High gas prices, energy security fears impede decarbonization push

By Reuters   May 27, 2022 | 12:13 am PT
High gas prices, energy security fears impede decarbonization push
Smoke billows from a chimney at a combined-cycle gas turbine power plant in Drogenbos, Belgium April 27, 2021. Photo by Reuters/Yves Herman
Energy security has become a top priority for importers as forecasts of gas supplies and volatile prices in the next few years keep buyers on edge and push toward decarbonization.

Europe is importing record volumes of liquefied natural gas (LNG) as gas from its top supplier Russia has been disrupted following the Ukraine crisis. That drove prices in Europe and Asia to all-time highs earlier this year, fanning inflationary pressure and retarding efforts by countries to switch to gas from coal to reduce pollution and carbon emissions.

"Geopolitical conflicts have made gas markets unstable," Yalan Li, chairperson of the board of directors at Beijing Gas Group said at the World Gas Conference.

She added that gas prices are unbearably high for users, creating a greater likelihood of coal’s return. Tight natural gas supplies especially during winter have also weakened the confidence of governments and users in transitioning to gas, Li said.

China, the world’s top LNG importer last year, relies on imports to meet nearly half its gas needs. But its imports are forecast to shrink this year as the world's top energy consumer turns to cheaper coal.

Similarly, India, another key growth market for LNG, is also using more coal and slowing down spot LNG purchases due to high prices.

A.K. Singh, managing director of India’s key LNG importer Petronet LNG, said prices for supplies from long-term contracts have doubled for May from a year ago while spot prices have tripled.

"There is some demand destruction, particularly in India, because of the very high prices," he said, adding that some consumers are switching to cheaper fuels which is not good for the gas sector.

Executives at the conference called for more financing and investments in the oil and gas sector to boost supplies and stabilise prices to maintain the momentum on the coal-to-gas switch of recent years.

Stabilising gas prices is the industry’s top priority as prices and volatility are unacceptably high for buyers, state-run Korea Gas Corp's (KOGAS) Chief Executive Officer Chae Hee-bong said.

"If the current situation persists for a long time, some experts say it will lead to demand destruction, especially in emerging countries," he said, adding that prices need to stabilize to ensure demand will grow in the long run.

SK E&S Vice Chairman Yu Jeong-joon called on international financial institutions to provide more support for developing countries' shift to gas.

In Japan, LNG supplies from Russia’s Sakhalin-2 are still flowing despite disruption concerns but Tokyo has stepped up efforts to diversify and invest in supplies elsewhere.

LNG purchases are "going from just in time to just in case", said Yukio Kani, managing executive officer at Japan’s top importer JERA, underscoring the need to secure supplies.

"The world has been trying to move toward decarbonization, and we really tried to secure sustainable energy but we face a serious challenge in achieving it," he said.

High prices have sidelined potential LNG buyers in developing countries, Kani said. JERA is investing in gas-fired power projects in Bangladesh and the Philippines.

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