Germany’s gas exit under way as challenges in heating and industry linger

“We are at a turning point. This is the last battle of the fossil fuel era,” German state secretary Jochen Flasbarth told a group of journalists at the sidelines of the first Conference on Transitioning away from Fossil Fuels in Santa Marta, Colombia, in April. Against the backdrop of the ongoing energy crisis caused by the war in Iran, there could have been no better time for almost 60 participating governments to call for ending fossil fuel imports and accelerating renewable energy expansion.

“People around the world have understood that we are too dependent and vulnerable, and that if we want to become resilient, we have to move to renewables,” Flasbarth said at the summit.

On stage, Germany’s foremost climate diplomat threw the country’s weight behind global efforts to move away from coal, oil, and gas, and advised other countries to act before it’s too late. “If we had started earlier, it would have been cheaper – economically and also politically,” Flasbarth said.

But at home in Germany, his government stands accused of weakening the transition. Just days earlier, activists from the Fridays for Future movement took to the streets to call for a gas exit, accusing the government of introducing policies that benefited the sector. The protests have continued since, and the demands for halting new gas infrastructure development and speeding up the fuel's phase-out have taken the spotlight.

Official emissions projections by the German Environment Agency (UBA) have shown that additional measures and policies are needed to ensure Germany reaches its climate targets. Chancellor Friedrich Merz’s ruling coalition has committed to these targets, and renewables expansion remains the government's most crucial measure. 

However, the current coalition also supports allowing new gas extraction in the North Sea, plans state support tenders for additional gas-fired power plants, and intends to drop a renewable energy obligation in the heating sector and replace it with an increasing share of biofuels and hydrogen – all policies with the potential to lock in fossil fuel infrastructure for decades.

In addition, critics argue that planned legislation on electricity grid access and cutting state support for new renewable energy installations risk markedly slowing the transition. The government has argued that these policies are aimed at reducing the costs of the transition. 

“Whilst Germany is developing plans for a world without oil, gas or coal as part of the ‘coalition of the willing’, the federal government’s energy, heating and transport policies at home are actually holding back this transition,” said Greenpeace Germany head Martin Kaiser after the conference in Colombia.

About a month later, in May, government-owned energy company Securing Energy for Europe (SEFE) announced a tentative deal to buy one million tonnes of liquefied natural gas (LNG) annually from a supplier in Canada. Deliveries are expected to begin by the early 2030s for up to 20 years. 

Asked about how this fits with Germany’s 2045 climate neutrality target, SEFE argued that Europe will continue to need gas supplies to meet industrial demand and to complement renewable energy generation. The company pointed to the contract provision of so-called ‘free-on-board’ (FOB) deliveries. These “give SEFE the flexibility to direct supplies where they are most urgently needed, particularly should European demand decline in the long term,” a spokesperson told Clean Energy Wire.

Despite these developments, experts say Germany’s transition away from fossil fuels is well underway. Driven by the market, the country’s coal phase-out remains on schedule – even if the Iran war, energy crisis, delays to replacement capacity, and questions about earlier closure commitments are testing the resilience of the coal exit compromise between industry, unions, governments and civil society. A recent increase in electric vehicle (EV) registrations has given rise to hopes that e-mobility, a slow starter in Germany, will eventually drive oil – which is predominantly used in road transport and continues to be Germany’s most important energy source – out of the energy mix.

And fossil gas?

“The phase-out of gas is in full swing, both in Germany and across Europe,” said Andreas Schröder, head of energy analytics and gas expert at energy market intelligence service ICIS. 

Gas is the second most important energy source in Germany, after oil. Energy consumption data shows that the share of gas in Germany’s mix last year reached its highest since at least 1990, at 27 percent. 

