Global gas, LNG price trajectory adds fuel to debate over role in energy transition

While this year's run-up in global gas and LNG prices may rattle confidence among some buyers in the near term, it may also serve to underscore the importance of gas to power-sector resiliency amid the energy transition, several industry observers said Oct. 5.

That view, offered during a panel of the Energy Intelligence Forum 2021, was complemented by an environmentalist's reminder that the gas sector's ability to curb emissions, particularly methane releases, could affect its competitiveness against new, cleaner alternative technologies that are now a viable option for countries and consumers.

Mark Brownstein, Environmental Defense Fund senior vice president of energy, was joined by De La Rey Venter, Shell executive vice president LNG West, and Alan Heng, interim group CEO of Singapore's Pavilion Energy, on a panel discussing whether gas will be a long-term fuel or a stopgap solution.

In the backdrop were global LNG prices that have seen a rally over the past year, with the Platts JKM hitting an all-time high of $39.67/MMBtu on Oct. 5 -- a $33.41/MMBtu, or 540%, jump compared with last October. The run-up in global LNG prices has been predicated by extreme weather, weak global gas and LNG production, and subsequent low gas storage in Europe, according to S&P Global Platts Analytics. Additionally, shortages in substitute fuels, such as coal, have exacerbated current market tightness and suggest that many markets, particularly in East Asia and Europe, may be on the precipice of blackouts this winter if weather turns up colder than normal.

Focus on resiliency

"Clearly gas and LNG at these price levels is not a good thing. It shakes confidence in the market," Venter told the forum. "But what we see is not normal, nor predictive. It is truly the result of an unusual set of circumstances coming together." In his view, the market is likely to stabilize at "sensible levels," because "there's fundamentally no good reason long term for the global gas market to be structurally short," with plenty of cost-competitive supplies that can be developed. The swings also highlight wisdom of having long-term contracts, he said.

"I do believe that we have seen underinvestment in countries that have been under-appreciative of the importance of gas, and that is where we have seen more of the recent power and gas market failures," he said. With coal under pressure to be phased out, "the role of natural gas in underpinning the energy transition will perhaps now be better appreciated around the world than in recent times," he said.

Heng highlighted ongoing consumer trends toward electrification, and suggested that for many countries starting out, cleaner options are viable because they will not have to adopt complex grid structures. But he, too, said the past year has shown the challenge of integrating renewables with mainstream sources of electricity generation.

"Because of that, gas will have an important role to deal with the intermittency that arises" for a while longer, he said. The specific path will vary with the capacities of each individual country, as well as developments in new technologies to address intermittency, he added.

Brownstein said increased alternatives are now available to countries and consumers, including renewable deployment, electric heat pumps and induction cooktops.

"We now have, because of technological innovation, the opportunity to actually respond to those high prices by moving away from the use of gas and insulating ourselves in the future from the kind of price volatility and unpredictability that we see in today's market," he said.

The market trends provide another argument for those who argue that companies should be moving to renewable energy and electric-based technologies because it is the right thing to do for the climate and environment, he said.

"I now have a powerful new toolbox here, and that's pointing to the price and pointing to volatility. If you don't like the bugs and the bunnies, at least do it for your pocketbook," Brownstein said. Moreover, gas price spikes could help encourage investment in long duration electric storage to address intermittency, he added.

Transition timelines

As to the timeline for gas in the energy transition, Venter said the near-term story will be one of "addition" of energy sources to satisfy demand, rather than substitution. But moving closer toward 2040, more affordable hydrogen can start to provide for large-scale fuel substitution, he said.

In Europe, "we're likely to see the earlier substitution of solid and liquid fuels and even natural gas with hydrogen," he said. That would help drive down the cost of hydrogen, with other regions following Europe as it becomes more profitable to do so, in his view.

Heng expected to see an evolution, with more segments, such as the marine industry, able to transition liquid fuels to gas and LNG until ammonia or hydrogen comes along, though hydrogen infrastructure will take time to develop.

"I think it's true that we look toward Europe to set the pace in terms of development of newer technologies, but one thing I've learned in Asia, because of the sheer size of the markets, they quickly adopt, they will quickly create scale, and they will quickly take off," Heng said. "I think the adoption in Asia may be a lot faster than what we like to believe at some stage."