We need to talk about gas…

With the recent announcements on the 50% cuts to greenhouse gas emissions that the UK has achieved - primarily through decarbonisation of the electricity system - and debate on reform of electricity markets, the decarbonisation of the gas system has not received the same level of attention.

But the natural gas system - with its 187,000 miles of pipes, heating 24.5 million homes will play a critical role in our 2050 decarbonisation goals.  To date a lot of work has been undertaken across government, industry and the science community focussed on development of the individual gas decarbonisation solutions – carbon capture and underground storage (CCUS), hydrogen production and deployment, and the electrification of heat. 

There has been less focus on what the cumulative impacts on the country’s natural gas system will be as the changes are implemented and what this means for collective decision making and risk mitigation.  This article explores how the gas system to 2050 might evolve and surfaces some key systemic and policy challenges.

The gas system of 2050

There is still considerable uncertainty about how big the UK gas system will need to be by 2050, as much will depend on the feasibility, costs, and benefits of scale up of CCUS and Hydrogen and on how much natural gas the country will need, even in 2050, to maintain a secure energy system. Under National Grid’s Future Energy Scenarios and assuming a successful net zero transition,  annual natural gas demand in 2050 ranges from 29 – 364 TW h (compared to 986 TW h in 2022); hydrogen demand ranges from 120 - 242 TW h (compared to 0 in 2022).

What is clear though is that over time the natural gas system will evolve into a ‘multi -gas’ system flowing - methane, biomethane, hydrogen and carbon dioxide – in many directions across the country. Gases will be produced or imported from a variety of locations (particularly as gas production from the North Sea will decline dramatically) and transported to meet demand for power, heating, transport or emissions abatement. Gas storage will play a stronger role in the future system, as the final destination for sequestered carbon dioxide and as temporary storage for methane and hydrogen. Successful deployment of green hydrogen is especially dependent on having sites to store the gas which will have been made during periods of surplus renewables supply.

We also know that under all scenarios the size of the UK natural gas network in 2050 will shrink dramatically, even allowing for some repurposing of the pipes and other assets for hydrogen. So too will the customer base for natural gas heating – we will reach a point where large areas of the country will have no access to natural gas as an energy source. Some of the natural gas network will need to be decommissioned in the mid-late 2030s onwards, in a works programme the scale of which has not been seen since the country switched from coal gas in the 1960s.   As the old assets are decommissioned, new assets will emerge on the system and the number of new market participants will grow to accommodate the need for transportation, supply and storage of the other gases.  This may be accompanied by a diversification of market participation for the current natural gas shippers, transporters and suppliers.

Key Challenges  

Decommissioning, costs and affordability: Under the current regulatory model, gas network companies invest in the system and recoup their costs through charges added to energy bills, but no allowance has yet been made for decommissioning as demand for natural gas declines. Decisions will need taking on who should pay for this work and when; and whether costs should be recouped through the energy bill or general taxation. It will be important to avoid an affordability crisis where the last few customers using natural gas are left paying all the residual decommissioning costs. Ofgem has recognised this question of funding and fairness in its recent RIIO consultation.

Competition for assets and kit:  The advent of a ‘multi-gas’ system raises the risk that competing demands for similar infrastructure (e.g. gas storage sites) and assets (e.g. gas compressors) result in successful deployment of one gas in the system at the expense of another.  It is recognised that both natural gas and hydrogen can be best stored in salt caverns and that successful storage of hydrogen must not undermine storage needs for natural gas, which are essential for security of supply in the near term.   

Similarly, there is some recognition that the natural gas pipes could be repurposed for use in a hydrogen network – National Gas Transmission’s Project Union is exploring the potential to repurpose sections of the NTS to develop a hydrogen backbone network. In this case it will be important to ensure that a hydrogen switch over does not compromise the security of supply for the remaining customers on the natural gas network. Whilst these competition issues are individually recognised, a strategic approach is required to determine the actual level of this risk and establish systemic mitigations, if required. At first glance it would seem that this work would fall within the remit of new National Energy System Operator.

Regulation - one multi-gas system: The Gas Act, which is the primary mechanism for regulation of the natural gas network, was originally established to facilitate privatisation of the natural gas network and will therefore need a total overhaul. Decisions will need to be taken as to whether government regulate one system for all gases, or several separate gas systems each with their own framework.   It will be a challenge to identify and separate the different roles and responsibilities of the market participants in the system, and keep prices as low as possible,  whilst also ensuring that the regulation is efficient and does not unduly stifle the transition.

Resilience of the system and security of supply: As the gas system as we know it changes and diversifies, so too will the prioritisation of those assets critical to ensuring the safety and resilience of our energy supply (Critical National Infrastructure).  The work to assure resilience with more varied assets on the system will become a much bigger undertaking.  New assets will bring with them a greater array of digital controls and connected devices, potentially increasing the attack surface for malicious cyber activity, requiring additional cyber risk mitigations as a result.

To date gas security of supply has been measured broadly in terms of whether maximum supply outweighs peak demand even in times of stress. As the natural gas system reduces in size Government will need to re-evaluate its risk tolerance on security of supply and consider how to apply such requirements to a growing hydrogen network.

In conclusion, the cross-cutting challenges for the future decarbonisation of the current UK gas system are far reaching and will further test the energy trilemma. This underscores the importance of government, industry, regulators and consumer groups taking action now to develop solutions and risk mitigations that work at a systemic level.

Clare Dobson, Director, The Policy Key

Contact: info@thepolicykey.co.uk