Soaring gas prices 'not sustainable', industry experts say

LNG surged to a new high on Tuesday, pitching Europe further into the energy mire

The record high prices of liquefied natural gas are not sustainable at today’s prices, even as a supply crisis intensifies in the UK and Europe, industry experts say.

The natural gas prices in Europe surged to a new high on Tuesday, with prices for November delivery rising 23 per cent to €117 ($135) a megawatt hour, up from €15 six months ago.

In response, Spain and France called on the EU to coordinate efforts to tackle the energy crisis.

The UK has been hardest hit by soaring gas prices, and on Tuesday prices for November increased 14 per cent to £2.79 a therm – the unit of measurement for natural gas use over time.

“[LNG] prices are absolutely high and there’s no fundamental reason for them to remain this high,” said De la Rey Venter, executive vice president of LNG West, which is accountable for a large part of Shell’s natural gas assets in Canada, Europe, Africa and Latin America.

The gas market has faced a “perfect storm” of the Covid-19 pandemic, abnormal weather, supply concerns and increased demand, Mr Venter said on Tuesday.

“But this turbulence will pass. It might take a while but the market will stabilise.”

Gas is expected to continue to trade higher for the rest of the year as the Northern Hemisphere enters winter. LNG prices in Europe and Asia have risen to record highs this year.

As a result, European governments are rushing to find ways to limit the costs as scant natural gas reserves expose the continent to price surges and possible shortages if the winter is particularly cold.

Natural gas is cheaper in the US, for instance, which produces its own, while Europe must rely on imports.

But LNG prices are “not sustainable” at today’s prices, said Alan Heng, interim chief executive of Singapore’s Pavilion Energy.

“It’s the biggest deterrent for anybody who wants to think of LNG as a fuel. It’s not cheap and not easily bankable,” Mr Heng said.

More alternatives are needed to handle the situation, said Mark Brownstein, senior vice president of energy at Environmental Defence Fund.

“Earlier alternatives, when gas prices were high, were either pumping more gas or going to coal,” Mr Brownstein said. “The degree to which natural gas continues to play a role also matters a lot.”

Technology to play 'greater role' in energy crisis

Technology will also play a crucial role in the future of energy, Mr Brownstein said.

“Technology has come on much quicker and more robust than most have predicted … [consider its role in the] evolution of renewables, solar and evolution of electric vehicles.”

Mr Heng said Asia "will quickly create scale and take off ... maybe faster than anticipated".

He said renewables had become “technologically competitive”.

Pursuing structural decarbonisation of upstream, liquefaction and shipping are crucial factors to those selling gas, industry experts said.

“Shipping is really important to up the game of hydrogen so that it can reach different countries. But hydrogen shipping is still in its infancy,” Mr Venter said.

Updated: October 5th 2021, 7:56 PM