The imbalance between supply demand continues to grow, gas prices may rise for another five years

The surge in global energy prices has created a knock-on storm in commodity markets, with gas prices, in particular, rising several times year on year around the world, rattling downstream users. In the context of continued capacity capacity constraints rising demand, LNG prices in The European market are still soaring are expected to ease in the near future.

Wholesale gas prices in Europe fell by a record amount in 2021, even as summer ended energy consumption traditionally slowed as demand continued to grow as the economic impact of the pandemic faded further. European gas futures prices have soared less than 4 euros per megawatt hour in May 2020 to more than 75 euros as of Last Tuesday, a nearly 20-fold increase!

Behind such a strong rise in European gas prices is rising demand, as well as the closure of large gas fields such as Groningen in the Netherlands due to environmental concerns. The cost of transporting liquefied natural gas across the ocean North America to European markets has also soared as a result of the global seaborne capacity crisis this year.

After that, unpredictable winter weather could further affect energy market conditions. Valery Chow, vice-president at Wood Mackenzie, the energy consultancy, said rising energy prices were just a problem in Europe, with peaks in winter prices in Japan South Korea likely to surpass those set in early 2021. Unusually cold weather, which is expected to return to the northern hemisphere in mid-winter, will also exacerbate the price storm in the gas market, analysts said.

While some countries, such as the United States, Australia, Qatar Argentina, have substantial gas reserves, the high cost of building new liquefaction-gasification facilities has made it difficult to alleviate shortages in mainstream consumer markets in Europe Asia Pacific, exacerbated by pressure on shipping capacity. The supply of Russia, another source of natural gas for Europe, is facing difficulties due to the multi-angle diplomatic disputes between the United States, the European Union, Ukraine Russia. Given that the Nord Stream 2 pipeline connecting Russia Europe is still open until next year, the supply crisis level may be further heated up this winter. According to S&P Global Platts, the upward pressure on prices stagnant gas supply growth will continue through 2024-2025.

The shortage actually began last winter as the pandemic reduced global oil gas exploration production activity, while unusually cold weather increased gas use, keeping inventories below historical averages. Then, when supplies began to dwindle, Asian buyers snapped them up, triggering a price spike. Then a hot summer, hurricanes some serious power outages exacerbated the problem. At the moment, suppliers have little margin for error as demand supply in spot gas markets around the world are so tight.

In the United States, one of the major gas producers, shale oil exploration activities were halted last year due to low oil prices the pandemic, resulting in a shortage of subsequent production capacity. The Biden administration's "green New Deal" restrictions on activity in the oil gas industry are further limiting natural gas production, which could lead to further declines in future production after existing Wells run out.

In addition to poor supply, the global goal of "carbon neutrality" is also increasing the demand for lower carbon emissions of natural gas. China became the world's largest LNG customer in 2020, with demand in 2021 up 20 percent the same period last year. This growth is expected to continue in the coming years, which will put even more pressure on LNG supplies. Demand is also growing in other emerging market economies, such as Vietnam, which is proposing a multi-billion dollar LNG regasification project. The project is considering importing LIQUEFIED natural gas as its preferred fossil fuel for the future. Vietnam currently does import any LNG, but plans to import 10 million tonnes by 2030.

As a result, Russell Hardy, chief executive of Vitol, one of the world's largest independent oil traders, said global gas prices were at "extreme levels" due to low inventories strong demand in Europe China, with demand growth set to continue for at least the next five years. That means the era of cheap gas brought about by America's "shale gas revolution" may be over.

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Source: China Energy Net