But Schröder said overall gas demand has been dropping since at least the onset of COVID in 2020 and has been pushed down further by the energy crisis in the years following the pandemic. High prices meant that households and companies saved energy and made efficiency investments, while they also caused production declines, especially in heavy industries. Colder temperatures led to a temporary recovery in German demand for gas in 2021. But Schröder also points to structural changes, such as the uptake of heat pumps, which replace old gas boilers in new and existing buildings. 

According to Schröder, Europe’s gas demand in 2025 was more than 20 percent below the long-term average for 2017–2020, prior to the war in Ukraine. “And it continues to fall in small steps,” he told Clean Energy Wire. 

While there is a downward trend, not all is going well. 

Progress is too slow in industries with long investment cycles, where the gas infrastructure is already in place and has been written off, and oil and gas are comparatively cheap, Schröder said. Fossil fuels are widely available, easy to extract and transport and, in the LNG market, energy analysts soon expect a “glut of supply on a historic scale”, which would keep gas prices low for many years, “barring wars and conflicts”, he said.

Industry and the government have long seen fossil gas as a “bridge fuel” for the energy transition. Proponents say it is a fuel for the remaining decades until sufficient non-fossil alternatives – such as gases based on green hydrogen – are available, and one that can be used to bridge times of little wind or sunshine to generate electricity. “There is a consensus that gas will be needed for a transitional period,” German environment minister Carsten Schneider wrote in a recent op-ed in Frankfurter Allgemeine Zeitung. 

Chancellor Merz has emphasised that current plans to build new gas-fired power plants do not imply that his government is leaving the path of the energy transition. “This does not mean turning our backs on renewable energy, nor does it mean returning to fossil fuels,” he said. However, for now, providing a secure electricity supply would not be possible without gas-fired power plants, Merz added.

The new gas-fired power plants are unlikely to significantly increase gas demand. The units are meant to guarantee supply security during periods of insufficient renewable electricity feed-in, so they will not run very much – lacking a business case for operators. That is why the government introduces the auctions for state support to incentivise the investments in the new plants.

Merz's government sees massive renewables expansion and electrification across all sectors as the key to reducing the need for gas. It presented a comprehensive programme of climate action measures in March, including new onshore wind tenders. 

“We agreed on the installation of an additional 12 gigawatts of onshore wind energy, and every new renewables installation will reduce the demand for gas,” Flasbarth told Clean Energy Wire in Colombia. 

While the direction is set, the shape and pace of the move away from gas – and even the final target – are not. 

“Germany has no roadmap on how to tackle the phase-out of gas and oil, what the implications would be for different parts of society, how it will be enacted, what it costs, or who will pay,” said Pao-Yu Oei, who researches the economics of a sustainable energy transition at Europa Universität Flensburg (EUF).

The researcher travelled to Colombia to attend the conference as part of an international group of academics and to present a report with “12 action insights” for how countries can transition away from fossil fuels. They called on governments to develop “holistic plans” for the transition. 

While Germany managed to bring together stakeholders from industry, government, trade unions and civil society in 2018 to agree the coal exit compromise, which led to the coal exit legislation, the country has no gas exit law or end date for its use. 

The target to become climate neutral by 2045 will largely end gas use by that year, but Germany can continue to use gas if greenhouse gas emissions are captured or offset elsewhere. 

Gas consumption projections for 2045 vary widely, with some still seeing the country use about a third of today’s levels – mainly in industry – and failing to meet its climate target. Gas consumption has recovered since the significant dip during the energy crisis of 2022 and 2023 but is not back to pre-crisis levels. Gas use is projected to fall until 2030, except in electricity generation and district heating, where coal plants are progressively being taken off the grid.

“Phasing out gas or oil is much more complicated than phasing out coal,” researcher Oei explained. The coal exit had to be managed well, especially in regions where large parts of the economy depended on extraction. However, coal is used in big power plants to generate electricity and heat, and replacing these with a large number of smaller renewables installations has little impact on consumers, Oei said.

For gas, the situation is vastly more complex, starting with the heating sector.

