Power Community

The natural gas crisis tests the old way to solve the rise in oil prices

The Natural Gas Crisis : cliché of commodity markets is that the best way to solve high prices is ultimately high prices.

Natural gas crisis prices have soared to all-time highs, and prices from home heating to electricity are rising sharply in both continental Europe and in the United Kingdom (at least this time of the year) Demand is suppressed, new supply is stimulated, and prices fall back in time as the market returns to equilibrium. But now in the European energy market, this ancient truth is being tested.

In countries such as Spain and Germany, soaring electricity prices have become the top issue on the political agenda. In the UK, energy regulators say their so-called energy bill price caps need to be increased by £139 later this year, or more than 10%. The Bank of England warned this week that inflation could reach 4% by the end of this year, largely due to rising energy costs.

In addition to the short-term pain of consumers’ wallets, this question is a reason to believe that high gas prices may not stimulate the usual response.

The reason is that natural gas is a fuel that occupies awkward space in the link between energy and climate debate.

It is much cleaner than coal and produces about half of the carbon dioxide when used to generate electricity, but environmentalists still disdain it because it is a fossil fuel that causes emissions and climate change (Natural gas crisis)

But in the short term, the intensification of climate change is driving the demand for natural gas. Carbon prices — one of the EU and the UK’s primary tools to tackle climate change — have soared to address increasingly ambitious political targets for emissions reductions.

The result is that coal combustion to generate electricity has become less economical, which is a good thing for the climate. But it also means that many renewable energy sources will be replaced by natural gas when they cannot fill the gap.

Energy companies are in trouble. The old solution was to increase investment to increase natural gas production. But interest in investing billions in long-term natural gas projects has weakened as most developed countries adopt plans to achieve a “net zero” of carbon emissions by 2050 or earlier. (Natural gas crisis)

At the same time, the natural gas market has become more global. LNG can be transported around the world through tankers, and once different natural gas markets from South America to Asia begin to connect.

As developing economies such as China face pressure to start slowing down the growth of coal consumption, guess what fuel they have switched to? LNG imports in Asia are soaring, but this has a clear impact on the amount that can be shipped to Europe.

The result is close to the global gas crisis.

The only country that can be said to have idle capacity in the short term is Russia. So far, Gazprom, its monopoly pipeline gas exporter, has refused to send any additional supplies to Europe and is considered unlikely to do so until the disputed Nord Stream 2 pipeline is approved.

If the winter is mild, prices may fall later this year, but hopefully rarely the best strategy. More LNGs will be on the market later this decade, but BP’s CFO Murray Okinklos said this week that he expects prices to fall sharply until 2022 at the earliest, and even so there is great uncertainty.

This is not to say that countries should not seek to raise carbon prices or curb the demand for fossil fuels. But it shows that we should expect to see more bursts during energy conversion.

In the oil industry, there are already people who think that oil prices of more than $100 a barrel are coming, because companies will reduce their investment in future supply, and demand is expected to continue to grow for at least most of this decade.

The International Energy Agency believes that if the world is really going to achieve net zero by 2050, there will be no need to invest more in new oil or gas fields. But their own projections show that on the current track, demand is still growing fast enough to indicate that new oil fields are needed.

Therefore, the main challenge facing the government is to accelerate the efforts to respond to demand. The fluctuation of energy prices during the transition period may be inevitable.

But they are also a good opportunity to speed up measures to solve the root cause of the problem, which is not only the production of too much natural gas, but also the consumption of too much natural gas. If they can do this, then the ancient truth should still be applicable.

You might also like
Leave A Reply