend remained evident over the course of the year due to the end of the Ukraine transit, higher consumption in the EU and increased competition for the limited LNG capacities. The US reference price is in the range of three to five Dollars and is therefore significantly lower than the European gas price.

“Gas prices have stabilized at a new level - far below the extreme values of the crisis years. However, they are still around three to four times higher in Europe than in the USA, which is particularly painful for the industry. With long-term supply contracts, Europe could benefit from the lower prices in the producing countries. However, this requires political backing,” said Kehler. “The political signs of recent years - in particular the debate about a possible gas phase-out and supposed overcapacities - have given international suppliers the impression that long-term contracts with Germany have no future. The result: more short-term procurement leads to higher costs - and therefore rising electricity prices, as these continue to be heavily dependent on the price of gas.”

The commissioning of new LNG terminals on the North Sea and Baltic coasts has improved security of supply. Eight percent of total natural gas imports were handled via German terminals - an increase of one percentage point. However, the ports in the Netherlands and Belgium continued to import the majority of the LNG procured for Germany.

Gas as a Decarbonization Perspective in the Heating Market

Gas remains a key energy source in the heating market: around 58 percent of newly installed heating systems are still based on gas. In existing buildings, 49 percent of German households are heated with gas. Modern gas heating systems offer flexible conversion options, for example for hydrogen operation or as a hybrid solution with renewable energies. Even with an admixture of 15 percent biomethane, installation or continued operation is possible from 2029 to 2035. After that with 30 percent and from 2040 with 60 percent.

Overall, the heating market has plummeted after the record year of 2023 due to political uncertainties and a cautious subsidy policy. In 2024, only 712,500 heating appliances were sold - a drop of 46 percent compared to the previous year. “The drastic slump in the market shows that uncertainty and contradictory regulations in the Heating Act (GEG) are slowing down the heating transition. The existing shortcomings of the GEG must be urgently rectified, but politicians must not leave such a clear skid mark on the market once again,” emphasizes Kehler.