13.02.202323:52 Forex Analysis & Reviews: Gas-hydrogen blending reduces LNG demand in Europe

A German project aimed at boosting clean energy for home heating expects to hit a key milestone.

Successful tests confirm good prospects for the market for heating blends consumption, which means LNG prices will be adjusted to reflect this.

The project by Netze BW is the first of its kind in Germany to supply the blended gasses to households and the test site in the south-west town of Oehringen which the firm hopes could serve as a blueprint for the rest of the country.

Against the backdrop of the Ukraine-Russia conflict, the EU is stepping up its efforts to move away from fossil fuels and reduce carbon emissions. In particular, Germany is seeking to produce "green" hydrogen which is extracted using wind and solar power via electrolysis. Europe's largest economy aims to eventually replace natural gas, especially from Russia, and create a new value chain for green hydrogen, which is expected to rely on imports and domestic production.

Producers of such energy plan to store the gas or transport it to consumers on existing and a minority of new gas grids. And so the implementation will not require significant costs: the conversion of Germany's enormous gas infrastructure to serve homes and industry can work without interruption.

A key milestone is expected: 30% "green" energy blended with natural gas heating some households south-west of the country within weeks, the company behind the project said. Next, the company is interested in expanding the blended technology.

The Oehringen "hydrogen island", an area in a town near Heilbronn with detached family homes, has been receiving a mix of natural gas plus gradually more hydrogen from its pipeline operator Netze BW since autumn 2022, according to the project.

"Within the next two weeks, we will raise the share from 8% to 20% and two weeks further on, we will get to 30% in the households," project leader Heike Gruener told Reuters during a visit. Netze's adjacent regional offices in Oehringen got the blends ahead of the homes, reaching a 30% mix already last summer.

The blending takes place at the Netze BW site using bought-in renewable power, which is put through an electrolysis plant.

Consumers involved in the experiment note that there is no noticeable difference in the use of the blends. If Germany, the EU's leading economy, which consumes significant quantities of natural gas liquids every year, is able to significantly reduce its purchases, it would drop the price of LNG futures as early as this summer.