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The future of gas appears uncertain as demand and prices decline.
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The future of gas appears uncertain as demand and prices decline.

This week, two large ships filled with liquefied natural gas (LNG) will sail into the Milford Haven Waterway to deliver their cargo at the South Hook gas terminal in western Wales.

As the Wilpride and Stiklestad, originating from the United States and Norway respectively, arrive at the dock, top officials from the energy industry will convene in London, 200 miles away, during a critical time for the gas industry.

The yearly Energy Week convention will bring together executives at a hotel in Mayfair to discuss the contentious issue of oil and gas companies’ shift towards low-carbon energy. In the previous year, the former BP CEO Bernard Looney (who has since been ousted) defended the company’s investments in fossil fuels amidst loud demonstrations outside. Later, activists set off a smoke bomb at a formal dinner, causing executives to exit onto the street and face the protesters.

The event will feature the top economists from BP and Shell, as well as the leaders of Engie from France, Octopus Energy from the UK, and Vitol, a major oil trader. Ed Miliband, the shadow energy secretary, will also be present, representing the Labour party which has faced criticism for reducing funding for its environmentally friendly initiatives.

One of the main topics of discussion at the conference will be the role of natural gas in the transition to renewable energy, and the effects of decreasing wholesale prices. In the past few weeks, European gas prices have dropped to levels not seen since February 2022, when Russia’s invasion of Ukraine heightened an already growing energy crisis. Gas is currently being traded at €23 per megawatt hour, the lowest it has been since May 2021, a significant decrease from its peak of €319/MWh in August 2022.

There are many reasons for this. According to Tom Marzec-Manser, who leads global gas analytics at ICIS, the demand for gas in Europe is still very low due to a mild winter. Typically, a lot of gas is used for heating homes and businesses in Europe, but this has not been the case this year. Additionally, the weather has been warmer and windier, leading to a decreased need for gas-based power plants to produce electricity. This has allowed the struggling wind energy industry to play a role. As a result, the storage levels in Europe’s gas facilities remain high.

Nuclear power production has returned to almost pre-outage levels in France, resulting in a decrease in gas consumption. Concerns about a potential economic downturn in Germany, a major consumer of gas, and the impact of rising living costs on manufacturers have also contributed to this trend. Despite disruptions in the Red Sea, the expected increase in gas prices has not materialized, possibly due to the delayed shipment of Qatari gas to Europe through this route.

Last week, Ofgem, the regulator for the UK industry, confirmed that the decrease in wholesale prices has resulted in lower household bills. Starting in April, the quarterly price limit will decrease by £238 to £1,690 and is predicted to decrease more in July before increasing again at the end of the year.

The significant decrease in prices has sparked discussion about the future of global gas storage, terminals, and pipelines. In the UK, a shift towards alternative energy sources has caused larger companies to withdraw from the gas-fired power station sector, leaving it in the hands of a few smaller, privately owned entities. Government commitment to decarbonize the electricity grid by 2035 (and by 2030 according to Labour) has raised concerns about a potential shortage in supply to meet the rising demand for electricity. However, industry sources believe that practicality will take precedence over targets, and many gas-fired plants will likely continue to operate well into the 2030s in order to ensure a reliable energy supply.

According to a report from DNV consulting, the majority of homes in Britain are expected to continue using natural gas-burning boilers in 2050, despite the goal of reaching net zero emissions by then. The gas industry is pushing for hydrogen to be used as an alternative, but this has been rejected by the National Infrastructure Commission.

In the United States, there has been a series of large-scale mergers among fossil fuel companies, prompting Joe Biden to temporarily halt LNG exports in order to assess its effects on the environment and economy. In Europe, Russia’s planned reduction of piped gas supplies in 2022 has led to a race to construct additional infrastructure for importing LNG. Germany is currently in the process of constructing more massive floating terminals.

“The argument for investment remains,” Marzec-Manser states. “The EU has made a pledge to reduce its reliance on Russian gas, which presents a notable opportunity for LNG to fill that gap.”

According to Marzec-Manser, the current construction of floating terminals allows for them to be easily relocated to different areas around the world if they no longer generate profit in the future.

A potential issue may arise at the end of 2024 when Russia’s Gazprom’s five-year contract to transport gas through Ukraine comes to an end.

During the conference, there will be a noteworthy conversation about the future of natural gas, focusing on reducing methane emissions and exploring low-carbon alternatives. Environmental activists will be optimistic that this discussion will lead to tangible actions rather than just empty promises.

Source: theguardian.com