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    Netherlands Gas Consumption Forecast


    September 27, 2022 - Fitch Solutions Sector Intelligence

     

      • Oil & Gas
      • Netherlands
      • Industry Forecast
      • Fitch Solutions

      Netherlands Gas Consumption Forecast

      • 27 Sep 2022
      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Key View: Gas consumption in the Netherlands will slowly decline throughout the forecast period. This is due to the drive towards increased energy efficiency, the increased use of renewable and nuclear energy for power generation and the stagnating consumption in the industrial and residential sector.

      Latest Updates
      • As expected, gas consumption growth is in negative territory, with demand depressed by a range of factors, not least high prices and an accelerated shift to alternative fuels. JODI data for the first seven months of 2022 signal a steep 24.9% y-o-y drop. We currently forecast consumption to drop by 18.0% for the year as a whole, falling by another 2.0% in 2023.
      • The Dutch benchmark gas price Title Transfer Facility (TTF) has risen precipitously over the past 18 months, rising from an average of EUR9.6/MWh in 2020 to EUR47.7/MWh in 2021 and putting increased pressure on consumers amid broader inflationary pressures.
      • Prices have seen a further increases in the year-to-date, following Russia's invasion of Ukraine. TTF rose as high as EUR311/MWh at its peak in August, although has since retreated somewhat, to around EUR200/MWh at the time of writing.
      • Our longer-term outlook remains heavily bearish, as the government seeks to reduce the share of natural gas in the domestic energy system and displace it with green fuels, such as green hydrogen.
      Structural Trends

      Overall gas consumption has levelled off since the early 2000s, on a slow but downward trend due to a slower economy, the growing role of renewable energy and an increasing drive towards energy efficiency. According to the Ministry of Economic Affairs, natural gas stands for just above 40% of total primary energy consumption in the Netherlands, one of the highest rates in Europe. The residential sector accounts for about half of gas consumption, industry about 30% and power generation about 15%. Gas consumption in the Netherlands will slowly decline throughout the forecast period. This is due to increased energy efficiency, increased use of renewable and nuclear energy for power generation and declining consumption in the residential sector, as an increasing share of houses are disconnected from the gas grid.

      Deep Demand Destruction Underway
      Netherlands - Gas Production & Consumption Forecast (2020-2031)

      e/f = Fitch Solutions estimate/forecast. Source: EIA, Fitch Solutions

      Power Generation

      In 2021, about 66.0% of electricity was generated by gas power plants, according to our Power analysts. While gas-powered generation will continue to make up for a large part of total electricity consumption, its share in total electricity generation will decline slowly over our forecast period on the back of the increasing role of renewable and nuclear energy.

      Our Power team does not expect gas-fired power generation to return to historic output levels. The steady influx of subsidy supported renewable energy, in the form of imports from Germany and domestic renewables power generation capacity growth has suppressed wholesale electricity prices to the extent that gas generators struggle to make money. They see little scope for a revival in natural gas-fired power over the coming decade. The profitability of gas-fired power has been under considerable pressure and has resulted in the contraction in gas-fired power generation over recent years.

      This contraction will continue over the coming decade, with gas power generation falling from an estimated 66.6% of total electricity generation in 2021 to about 53.5% in 2031. This view is attributed to the return of low wholesale electricity prices and further downward pressure coming from increased growth in the Dutch renewables industry.

      Industry

      Gas consumption from the industry has been slightly weaker over the past years. This is a direct result of weaker industrial activity during the economic crisis. A return of moderate (2.0%) annual real GDP growth average over the duration of our forecast period should stimulate increased industrial activity and gas consumption. At the same time, however, this will be partially offset by increasing energy efficiency measures, which is leading to demand destruction. In the long term, the falling gas production outlook for the Netherlands could see industries look to a long-term alternative to gas. However, this remains a long-term possibility, which falls outside our forecast period.

      Residential

      Currently 98% of households are connected to the gas network, but this percentage is set to fall. In 2018, the government determined that no new households would be connected to the gas grid effective that year. By 2030, it aims for 1.5mn existing homes to have been disconnected from the grid, while all buildings in the country must use non-fossil fuel energy sources by 2050. Progress towards the target has been slow to date, with fewer than 10,000 houses having been retrofitted to use carbon-free energies over the past two years. All of the country's 355 municipalities are have been required to put in place transition plans by the end of 2022.

      Gas Consumption (Netherlands 2020-2025)
      Indicator 2020 2021 2022f 2023f 2024f 2025f
      Dry natural gas consumption, bcm 44.0 42.2 38.0 37.2 36.5 35.4
      Dry natural gas consumption, % y-o-y -1.6 -4.1 -10.0 -2.0 -2.0 -3.0
      f = Fitch Solutions forecast. Source: EIA, Fitch Solutions
      Gas Consumption (Netherlands 2026-2031)
      Indicator 2026f 2027f 2028f 2029f 2030f 2031f
      Dry natural gas consumption, bcm 34.3 33.3 32.3 31.3 30.4 29.5
      Dry natural gas consumption, % y-o-y -3.0 -3.0 -3.0 -3.0 -3.0 -3.0
      f = Fitch Solutions forecast. Source: EIA, Fitch Solutions
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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