The Baltic-Finnish gas market can and must be decarbonised

Perspective

The Baltic-Finnish gas market can and must be decarbonised

There is a feasible path to decarbonise the gas sectors of the Baltic states and Finland by 2050 or earlier. The choice is stark: invest now to reshape the energy landscape or pay later in severe environmental and geopolitical costs, Gowtham Muthukumaran and Javad Keypour write.

Gowtham Muthukumaran, Javad Keypour / Published on 8 July 2024

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The Baltic-Finnish gas market can and must be decarbonised

This article was first published by Euronews. To view the original article, follow this link.

The European Union stands at a critical juncture, confronting the dual crises of escalating climate threats and geopolitical instability.

From the devastating impacts of climate change to the recent energy turmoil sparked by Russia’s aggression in Ukraine, the EU’s vulnerabilities are glaring.

The European Green Deal, a commitment made by all member states, mandates a rapid decoupling from natural gas. This presents both a daunting challenge and a remarkable opportunity.

In the Baltic-Finland region, natural gas consumption varies, with usage rates at 3% in Finland, 6% in Estonia, 16% in Latvia and 19% in Lithuania. Although these percentages may appear modest, natural gas is crucial for heating and other essential social functions.

The 2021 energy crisis, which caused severe price volatility, highlighted the risks of this dependency. Although prices have stabilised, the environmental and geopolitical risks persist, underscoring the urgent need for decarbonisation.

‘No-regret’ policies are crucial

In 2023 alone, EU natural gas production resulted in a staggering 0.75 billion tonnes of CO2 emissions, further demonstrating the necessity for comprehensive decarbonisation strategies.

These strategies involve replacing natural gas with renewable hydrogen and biomethane alongside measures like electrification and energy optimisation. These shifts promise a decarbonised and resilient gas system for the EU, along with stable prices and a reliable supply for consumers.

A new report, “Gas decarbonisation pathways for Estonia,” outlines four potential pathways to carbon neutrality for the Baltic-Finland gas zone by 2050: continuing with current policies, failing to achieve carbon neutrality by 2050 (business as usual scenario), replacing natural gas with renewable hydrogen (renewable hydrogen scenario), substituting natural gas with renewable methane/biomethane (renewable methane scenario), integrating renewable hydrogen and methane to phase out natural gas, balancing decarbonisation with cost-effectiveness (cost minimal scenario).

“No-regret” policies are crucial for scaling up biomethane production and developing renewable hydrogen capacities because they provide benefits regardless of future conditions.

The cost-minimal scenario emerges as the most viable, requiring an estimated €9,01 billion investment by 2050 to build the necessary infrastructure. This approach aims to reduce natural gas imports by 2040, enhancing energy independence and security. Leveraging existing infrastructures like the Klaipeda LNG terminal can meet demands efficiently, reducing the need for new, costly projects.

This scenario emphasises deploying biomethane and setting stringent emission reduction targets, aligning with broader environmental goals. Projected CO2 emissions across all participating countries would drop to under 0.2 million tonnes by 2030, paving the way for a carbon-neutral regional gas market.

“No-regret” policies are crucial for scaling up biomethane production and developing renewable hydrogen capacities because they provide benefits regardless of future conditions.

Supported by renewable electricity production, transitioning existing natural gas infrastructure to accommodate new gases through retrofitting and repurposing is essential. Combined with increased electrification and improved energy efficiency, these steps form the backbone of a resilient future energy system.

Achieving seamless integration of the gas market requires strong political commitment and cooperation between Baltic states.

Lithuania’s partial integration with the Baltic-Finland zone illustrates the challenges of achieving a unified market. Addressing these integration gaps is essential for maximising regional operational efficiency.

Adapt what you have

A successful energy transition also mandates comprehensive coordination between the gas and electricity sectors. This includes aligning renewable energy infrastructure expansion with gas infrastructure enhancements.

Adapting current facilities, like Latvia’s underground gas storage, to handle new gases and manage high-demand periods is necessary. A complete reassessment of gas network development plans ensures the feasibility of supplying gas to smaller, remote areas.

The investment required for gas sector decarbonisation, though substantial, is justified by long-term environmental and economic benefits.

The study finds that the average production costs of biomethane, projected to be the dominant fuel in 2050, will be significantly lower than natural gas prices at €52.5/MWh versus €96/MWh.

The transition promises increased economic output, job creation, long-term energy cost reductions, and decreased reliance on imported fuels.

The costs of delay are enormous, not just in economic terms but in human lives and environmental degradation.

The year 2023, the hottest on record, brought unprecedented extreme temperatures and “once-in-a-century” storms, causing widespread drought, disease and resource conflicts. These adversities hit the most vulnerable communities hardest, exacerbating existing inequalities and threatening livelihoods.

A transformative opportunity is there for the taking

The Baltic-Finland common gas market offers a transformative opportunity to reduce total gas demand and import needs, thereby mitigating regional geopolitical risks.

By advancing this transition, we not only address immediate environmental threats but also align with the EU’s broader environmental goals, setting a precedent for sustainable energy practices.

The time for action is now. We have a unique opportunity to secure a sustainable, equitable energy future for the Baltic-Finnish region and beyond. Delaying only compounds risks and costs, while swift measures promise a resilient, thriving future.

Policymakers must seize this moment to lead towards a cleaner, greener energy landscape.