Oil
was not the first commodity to hit negative pricing in the current crisis. Gas
in Texas went negative in January, and the global gas market was oversupplied even
last year. Yet, perhaps, the long-term picture looks better for gas than oil.
For
gas suppliers, 2019 was a tough year. A wave of new production came online,
particularly liquefied natural gas (LNG) from the US, Australia, and Russia,
setting a record for an annual increase in capacity: 38.8 million tonnes per
year, in a global market of about 437 million tonnes. Another 70.4 million
tonnes made final investment decisions last year, promising a further surge in
supply.
Demand
growth in China, the world’s second-largest LNG importer and biggest gas
importer overall rose strongly but more slowly than in 2018. Demand in Japan,
the leading LNG importer, fell. Surplus cargoes had to be dumped in Europe,
where winter disruptions were feared over deadlocked negotiations between
Russia and Ukraine concerning gas transit. But on the last day of the year, a
five-year deal was reached, warding off any interruptions.
The
European winter was the hottest ever recorded, reducing gas demand for heating.
Storage entered the winter almost 100 percent full and was still 60 percent
full by March when companies generally begin stocking up again. By then, the
coronavirus pandemic was gathering speed, and electricity demand dropping. New
York’s demand is down 10 percent, the UK’s by 15-19 percent.
From
early March, following the collapse of the Opec+ deal, oil prices plunged,
dragging down the price of LNG in many contracts in Asia, which are typically
specified to oil. On Thursday, the Japan-Korea market (JKM), the leading Asian
benchmark, fell to a record low $1.938 per million British thermal units,
equivalent to about $11 per barrel of oil.
In
western Europe and North America, gas has to re-establish its environmental
credentials against environmentalist hostility. It can do this by leveraging
recovery funding to build future industries. These include carbon capture and
storage (CCS), to make gas a near-zero emission fuel. CCS is widely recognized
as an essential part of the climate toolkit, but current projects need to scale
up by some 15 times over this decade.
Germany,
Japan, and Australia are among countries looking to create a market for
hydrogen, a clean energy carrier, that can substitute for gas in heating
networks, or be used as a fuel for ships and planes. The cheapest way of making
low-carbon hydrogen is from natural gas with CCS.
The
current situation is pretty grim for gas. But it may be further through its
slump than oil since it was already in the downturn last year before the
coronavirus showed up. With some smart and bold investments, it still can
emerge from this crisis as the major future hydrocarbon.
The
current situation is pretty grim for gas. But it may be further through its
slump than oil since it was already in the downturn last year before the coronavirus
showed up. With some smart and bold investments, it still can emerge from this
crisis as the major future hydrocarbon.
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