The race for cleaner energy usage may have sounded a goodbye message to cheaper liquefied natural gas, SUNDAY OMONIYI reports.
As a caterer, Nkechi Chukwu is a high user of the Liquefied Natural Gas (LPG), otherwise known as domestic or cooking gas, used in homes. But her trip to the gas plant at the weekend to refill her cylinder left her stunned. Reason? Within a space of 10 days, the cost of filling a 12.5kg cylinder of gas had risen from N4,500 to N5,625 in her Akute, Ogun State area.
“This is getting to much; just within two weeks prices have increased. This is a commodity that two months ago I used to buy at N3, 400 or N3,700,” Chukwu lamented.
The rate of price increase of LPG is assuming a phenomenal dimension. This is despite the volume of available gas in the country which the Department of Petroleum Resources (DPR) put at 206.53 trillion cubic feet as at June 11, 2021.
Director of DPR, Auwalu Sarki, said at the Nigeria International Petroleum Summit, last June, in Abuja, that indigenous oil and gas companies were contributing about 30 per cent of gas reserves. The new figure which represents a marginal increase of 1.16tcf or 0.57 per cent from the 202tcf recorded in 2019 implies a growth of over three trillion.
But given the volume of gas reserves in the country, would it not have been right if gas sold at a more reduced rate? Experts in the sector hold divergent views on this. For instance, the Chairman of Nigeria Gas Association (NGA), Ed Ubong, at the Abuja event, agreed that the country might be sitting on a large reserve of gas, but wondered what her production capacity of same was.
“Nigeria is sitting on a large, huge resource base of gas, but how much gas are we producing? We are a top 10 country when we talk of what we have, but when you talk of what we are actually producing, we begin to sit back, we are in the top 20 range. Gas only accounts for five per cent of Africa energy mix,” he said.
Statistics from the Nigerian National Petroleum Corporation (NNPC) indicated that in April, this year, a total of 209.27billion cubic feet (bcf) of natural gas was produced, translating to an average daily production of 6,975.72 million standard cubic feet per day (mmscfd). It further revealed the natural gas off-take, whether commercialisation and utilisation, out of the 206.40bcf supplied, a total of 126.83bcf of gas was commercialised consisting of 42.92bcf and 83.91bcf for the domestic and export markets. This translates to a total supply of 1,430.90mmscfd of gas to the domestic market and 2,976.94mmscfd of gas supplied to the export market for the month.
Globally, having cheap natural gas may have become a thing of the past. According to a report by Oilprice.com, the era of cheap natural gas might be gone for good. U.S. natural gas futures climbed to a 31-month high of 4.16/MMBtu within the week, especially occasioned by forecasts for hotter weather over the next two weeks and soaring global gas prices ensuring that U.S. liquefied natural gas (LNG) exports will remain at record highs. It is being projected that average gas demand, including exports, will climb from 90.9 bcfd in the current week to 94.5 bcfd next week as cooling demand keeps rising.
The report further revealed that between January and June, this year, U.S. LNG exports jumped by 42 percent year-on-year to an average of 9.6 billion cubic feet per day (Bcf/d), compared with the first half of 2020. Asia remained the top buyer of U.S. LNG, accounting for 46 percent of exports through the end of May.
Supply crunch
According to a report in the Financial Times, natural gas prices have climbed sharply across Europe and Asia owing to tighter supplies, lower production volumes in Europe, as well as lower exports from Russia. Consequently, natural gas prices in Europe have surged to about 40 euros per mWh (~14/MMBtu) for the first time ever, with UK gas prices at the highest levels in 16 years. Asia is said to even be paying more as gas prices have hit $15/MMBtu. The supply crunch is only expected to intensify over the coming weeks.
“If anything it’s surprising there hasn’t been more concern. In terms of additional supply there aren’t many options on the table globally. Russia is really the only discretionary source of supplies out there but we don’t know when additional deliveries might start. So traders around the world, from Japan to Brazil, are starting to watch European prices too,” Tom Marzec-Manser at ICIS told FT.
Natural gas demand has rebounded across the globe in part due to economic recovery as economies reopen but also due to a spate of extreme weather events. A long winter in Europe as well as droughts in places like Brazil has elevated natural gas consumption.
The bullish short-term outlook could, however, come under pressure.
The bridge
Oilprice.com further revealed that natural gas and LNG are now being viewed as the bridge in the transition to renewable energy thanks to their more favourable emissions profile, as it generates 30 percent less carbon dioxide than fuel oil and 45 percent less than coal. And, this is very likely to become a long-term trend.
Whereas a combination of several short-term tailwinds such as supply disruptions, the global economic rebound, and a pause in new LNG export plants have been driving the natural gas rally, there is a growing consensus that structural changes led by the clean energy transition mean that this is likely to become the new norm.
To exacerbate matters, investments in new gas fields have been falling over the years amid calls from climate-conscious investors and governments. For instance, high carbon prices in Europe are forcing utilities to quickly switch to natural gas; China is ready to be more reliant on gas than ever, while scores of governments in South and Southeast Asia are planning dozens of new gas plants to meet rapidly growing electricity needs. Further, the switch to natural gas can be made relatively quickly with limited capital deployments. With few other viable options, the world will continue to rely more heavily on cleaner-burning gas to help achieve short-term green goals.
“No matter how you look at it, gas will be the transitional fuel for decades to come as major economies commit to meeting carbon emission targets. The price of gas is more likely to remain high in the medium term and increase in the long term,” Chris Weafer, the CEO of Macro-Advisory Limited., has told Bloomberg.
Indeed, natural gas is the only fossil fuel that’s expected to record significant growth in the current decade, with demand forecast to increase seven percent from pre-Covid-19 levels by 2024, according to the International Energy Agency. LNG demand, in particular, is expected to remain strong, with LNG demand forecast to grow 3.4 percent annually through 2035, according to an analysis by McKinsey & Co.
The report noted that a lack of capital investments, however, means that natural gas supply is likely to remain tight. For instance, few new LNG export projects have been approved since early 2020, save for a massive expansion in Qatar. Meanwhile, Saudi Arabia has planned to develop the giant Jafurah gas field, but a good chunk of that gas is likely to end up in its green hydrogen project.
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