Demand for natural gas in Europe is extremely unlikely to expand over the next decade. That said, S&P Global anticipates that gas will remain an important part of the European energy mix during the next decade. Most countries plan to retire very large coal and nuclear generation capacity and their energy mix will still need options that complement intermittent renewables.
- Gas will remain a key European energy source for decades, but growth is likely now over and decline looks inevitable.
- S&P Global Platts Analytics expects demand for natural gas in Europe to decrease by 0.3% per year on average over the next decade.
- Even if large producers and well-diversified utilities are not downgraded because of the pandemic pressures in 2020, simply lowering debt and leverage may not offset increased longer-term business risks associated with these changes.
S&P Global Ratings and S&P Global Platts Analytics today published a jointly authored report on the European gas market (see "As Europe's Gas Markets Slowly Stall, Gas Producers' And Utilities' Business Risks May Rise").
S&P Global Platts Analytics expects accumulated demand decline of 11.5 billion cubic metres in 2020-2030. Although carbon dioxide emissions from gas are about 50% lower than those from coal, this is not enough to make gas compatible with Europe's decarbonization targets and with the EU Green Taxonomy. Implementing the European Green Deal and rolling out green-focused, post-COVID-19 economic recovery packages will further constrain demand growth potential for gas, as will an increasing focus on energy security and the gradual development of energy storage.
Although S&P Global Ratings considers that large players rated 'BBB-' or above will be able to manage the rating pressures specific to 2020, strategic shifts have been triggered. Europe is ahead of many regions in energy transition, which increases longer-term business risks for the gas industry.
At present, regulated gas transmission and distribution companies still benefit from supportive and very predictable regulations, which underpin their resilience. Despite this, we anticipate that they will need to reduce their financial leverage if they are to maintain ratings at the current level. There are limited growth prospects for gas infrastructure, and alternative growth paths, like diversifying into hydrogen, carry technological and regulatory uncertainties. Regulatory pressures in several countries, such as Spain and the U.K., are also rising.
This report is a thought leadership report that neither addresses views about ratings nor is a rating action. S&P Global Ratings and S&P Global Platts are separate and independent divisions of S&P Global.
This report does not constitute a rating action.