Since the start of the Covid-19 epidemic, the energy sector has been focused on oil market volatility and growing green energy technology.
Another important energy source has had a difficult decade. But, as it reaches new price records and becomes entangled in geopolitics, gas is making a comeback.
Gas prices in the United States have been historically low for more than a decade. They plummeted after the 2008 financial crisis, and the flood of shale gas has maintained them virtually usually below $3 per million British thermal units (Btu), or $17 for a barrel of oil. To alleviate the oversupply, a number of enterprises initiated efforts to export liquefied natural gas to the rest of the globe.
Prices have been greater in other places, but they have been typically limited. Asian LNG prices, which are traditionally decided mostly by reference to oil, fell along with crude in late 2014 and typically ranged between $5 and $10 per million Btu.
After Moscow’s annexation of Crimea in 2014, there was a problem over Russian supplies to Europe via Ukraine, although this did not result in serious shortages, unlike the 2009 cut-off.
China launched a programme to minimise pollution by converting from coal to gas, particularly for home heating, and expanded pipeline imports of LNG and gas from Central Asia and Russia.
Overall, a world that was concerned about running out of gas in the early 2000s, as it was with oil, got acclimated to abundant, cheap gas as a natural occurrence. The fundamental point of contention has not been price or availability, but rather the role of gas in the essential transition to low-carbon energy.
This era of complacency may be coming to an end, thanks to three factors: growing demand, a pause in production, and the Kremlin.
During the early stages of the Covid epidemic, gas was not as seriously affected as oil. Even if transportation has come to a standstill, residents still needed to heat and light their homes, as well as power their Zoom calls. Last April, Asian LNG hit a new low of $1.825 per million Btu. However, by January, it had recovered to a high of $32.50, or roughly $190 per barrel of oil equivalent, a figure never before attained by crude. The use of LNG in Asia to reduce pollution and fulfil local demand is mostly a Chinese tale. This year, China is expected to overtake Japan as the world’s largest importer of the fuel. Nonetheless, India, Pakistan, Bangladesh, and Thailand are key emerging demand regions. Another climatic aspect is the drought in Brazil, which has reduced hydroelectric generation and pushed the country scrambling for LNG shipments.
Last winter’s extreme cold drove up prices, but an Asian heatwave and air-conditioning demand kept the market heated into the normally milder summer season. Despite growing costs, gas remains appealing due to high coal prices and European carbon allowances. During the fallow years, supply was hit by certain unforeseen incidents as well as a lack of new project approvals. Falling US shale oil production has also lowered by-product associated gas output, which has helped boost the Henry Hub benchmark to $4.41 as of Friday – significantly above the $2.65 average since the 2014 oil price downturn.
After a fire in September, Norway’s Snohvit LNG plant will be shut down for a year and a half. Egypt, Algeria, Nigeria, Australia, Russia, and the United States have been underproducing due to a variety of technical issues and pandemic-related maintenance delays. Because of ongoing earth tremors, the Netherlands’ important Groningen gasfield is on track to close by 2023. In terms of future supply, the coronavirus has caused delays in major LNG export facilities in Canada and Mauritania-Senegal, and an insurrection in Mozambique has blocked two huge new projects, delaying them beyond 2025.
Then there’s Russia, the most perplexing aspect. Gazprom, Russia’s state-owned export monopoly, has reduced supply to Europe, arguing that it needed to fulfil domestic demand and replenish its stocks. A fire at the company’s massive Urengoy processing plant earlier this month also reduced output. However, there are allegations that Moscow has purposefully withheld supply in order to put pressure on Europe over its nearly built Nord Stream II pipeline. In July, the United States and Germany agreed to forgo sanctions over the pipeline in exchange for increased backing for Ukraine, which the pipeline is planned to bypass.
President Vladimir Putin cautioned Europe that once the present deal expires in 2024, it must declare how much Russian gas it wants through Ukraine, and that Kiev must demonstrate “goodwill” to keep the gas flowing. Because of the reduction in Russian shipments, European gas storage is at a decade low at a time when it should be building up in preparation for winter.
There will be some relief. LNG facilities will return from maintenance, and if October weather is mild, Europe may be able to fill its storage capacity in time. Winters in the Northern Hemisphere in 2021-2022 and 2022-2023 may still be subject to supply constraints. That is terrible news for the planet if it keeps coal burning in Europe and the United States while discouraging Asian countries from phasing out the filthy fuel. Gas from significant new LNG projects in the United States, Russia, Qatar, East Africa, and Australia is scheduled to enter the market in the mid-2020s. Competitive renewable energy will continue to cut into the power generation business, mainly in Europe and maybe the Middle East.
Meeting climate objectives will be difficult unless companies and power stations install carbon capture and storage technologies. The creation of “blue” hydrogen, on the other hand, and the power requirements of electric cars, can be sources of increased demand. That is something for the future. For the time being, governments’ and consumers’ expectations of perpetually abundant and inexpensive gas have been rocked. However, with long-term demand and competition so uncertain, only the most daring enterprises will embark on large-scale new investments.
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