November 2021 – @MarianaVargas – Energy prices have been the center topic of all energy news, having as a leading role Natural gas and its remarkable demand worldwide. The Economist magazine earlier this month published an article talking about the energy shock of the 1970`s and how it impacted the market. Oil became the new source of energy, imports increased and oil countries would feel the demand and get lucrative benefits.
In 2021 we have our own version of “energy shock”. Currently the Natural Gas (NG) market is being hit by a huge demand coming from Europe and Asia, two regions with powerful countries and in need of supply. The challenge for suppliers is that demand increased rapidly while supply remains almost the same or less. ´
Currently the United Kingdom is facing some obstacles in its Natural Gas imports and storage capacity. The Netherlands was one of UK`s key suppliers; exports were made constantly and the closeness this two countries have, made this exchange profitable and convenient. Until, Groningen had to shut down due to earthquakes and inconveniences. This made the UK realize that its dependence to this import was bigger than expected. 3 years ago the Monarch state had to close a storage facility and is now suffering the consequences.
You see, dear reader, Europe became the region that made Green Energy its flag in 2020 and when IEA published the Net Zero policy. Within hand of international treaties and worldwide campaigns they began to pressure countries such as India and China to decrease its CO2 emissions and begin using green energy as their source, which is what these two giants did. Now, that they are demanding bigger numbers and so is Europe, a healthy competition for NG or LNG imports began; now players need to get creative to attract shipments and satisfy their demand. Eastern countries are doing a fine job doing this, paying Qatar cargoes, premium prices to attract shipments.
Europe is another key demanding region, which has made them vulnerable and desperate to import as many NG/LNG as they can. We speak of vulnerability because of the position the region has been put in, they are dependent of Russia`s supply – one third of their imports come from Gazprom- United States supply – a country that nowadays is suffering from economic instability- and Australia. International power politics can be either a blessing or a curse.
The Nord Stream Project, between Russia and Germany, has been disputed in the region and seen as a geo strategic move from Russia to enter a steady and influential foot inside Europe.
Countries strategic thinking is never left behind and without doubt energy sources are a soft power tool many will use to achieve their political, economic, geo strategic goal. Energy transition is made to be seen as an international policy that governs us all, however it is difficult to believe that it can be done rapidly and without obstacles in the way. We are witnessing one of the obstacles this transition is facing: high prices that can backlash renewables.
Some conclusions we would like to highlight are; first, the market is not ready for a fast energy transition. The timing is unfortunate and countries aren’t producing more because of certain restrictions they may have, such as uncertainty or economic instability. Second; post pandemic economic recovery is a must. COVID- 19 pandemic released a new normality in the market and the great percentage of energy consumption is a reflection of that. Countries must adjust and then satisfy demand. Third; there is just not enough natural gas to backup such demands.
We shall wait and see what time may bring. Because is very easy to be a first world country and pressure oil and gas companies, OPEC and allies to increase oil and NG/LNG production to follow the unreachable Net Zero policy, while the market is still fragile. Time will tell.