LNG seen having key role in energy transition despite record high prices

Lack of investments and supply disruptions are helping drive LNG and natural gas prices to record highs but LNG is still expected to play a significant role in the energy transition, delegates at the 10th LNG Producer-Consumer Conference said Oct. 5.

“As shown in the tightened supply and demand balance of the LNG market in January in Asia and the current substantial rise in LNG and gas prices, gas markets are becoming extremely unstable, coincided with tapering of upstream investments on the arrival of the carbon neutral age,” Shin Hosaka, commissioner of the Agency for Natural Resources and Energy at Japan’s Ministry of Economy, Trade and Industry, said.

Stabilizing LNG supply and prices will be essential for global economic growth, Hosaka told the Japan hosted conference, started as a forum of major producers and consumers following the country’s increased LNG demand from nuclear outages after the Great East Japan Earthquake in March 2011.

“The impact of the pandemic, supply disruptions and lack of investments, coupled with extreme weather conditions have doubled national gas prices to record levels over the past few months,” Qatar’s energy minister Saad Kaabi said.

“The Northern Hemisphere winter is around the corner, and the demand is expected to continue to rise,” Kaabi said. “I can tell you that this is not a healthy situation to be in as it puts heavy burdens on both producers and consumers. Producers must find supplies that may not exist due to the lack of investment and consumers are helplessly paying record prices as a result of the complex situations, not entirely within their control.”

Energy transition
Nations face increasing pressure for decarbonization in pursuit of the Paris Agreement, which aims to limit global temperature increases to no more than 2 C, preferably 1.5 C, from pre-industrial levels.

“Today no one denies that the energy transition is a reality,” Kaabi said, adding that much of the talk around the energy transition has been unrealistic and even counterproductive.

“I believe the solution to the climate crisis cannot be a knee-jack reaction such as immediately stopping all fossil fuels and replacing them with renewables as some have been suggesting. This is not realistic, nor reasonable,” he said.

The Qatari energy minister added that global carbon dioxide emissions can be cut relatively quickly by switching between fossil fuels.

“For example, more than 30% of the world’s electricity is today generated by burning coal. By switching from coal to gas, we can cut the associated CO2 emissions by at least one half,” Kaabi said.

“Second we need to recognize successful energy transition cannot be driven by producers alone. It is a shared responsibility that requires the active collaboration of energy producers, legislators, governments and most importantly end-consumers,” he added.

Asian countries and companies have told METI ahead of the conference that they will need LNG to ensure their energy transition, Hosaka said.

“Hereafter Japan will enhance its engagement in phases with emerging countries mainly in Asia in order to support their realistic and gradual energy transition with an eye to achieve global carbon neutrality in the earliest possible timing in pursuing the goals of the Paris Agreement,” Hosaka said.

Market evolution
“In the aftermath of the the Great East Japan Earthquake, LNG supported Japan’s reduced nuclear power generation from shutdowns. Some 20 million mt [/year] of additional [LNG] demand was realized from increased supply from Qatar and other producing countries as well as from emergency allocations from consuming countries countries,” Hosaka said.

Japan’s total LNG imports, which stood at 70 million mt in 2010, jumped 12.3% year on year to 78.5 million mt in 2011 and rose to a record 88.51 million mt in 2014, according to Ministry of Finance data.

Following nuclear restarts since 2015 after the period of complete shutdown, Japan’s LNG imports have slowed. LNG imports fell 3.9% year on year to 85 million mt in 2015 and declined further to 74.5 million mt in 2020, MOF data showed.

“Back in 2012, global energy markets were still under the shock of the Great East Japan Earthquake and it is a consequence of fuel trade which led to record high LNG prices at the time,” Fatih Birol, executive director of the International Energy Agency, told the conference.

“Today LNG prices once again are experiencing record highs because of a combination of extreme weather events and unplanned outages in several places in the world, and this too comes at a time when we see strong demand of LNG as a recovery from the impacts of COVID,” Birol said.

The S&P Global Platts JKM for November was assessed at $34.986/MMBtu on Oct. 4.
Source: Platts