BAKU, Azerbaijan, Oct.13
By Leman Zeynalova – Trend:
The immediate period of higher prices is expected to be temporary, not least because of the planned expansion of LNG export capacity following a record year for project final investment decisions in 2019, but the potential for supply-demand imbalances and price volatility in the coming years remains strong, Trend reports with reference to the International Energy Agency (IEA).
Natural gas has experienced an even sharper increase in prices in 2021 than oil, driven by a combination of circumstances that included a strong recovery in demand in Asia and Europe (leading to strong LNG demand from Asia), unseasonal weather and planned and unplanned capacity outages, IEA said in its World Energy Outlook 2021.
In the Stated Policies Scenario (STEPS), higher natural gas demand and the rise in oil prices (for oil-indexed supply contracts) exerts some upward pressure on natural gas prices. Demand growth in China, India and elsewhere in Southeast Asia continues to support prices in those regions through to 2050, giving signals for incremental export capacity growth to established producing regions such as Australia and the Middle East as well as to emerging exporters in East Africa. In Europe, near-term prices are buoyed somewhat by headwinds facing competing sources, with the retirement of coal and nuclear plants.
In the Announced Pledges Scenario (APS), the pursuit of net zero targets translates into a sharper decline in natural gas demand in several major gas importers such as Japan, Korea and the European Union, leading to a flat or declining gas price trajectory in those regions. Henry Hub prices stay in the USD 2-3 per million British thermal units (MBtu) range as domestic demand in the United States falls sharply, while a small upside from coal-to-gas switching in Europe quickly dissipates as prices settle around USD 6.50/MBtu. The surplus in internationally traded gas that results from lower European import requirements means that prices do not rise as strongly as they otherwise would in places such as China.
In the Net Zero Emissions by 2050 Scenario (NZE), no new fields or export projects are developed, and natural gas prices fall to the marginal cost of delivering LNG from existing and under-construction projects, which require ongoing investment to sustain the required output. There is some temporary price support for gas as oil demand falls away more quickly than in the STEPS or APS and reduces the volumes of associated gas reaching the market. Natural gas becomes the largest fossil fuel in the energy mix by the late 2040s, and its discount to oil prices is progressively eroded.
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