Daily Management Review

High Gas Prices And Concerns About Energy Security Stymie Decarbonisation Effort


High Gas Prices And Concerns About Energy Security Stymie Decarbonisation Effort
Energy security has become a primary worry for importers, according to energy executives, as expectations of tighter gas supply and volatile prices in the coming years put buyers on edge and stymie the push toward decarbonisation.
Europe is importing record amounts of liquefied natural gas (LNG) as a result of the Ukraine crisis, which has hampered gas supplies from its main supplier, Russia. This pushed prices to all-time highs in Europe and Asia early this year, fueling inflationary pressure and delaying efforts by countries to transition from coal to gas in order to decrease 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 went on to say that gas costs are excessively high for consumers, making coal's comeback more likely. Tight natural gas supplies, particularly during the winter, have also harmed governments' and users' trust in making the switch to gas, according to Li.
China, which was the world's top LNG buyer last year, imports about half of its gas. However, as the world's largest energy consumer shifts to cheaper coal, its imports are expected to decline this year.
Similarly, due to high LNG prices, India, another key growing market for LNG, is utilising more coal and slowing down spot LNG purchases.
According to A.K. Singh, general director of India's main LNG importer Petronet LNG, long-term contract prices have doubled in May compared to 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.
More funding and investments in the oil and gas sector are needed to enhance supplies and stabilise pricing, according to executives at the conference, in order to keep the coal-to-gas transition moving forward.
According to state-run Korea Gas Corp's (KOGAS) Chief Executive Officer Chae Hee-bong, stabilising gas prices is the industry's top goal because prices and volatility are unacceptably high for purchasers.
"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 stabilise to ensure demand will grow in the long run.
Yu Jeong-joon, Vice Chairman of SK E&S, has urged on international financial institutions to provide more assistance to poor countries as they transition to gas.
Despite fears about disruptions, LNG supplies from Russia's Sakhalin-2 continue to flow in Japan, although Tokyo has stepped up attempts to diversify and invest in alternative suppliers.
LNG purchases are shifting from "just in time" to "just in case," according to Yukio Kani, managing executive officer of JERA, Japan's largest importer.
"The world has been trying to move toward decarbonisation, and we really tried to secure sustainable energy but we face a serious challenge in achieving it,” he said.
According to Kani, high LNG costs have put off potential LNG consumers in emerging countries. In Bangladesh and the Philippines, JERA is investing in gas-fired power projects.