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Fuel Substitution in European Transport

LNG in transport gains momentum but still faces significant hurdles

 

At the 2015 World Gas Conference in Paris, several major oil, gas and energy companies said they would work towards an energy system in which natural gas and renewables play a bigger role, notably in the transport sector. Although the sharp drop in oil prices has reduced land and marine transport fuel costs, Liquefied Natural Gas (LNG) prices have also fallen – partly because of a growing LNG glut but also because of indexation of LNG prices to oil prices. In this paper, IPA examines the dynamics of fuel substitution in the European transport sector. It concludes that gas can be competitive in the transport sector, but that volatility between oil and gas prices means that government and regulatory support, fiscal incentives, or a higher carbon emissions price would be desirable for gaseous fuels to be more widely and rapidly adopted.

 

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