“To transition away from gas, millions of people need to make changes within their homes, from installing a heat pump to adapting to new heating patterns, or no longer having radiators to dry your towel on,” Oei said. “You might need to open streets to lay new pipes for district heating, old buildings might be protected as historical monuments, so there are lots of challenges.” 

Germany's building sector has repeatedly missed emissions targets, with the slow move to climate-friendly heating, and lagging energy-efficient retrofits as the main reasons. More than half of households in Germany have gas boilers for heating, and more than a third of district heating is also fuelled by gas. 

But things are changing at a structural level. Among newly installed heating systems, heat pump sales last year overtook gas boilers for the first time. In new buildings, heat pumps have been the best-selling heating technology for several years. They are very efficient, and experts agree that they are the most promising way to achieve climate-friendly home heating.

Germany’s ageing building stock must urgently be modernised. It is relatively easy to outfit single-family homes in less densely populated areas with the technology, but cities remain difficult to decarbonise. 

“One of the biggest challenges arises in densely populated areas with older buildings that are not easily suited to heat pumps, where the electricity distribution network may also be reaching its limits in terms of available capacity, and where there is no existing district heating network,” explained Heiko Lohmann, author of the information service Energate Gasmarkt. “Thus, it would be naïve to think you could end gas consumption in the short term.”

More than half of the population in Germany are tenants. As such they have little influence on switching their heating systems. For several years now, landlords have had to pay a share of the carbon price on their tenants’ heating bills to increase the incentive to install non-fossil fuel heaters. The government plans to also have landlords share in the additional operating costs of a new fossil fuel heater, which are caused by grid fees, the CO₂ price, and the costs of green fuels, which will have to be increasingly added to natural gas according to government plans to decarbonise heating.

Homeowners, meanwhile, often cite additional renovation needs and heat pump unit and installation costs as prohibitive reasons against switching away from their fossil fuel boilers. However, calculations by energy consultancies and price comparison services have shown that heat pumps are more economical, especially in the long run, due to rising CO₂ prices and gas grid fees. 

These network charges are set to rise significantly. As more and more households are expected to switch to other heating technologies over the next 20 years, fewer customers would foot the bill for maintaining gas distribution grids. 

Germany’s gas transmission and distribution grid measures a total length of around 600,000 kilometres, the largest part of which will very likely become unnecessary in a climate-neutral energy system, according to the government’s key energy transition advisors. Germany faces the dual challenges of phasing out the gas grid to avoid huge costs for remaining consumers while ensuring the infrastructure is sufficient to guarantee supply over the coming 20 years. 

To avoid skyrocketing costs for the last gas users, cities and municipalities need to plan their phase-out of gas well in advance and prepare households to transition to renewable heat sources, the NGO Umweltinstitut München (Munich Environment Institute) has said. 

A reform to allow operators of gas grids to shut these down and disconnect users – as required by EU regulation – is currently being debated in parliament. Local utilities had complained about the regulatory uncertainty and called on the government to make necessary changes. Until now, operators lack the legal basis to disconnect consumers. “It’s even worse,” Gabriël Clemens, chief executive of energy supplier MVV Energie AG recently told Clean Energy Wire. “If a new customer wants to have a connection to the gas grid, we have to connect them.”

The gas grids have been a reliable source of revenue for the operators – often local utilities that also operate public infrastructure such as swimming pools, or local public transport facilities, which directly supports community life.

“The fossil fuel infrastructure underground often represents most of the utilities’ value,” said researcher Oei. “If you end gas heating, the thousands of kilometres of gas grid become worthless.”

Regulators are addressing this. A recent reform allows grid operators to demand higher network fees in the coming years, so that their grids can be depreciated earlier – helping operators to recoup their investments ahead of schedule, and avoiding a scenario in which the remaining users in the 2040s must pay horrendous fees. 

