What is happening right now in the global natural gas market is a temporary imbalance that could be resolved in the coming months and the shock will be absorbed with the recovery of supply, said Yury Sentyurin, the Gas Exporting Countries Forum (GECF) Secretary-General.
Sentyurin told Anadolu Agency that natural gas markets are becoming increasingly interconnected, global, and integrated.
He said that the recent price spikes at record-high levels are compelling evidence of this phenomenon.
He added that several factors are perpetuating the unprecedented spike in the European continent: growing gas demand amidst COVID-19 recovery, concerns over upcoming winter supplies, and gains in other energy markets.
Sentyurin said that currently, global markets are simmering with concerns about winter natural gas prices.
He noted that colder-than-average temperatures could trigger extreme volatility for natural gas prices in the upcoming winter season in Europe.
"Any further hike in price will feed into utility costs, which are already weighing heavily on European consumers facing multiple pandemic-related challenges as gas is broadly used for home heating and cooking as well as electric power generation. Across Europe, multiple governments have had to intervene and announce support to keep gas and electricity bills down," he said.
Energy transition and gas
Sentyurin said that recent developments, which "sadly" affect the entire strata of society still reeling from the devastation caused by the COVID-19 pandemic, validate the long-held position of the Gas Exporting Countries Forum (GECF) on a balanced approach to managing the energy transition.
"They also highlight the limits of going green too fast and without accounting for real-life scenarios, including dramatic drops in our standard of living. The GECF’s continuous support of the various pathways in the energy transition calls for inclusive and uninterrupted access to modern energy sources whilst highlighting energy security as a foremost global agenda item," he said.
He said that variability is in the nature of things and is unavoidable, but metrics such as population growth, behavior patterns, and consumption indicators can indeed provide a rather long-term outlook, helping energy policymakers to lock in log-term contracts.
"The alternative to a long-term contract is spot buying. The term itself should cause jitters amongst the people - it means exactly what it sounds: arriving at a decision on the spot and without any prior planning or homework. An uncertain environment always ends up hurting both the consumers and producers in the form of the volatility of energy prices," Sentyurin said.
Long term contracts
Sentyurin noted that when the price is down producers make fewer revenues and hence less investment in the supply chain, when the price is high, consumers suffer the financial burden.
He said that in this case, often, governments try to intervene by levying a price cap, such as the case of the UK, but that leaves the suppliers with unprofitable margins. Sentyurin underlined that at least nine suppliers in the UK went bust in September alone.
"The ultimate goal of a stable market is to reduce the volatility of energy prices and for natural gas that instrument is long-term contracts. To reiterate, the GECF Member Countries stated in the 2019 Malabo Declaration to support the fundamental role of long-term gas contracts as well as the gas pricing based on oil indexation, to ensure a stable investment in the development of natural gas resources for the benefit of consumers and producers. Long-terms contracts will protect consumers from high spot prices and will protect producers from low spot prices in a middle point that assures both sides that their targets are fulfilled," he explained.
Sentyurin responded to a question about Russia's role in gas price hike and said that it would be dishonest to pin this price surge, notably in the spot markets, on one country.
"Several factors related to demand and supply dynamics are at work here, and in a global context. The COVID-19 pandemic played a role by delaying projects and maintenance schedules in several countries, thereby affecting the global availability of gas supply. In addition, the policies which are deployed in Europe, notably in the context of the energy transition, have constrained gas investments since they blurred the visibility on the role of natural gas," he said.
He added that the EU’s push towards the adoption of the spot pricing mechanism shows its limits for the gas industry since it contributed to exacerbating the volatility of prices. Therefore, it is a multifaceted problem and cannot be attributed to Russia only.
"Our member countries are doing a lot to support the reliability of their supply, even though they have also obligations to meet their domestic market requirements and contractual obligations, before selling on the spot market. Moreover, they continue despite all the increasing geopolitical, financial, and regulatory constraints. In our opinion what is happening right now is a temporary imbalance in the market that should be resolved in the coming months. The shock will be absorbed with the recovery of supply. There is plenty of gas potential around the world, however, we do strongly recommend relaxing the various regulatory barriers affecting the development of gas projects. Gas is still needed as an environmentally-friendly and reliable source of energy production, especially in the developing parts of the world," Sentyurin said.
The most resilient hydrocarbon resource: gas
Sentyurin noted that natural gas is a major element in the European energy mix, currently accounting for 24% or almost a quarter.
According to Sentyurin, this fuel is expected to be the most resilient hydrocarbon resource, as continued commitments to the Green Deal, allocated funds, and programs to fulfill emission-reduction targets will have more impact on regional demand for coal and oil, especially within the power generation and transport sectors.
"In this context, the gas market situation in Europe needs to be stabilized in order to continue the responsible and consistent path to tackle climate change. The shift away from coal will remain a fundamental trend and consumers should consider entering into longer-term natural gas contracts to avoid price volatility. In addition, a possible way to secure energy supply could be the development of common rules for gas storage volumes," he said, adding that commissioning of Nord Stream 2 will definitely contribute to market stability in the future, as, once again, natural gas is forecast to remain a vital element of European decarbonization process.
He said that up to 2030, natural gas demand is projected to remain flat, primarily due to coal-to-gas switching potential in the northwest and southern Europe.
"Moreover, countries in central and eastern Europe also consider natural gas a transition fuel to bridge technology gaps. Nevertheless, we are convinced that switching to natural gas-fired generation will represent not only a mid-term but also a long-term solution, making gas a key fuel, which will contribute to the stability and security of power systems across the continent. We anticipate that gas-based hydrogen, paired with CCUS (carbon capture, utilization, and storage) will also play a role. The transport sector represents an additional area where natural gas can contribute to emission reductions by displacing oil-based fuels, both in the road and marine segments," he added.
GECF is an international governmental organization, whose members are Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, and Venezuela.
Angola, Azerbaijan, Iraq, Malaysia, Norway, Peru, and the United Arab Emirates have the status of observer members.
With the current number of members, the GECF has a strong position in global energy markets and among international energy organizations. Together, the coalition represents 70% of proven gas reserves, 44% of its marketed production, 52% of the pipeline, and 51% of LNG exports across the globe.