Norway’s offshore investors stand to gain from Germany’s plans to phase out coal-fired power generation, with demand for Norwegian gas exports forecast to rise in response.

Following a months-long review of Germany’s coal sector, a government-appointed special commission announced its conclusion on January 26 that Germany should gradually shut down all 84 of its coal-fired power plants by 2038.

The proposal sends "a very strong signal that demand for gas in Germany will increase and that there will be also a stronger demand for Norwegian gas," said Karl Eirik Scjoett-Pedersen, the head of the Norwegian Oil and Gas Association, on January 28. "It’s the signal for the companies to invest more in gas production."

His comments come just days after a senior Equinor official – anticipating the German proposal to phase out coal – said that gas was the only viable alternative for coal and that Germany’s demand for the fuel should therefore increase.

Given that Germany is also aiming to shut down its entire nuclear power fleet by 2022, the vacuum left by an additional coal phase-out will be too big for renewables to fill quickly, meaning the country will become increasingly dependent on gas, said Irene Rummelhoff, Equinor’s executive VP of marketing, midstream and processing. She also noted that the residential heating and public transport sectors in Germany would need more gas.

"I think it could be an increasing market for us going forward," Rummelhoff said. "The quicker the phase-out [of coal], the stronger the demand for gas as I see it, because there is no other viable alternative."
Germany relied on natural gas last year for 12.8% of its gross power generation, compared with more than 33% for coal. Gas also accounts for nearly a quarter of Germany’s primary energy consumption, mostly for heating and cooling in households and public buildings and for process heat in industry.

But the speed of Germany’s coal phase-out remains unclear. The country’s ‘coal’ commission proposes that the timetable and targets should be reviewed every three years and that a final exit could, if possible, be brought forward to 2035. This would indeed accelerate Germany’s gas demand and could drive up regional prices for the fuel.

German Economy and Energy Ministry Peter Altmaier said earlier this month, however, that the country’s nuclear phase-out might necessitate it keeping at least half of its coal-fired plants running until 2030. And even if Germany’s gas demand does ramp up, Norway will face strong competition from Russia, particularly if the Kremlin-backed Nord Stream 2 pipeline project becomes a reality.

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