Natural Gas Demand Outlook to 2050

The natural gas market is facing fundamental changes as part of the global energy transition, which entails a drastic decrease of fossil fuel deployment. Natural gas constitutes about a quarter of primary energy use, both in Germany and in the European Union (hereafter the EU). This is bound to change as Germany has pledged to achieve net-zero emissions by 2045, followed five years later by the EU.

Energy markets have recently undergone significant turmoil following the Russian attack on Ukraine and the subsequent stop of Russian natural gas deliveries to the EU. Against this backdrop, some governments have started to consider the option of (re)engaging support for new natural gas projects, despite previous commitments made at COP26 in 2021 to end international public financing of unabated fossil fuel projects.

An assessment of natural gas demand for the next decades is critical to appraise supply needs and their implications for new gas exploration and production projects globally.

Natural gas use in Germany and Europe is decreasing drastically

The Deloitte and Öko-Institute outlook leverages the DARE model (see box below) to explore the energy system in Germany and the EU. The analysis is based on a data-driven and scenario-based approach in which EU member states succeed in delivering their climate commitments.

The results show that natural gas is losing momentum in the German and EU energy systems on the transformation to net zero. Natural gas demand declines by more than a quarter in Germany and the EU by 2030 over 2018 (reference year in the modeling, see details in Figures 1 and 2), and 80% by 2050 (95% in Germany). The gradual phase-out of all fossil fuels, including natural gas, is compensated by the sustained deployment of renewables, increased electrification, the dawn of the clean hydrogen market and its derivatives, and efficiency measures.

Natural gas consumption diminishes across all sectors, with residential and tertiary buildings contributing to about half of the decline by 2030, leveraging abatement options such as thermal retrofits and heat pumps. Decarbonization efforts gain momentum in the power sector, with a rapid phase-out of coal and fast-paced deployment of renewables. Natural gas use significantly declines in industry from 2030 onwards, prompted by access to low carbon electricity, clean hydrogen technologies, and biomass. These results are in line with recent energy outlooks at the German and EU level, despite varying views on technologies, policy options, and the economic outlook.

Natural gas is also losing momentum on the global pathway towards climate neutrality

At the global scale, a review of more than 30 recent modeling projections reveals that in almost all scenarios compatible with keeping global warming below 2°C, the share of natural gas in the energy mix significantly decreases by 2050, with a demonstrable shift towards carbon-free energy carriers. For industrialized countries, pathways compatible with limiting global warming to 1.5°C show a 20% to 40% decline in natural gas use by 2030 compared with 2020 levels, followed by a strong phase-out down by mid-century. For the rest of the world, consumption stabilizes at current levels before significantly decreasing from 2030 onwards, reaching a 40% to 50% drop in 2050 as compared with today’s demand.

Under the mainstream gas-consumption trajectories that are consistent with limiting global warming to 1.5°C, proven natural gas reserves are estimated to be at least twice as high as cumulative natural gas demand by 2050. If all reserves were to be completely burned and the resulting CO2 released into the atmosphere, this alone would most likely cause an increase in the global mean temperature of 1.5°C or more above preindustrial levels.

Investment in new natural gas projects at risk of ending up stranded

New investment decisions in natural gas production projects located outside the EU and targeting the German and EU market thus raise several risks. With an operational life that typically spans several decades, new projects hardly comply with the Paris Agreement targets. As such, there is a major risk that newly developed projects, especially if primarily aimed at exporting natural gas, end up stranded. Besides, government support from EU to natural gas projects abroad would blur their commitments to promote the global energy transition. It could also encourage beneficiary countries to embark on a development trajectory that would be either unsustainable or incompatible with curbing global emissions.

For more information, please download the study “Natural Gas Demand Outlook” here.

Our analysis builds on the DARE model, which provides a detailed view of the joint evolution of major energy-consuming and energy-producing sectors in Europe

DARE is a bottom-up energy system model featuring highly detailed and data-driven tool-optimizing pathways towards climate neutrality by 2050. The model represents the interconnected energy system of all EU countries, the United Kingdom, Switzerland, and Norway, enabling exchange between the neighboring countries. This optimization relies on several sets of data and policies including (1) data-driven demand prospects for energy-consuming activities such as cement and paper consumption, residential heating, passenger car travel, and others (2) techno-economic datasets providing technology costs and characteristics, resource availability, and policy roll-out, and (3) political constraints, such as achieving carbon neutrality by a certain date.

Based on this input, DARE determines a cost-efficient mix of technologies to meet total energy demand and provides a comprehensive view of the entire energy value chain including primary energy sources, transformed energy carriers (such as electricity and hydrogen), and many final uses in buildings, industry, and transport. In each end-use sector, competing technologies are evaluated, and an optimal mix is selected to satisfy total final demand at least cost. For instance, the power sector is modeled with great spatial and temporal granularity to account for local specificities, national strategies, storage options (such as batteries, hydrogen, and pumped hydro), and power interconnections.

Finally, a carbon value chain offers the possibility to capture, store and use carbon (for instance in e-fuels or chemicals production) from various end uses. Options include carbon capture and storage units as well as direct-air-capture, in accordance with EU regulation.