Recent volatility in natural gas markets should not derail plans by large Asian consuming nations to increase reliance on the fuel, ministers and senior officials told the IEF Special Gas Market Dialogue.
Gas prices have hit new records in Europe and Asia recently, reaching levels equivalent to about $200 a barrel of oil, prompting big Asian consumers to question the wisdom of increased reliance on the fuel.
"The world is in the grips of the most serious energy crisis in over a decade," said Joseph McMonigle, Secretary General of the International Energy Forum (IEF), during the IEF Special Gas Market Dialogue 28 October. "In Europe and Asia, natural gas markets are on red alert with prices at record highs. And there is clear evidence of shortages across the world as demand continues to recover from the pandemic."
Nowhere is that quandary more explicit than in countries such as Bangladesh and India where natural gas is a key contributor to their growth plans. Bangladesh imports about 4 million tons of LNG annually, and its master plan was built around increasing annual LNG imports to about 30 million tons eventually to meet demand for electricity, which is growing at 10 percent a year.
"With this energy crisis, our pathway becomes very uncertain," said Dr Tawfiq e-Elahi Chowdhury Bir Bikram, Minister to the Prime Minister for Power, Energy and Mineral Resources Affairs of Bangladesh. "And it is not only an uncertain pathway, the crisis that might hit ordinary folks looms large. It's not only development that we're talking about in a very abstract sense. It is going to affect the lives of ordinary folks."
Even as renewable energy options have made important advances, the global energy mix has remained stable over the past 30 years with hydrocarbons accounting for near 80 percent of primary energy. The pandemic produced a momentary dip but demand is now rebounding fast and latest estimates show that the fourth quarter of 2021 may well exceed demand levels witnessed before the pandemic.
"India is dependent on imports to meet 85 percent of its oil needs and relies on overseas shipments to meet 55 percent of its gas needs. In such a scenario, artificially regulated high global energy prices are creating severe challenges for the country," said Shri Hardeep Singh Puri, Minister of Petroleum and Natural Gas & Housing and Urban Affairs of India. "We are confronting record high natural gas prices due to a combination of a strong and post-pandemic recovery in demand and unplanned supply outages, which have led to tighter markets."
Despite being a fuel with significant potential, natural gas has yet to achieve its deserved place in global energy markets, in part, because it has been demonized or dismissed as just another fossil fuel, officials said. But those attitudes are changing. Royal Dutch Shell's latest annual LNG outlook estimated LNG demand to double from 360 million tons in 2020 to 700 million tons in 2040.
It is that growth that has persuaded some that the golden age of natural gas has yet to be seen. "I'm convinced that gas consumption will be even higher than oil by 2040 plus," said Patrick Pouyanné, Chairman & CEO of TotalEnergies. "You will see that energy will continue to go up. So, having said that, we also know that there is volatility. But I think it should be a time where we engage in a dialogue on both sides to try to see if we could protect the consumer."
The World Bank's latest Commodity Markets Outlook forecasts that natural gas and coal prices are expected to be more than 80 percent higher, on average, in 2021 compared to last year and will remain at high levels in 2022. High natural gas prices have ripple effects on wider energy costs, pushing prices up, impacting other sectors from factories to utilities, and leading to fuel substitution, noted H.E. Puri, adding that if "energy prices remain high, the global economic recovery will be undermined."
For India and Bangladesh, two countries with relatively low carbon footprints, the answer to the pricing dilemma today is building new relationships with gas suppliers in the future. Dr. Chowdhury suggested that developing countries would benefit from a kind of insurance policy that would guarantee their minimum gas requirements be met every year.