The Future of Natural Gas as a Transition Fuel : Forecasting natural gas-generated power in Germany and the United Kingdom. What can we expect from Norwegian exports of natural gas in the years to come?

Abstract

This thesis intends to answer the following research question: What role will natural gas serve in the transition to renewable energy sources in the German and British power sectors, and what will be the implications for Norwegian natural gas exports? To answer the research question, two dynamic regression models are built to forecast weekly natural-gas-generated power in Germany and the UK over the next two years. To create scenarios, the predictors of the models, which are other important power generation technologies, are given growth rates based on the German and British governments’ climate action plans. Three scenarios are developed for both countries: (1) the Realistic scenario, (2) the Rapid I scenario and (3) the Rapid II scenario. The scenario forecasts are produced to provide insight into the future role of natural gas as a transition fuel and to observe how the use of natural gas will differ in the German and British power sectors. Furthermore, the point forecasts of the Realistic scenario for each country are monetized to quantify the impact on Norwegian exports of natural gas. Natural gas can be a transition fuel in two main ways: (1) as a substitution fuel for heavier polluting energy sources and (2) as a stabilizing fuel for the intermittency of renewables. The predictions of the German model are conditional on the pace of the clean energy transition in Germany. For the Realistic scenario, the German model predicts a likely increase in natural gas in the German power sector, while the model predicts a decrease in the Rapid I and Rapid II scenario forecasts. Based on the Realistic scenario forecast and the German climate action plan, this thesis finds that natural gas will partially support renewables in replacing coal and that the use of natural gas in stabilizing intermittent renewables will increase. Thus, natural gas will be used both as a substitution fuel and as a stabilizing fuel in the German power sector in short term, which is expected to increase Norwegian natural gas exports to Germany. In contrast, the British model predicts a likely decrease in natural gas in the British power sector for all three scenarios. In the UK, natural gas has been used to substitute heavier polluting fuels and is the next fuel to be replaced in the power mix. Therefore, based on the Realistic scenario forecast and the British climate action plan, this thesis finds that natural gas’s role as a substitution fuel has passed, while it will continue its role as a stabilizing fuel when renewable energy sources are intermittent. Thus, Norwegian natural gas exports to the UK are expected to decline in the short term. In the longer run, natural gas is expected to decrease in both the German and British power sectors and will eventually be phased out. Carbon capture and storage and blue hydrogen production can extend natural gas’s relevance in Norwegian export markets. Keywords – Forecasting, Dynamic regression model, Natural gas, Transition fuel