A government ‘update to market’ for the ‘midstream’ gas industry, which delivers gas to homes and businesses within the UK, sets out some of the challenges to manage in decreasing gas use as we transition to low-carbon energy. It flags up the potential need for new financing models as the gas network shrinks and may be partially repurposed.
The update says in future gas will play a much smaller role in electricity generation and domestic heating, but there will be a growing role for carbon capture and low-carbon gases like hydrogen and biomethane. Carbon-neutral gas from green or offset sources will retain a role post-2050 for electricity security, but in a reserve role, with an expected 35 GW of unabated gas-fired reserve generation capacity. It says, “Our natural gas infrastructure will also continue to be a valuable asset in the future, with biomethane, carbon capture, usage and storage (CCUS) and hydrogen all emerging as potential components of a more sustainable, longer-term future for the gas network”.
The Department for Energy Security and Net Zero (DESNZ) flagged up three key transitional challenges:
Ensuring resilience of gas supply and infrastructure
The future gas market will be “smaller and more uncertain” and DESNZ says this can present commercial challenges, including for those operating key parts of midstream gas infrastructure (such as storage sites and import infrastructure). As gas demand falls, there will be opportunities for businesses in the gas industry to move into other parts of the energy system, including renewable electricity, CCUS, hydrogen and biomethane. As such, some infrastructure operators are evaluating whether to switch to other revenue sources, although precise demand for some of these alternatives is still uncertain. This adds an additional layer of complexity to our future gas supply.
The government will launch a consultation on gas system resilience in the autumn that seeks views on the need for government action and proposed interventions.
Balancing infrastructure investment and affordability
DESNZ said there was a need to maintain investor confidence to support ongoing maintenance and investment needed in the gas network, while managing the fair and distributed recovery of those costs with a gradually decreasing gas consumer base.
Currently, the cost of maintaining and operating the network does not fall in proportion to the number of users. Investors need confidence that they will get a fair return on their investment, including money already spent on the network. DESNZ says, “Combined, this could create a more challenging environment for investment and in the longer-term could increase the risk of higher costs for the remaining gas users. Therefore, it is important to ensure the right conditions for continued investment”.
It suggested that an alternative financial model may be used to complement or replace the existing model. It said making significant change is not feasible before 2031, when a new price review period begins. But said it will aim to decide on policy to inform investment recovery prior to that date. It must also consider how disconnection from the gas network will evolve.
The government will publish a call for evidence on network investment and affordability in the autumn that will seek views on alternative investment recovery options.
Managing a planned and orderly operational transition
DESNZ wants to repurposing gas infrastructure assets where possible, and decommissioning other assets where no longer needed, in a systematic and planned way.
It said there are various options for the future of the gas network, including its continued use with carbon neutral or negative gases like biomethane, repurposing part of it for hydrogen or carbon dioxide, and supporting demand for low-carbon technologies and their associated infrastructure. There may also be opportunities to repurpose pipework for other non-gaseous uses, such as acting as a conduit for new electricity and fibre optic cabling. But where repurposing is not viable, long-term consideration will be needed regarding potential decommissioning of gas network infrastructure.
The government aims to publish a call for evidence in 2026 that seeks views on how to ensure the transition is operationalised “in a way that is fair, planned and orderly”.