Industry is the second major hurdle to the gas exit. The latest official emissions projections for the coming two decades by the German Environment Agency (UBA) show that current policies are “insufficient to ensure the long-term transformation” in industry, with the lagging replacement of fossil fuels as a key reason.

Germany continues to be home to major heavy industry players in sectors such as chemicals, steel, and glass, many of which need gas to operate. Until 2022, these benefitted from cheap Russian pipeline gas, which had bolstered domestic production for years. That ended with the start of Russia’s war against Ukraine in 2022. Industry gas consumption dropped as companies scaled back production and increased efficiency where possible. Wholesale gas prices have remained far above pre-crisis levels ever since. 

Domestic industry is also facing other important challenges, such as new competitors from countries like China or India, comparatively high labour costs, regulatory disadvantages, and lagging adaptation to new technologies like electric mobility.

“Germany sometimes clings too tightly to its old ways, and it costs us economically,” said Green Party parliamentarian Michael Kellner, highlighting the country’s attachment to combustion engine cars as a key example. “That is industrial policy failure,” he told Clean Energy Wire in Colombia, warning that the hydrogen economy is next. 

“The hydrogen hype has largely fizzled out, and Germany has become very hesitant,” he said. Denmark, by contrast, was much further ahead and investing heavily. “The question is now: who will capture the business?”

The issue is decisive for Germany’s gas exit because hydrogen is seen as a crucial replacement in efforts to decarbonise industry.

While the heating transition is challenging mostly on a social and political level, “phasing out gas in the industry sector is most complex from a technical perspective”, said researcher Oei. Many companies need gas as feedstock in their production processes, for example in the chemical industry. Others use it to generate very high temperatures, where electrification remains difficult, he explained.

Green hydrogen produced through electrolysis, using renewable electricity, can be a solution. It can generate high temperatures when burned, without producing carbon emissions. And it can be combined with carbon to produce synthetic methane. Depending on the origin of the carbon, the fuel could be climate neutral – for example if it has been captured from the atmosphere.

Germany has made green hydrogen a centrepiece of its industrial decarbonisation strategy, but the sector has struggled to move from pilot projects to full commercial scale. High production costs, weak demand, and infrastructure uncertainty continue to hold back the sector, and the fuel will remain a scarce and expensive resource.

Green Party MP Kellner has criticised government plans to reform heating rules for what he sees as a misuse of these scarce resources. “Biomethane or synthetic methane, produced using green hydrogen, is needed [in industry],” he said. “It is far too valuable a resource to be blended into the gas grid for households to burn for heating or cooking.”

Industry players have warned that green hydrogen is set to remain prohibitively expensive for some time, and that switching from fossil gas-based production to green hydrogen often entails additional investments.

In many cases, entirely new production methods are required to eliminate emissions from gas use in industry. In light of long investment cycles, companies must make decisions today. The government already has mechanisms in place to supports these efforts. It recently launched a new round of a state aid scheme to push investments by energy-intensive industrial companies in low-carbon production processes, earmarking up to 5 billion euros. The European Union has also set up additional support structures, such as the hydrogen bank auctions. 

In the end, it remains to be seen whether certain industries that relied on large amounts of fossil gas in the past will have a future in Germany. Already, major consumers like chemicals company BASF have slowly increased production in more promising world regions like Asia, as demand in Europe decreased and energy prices rose in recent years. 

The availability of renewable electricity is a major factor dictating the cost of green hydrogen. Germany’s conditions for renewable electricity production do not compare favourably with other parts of Europe and the world, so the country will depend on imports. This could push certain industries to move production away from Germany, unless state subsidies can improve their outlook, if the government decides that they are strategically important sectors.

The hurdles for Germany’s gas exit in industry and heating therefore remain high. Asked about whether Germany will manage to largely phase out fossil gas by 2045, energy market analyst Schröder said: “To a large extent, yes, but not entirely. A complete phase-out of gas is still a long way off.”