The surge in global gas prices is showing no signs of abating, with Australian consultancy EnergyQuest describing the current energy crisis “the first big energy shock of the green era”.
EnergyQuest revealed in a new report on Friday that forward European gas prices, measured by the European benchmark, the Dutch TTF, are US$34.74 per million British thermal units for November.
Meanwhile, US Henry Hub prices reached $6.37 per million Btu on 5 October, while Asian spot prices also hit a record high on 6 October, with the Platts Japan Korea Marker (JKM) price hitting $56.33 per million Btu.
If investment in new clean energy does not match the wind-down in fossil-fuel supply, spikes in energy prices are inevitable
Henry Hub and JKM prices have since softened, falling to $5.05 and $35.80 per million Btu, respectively, as of 20 October. However, EnergyQuest noted this was still historically high for this time of year.
The consultancy also noted that forward JKM prices for January, February and March are all still upwards of $30 per million Btu.
The main drivers for the high prices were the same as EnergyQuest detailed a month ago — increased demand as global economies emerge from the Covid-19 pandemic and last year’s colder than expected winter, which pushed up prices back in January, leaving buyers scrambling ever since to replenish storage while contending with a warmer than expected summer in some countries.
Where prices head in the coming months will partly depend on the weather in the coming northern winter, with EnergyQuest claiming milder than expected weather, windy conditions and rain on hydro dams would all put downward pressure on prices.
A rebound in Russian gas supplies to Europe, as well as increased output from liquefied natural gas projects that have been down for planned maintenance recently would also help play a part in bringing down prices.
The first big energy shock of the green era
EnergyQuest cited an article by the Economist last week indicating the energy transition was also playing a role in the energy crisis as the world looks to transition to a low-carbon future.
While investment in renewables needs to rise and supply and demand of fossil fuels needs to be wound down to reach net-zero emissions by 2050, there is still a need to strike a balance, with fossil fuels still being used to meet roughly 83% of primary energy demand.
The Economist's article notes that legal threats, investor pressure and fear of regulations have led to a 40% slump in fossil fuels investment since 2015.
EneryQuest claims the surge in international energy prices is reflective of a mismatch between the wind-down of fossil-fuel demand and supply, with supply being much easier to cut than demand.
“Stopping investment by companies in fossil-fuel projects is more popular politically than trying to convince people to consume less energy and if investment in new clean energy does not match the wind-down in fossil-fuel supply, spikes in energy prices are inevitable,” EnergyQuest said in its report.
“In some ways efforts to limit fossil-fuel supplies, without a matching increase in clean energy, are similar to the Opec oil embargoes of the 1970s but this time it is the energy consumers imposing an embargo on themselves.”
China looks to broaden LNG supply
EnergyQuest also revealed in its monthly report that the volatile spot market price was leading LNG buyers to seek long-term supply contracts.
China, which is experiencing its own energy crisis, is looking to shore up its LNG supply via long term deals with US and Qatari projects.
Only this week US player Venture Global agreed to supply Sinopec with 4 million tonnes of LNG per annum through two long-term deals for its proposed, but delayed, Plaquemines project in Louisiana.
It came as media reports claimed a number of Chinese companies, including CNOOC and Sinopec, were in talks with the likes of Venture Global and Cheniere Energy to shore up supply, while EnergyQuest claimed China was also seeking additional volumes from Qatar, noting a recent 15-year deal Qatar Petroleum secured to supply CNOOC with 3.5 million tpa of LNG.
Amid these supply deals, EnergyQuest notes that no new deals have been struck with China’s largest supplier of LNG, Australia.
Currently there is only one new supply deal between Australia and China on the table, the 2019 heads of agreement signed between Woodside Petroleum and ENN Group for 1 million tpa of LNG from the yet to be sanctioned Scarborough development.
The deal is conditional upon the negotiation and execution of a fully termed sales and purchase agreement as well as the final investment decision being taken on Scarborough, which is currently anticipated before the end of the year.
Despite the lack of market activity between the two nations, Australia still shipped an average of 2.3 million tonnes of LNG to China per month over the first nine months of 2021.
This makes Australia easily the largest supplier of LNG to China, with data from EnergyQuest showing the next largest supplier was Malaysia, which shipped an average of about 730,000 tonnes per month to China.