Stifled LNG market, higher gas prices set for mid-2020s

The LNG market is set to tighten in the mid-2020s due to the lack of final investment decisions being made, which in turn is predicted to increase gas and carbon prices in Europe, head of the gas analysis department at Gas Exporting Countries Forum (GECF) told Anadolu Agency.

Mahdjouba Belaifa told Anadolu Agency that incremental LNG supplies would be limited in the first half of the next decade due to the lack of final investment decisions.

“This is expected to lead to a tightening in the global LNG market. In addition, carbon prices in Europe are forecasted to rise post-2020 and are expected to increase the competitiveness of natural gas in the power sector compared to coal, thus boosting gas demand," she said.

She explained that although more supplies are coming to the LNG market in 2019-2020, low-cost production is needed in order to compete in the gas industry.

She stressed this point because she said fossil fuels would continue to supply the majority of global energy needs and would remain a major contributor to the global energy mix for the foreseeable future, especially in developing countries.

"According to GECF projections, fossil fuels will continue to dominate the global energy mix, with their share decreasing from 81 percent to 76 percent through to 2040. Non-fossil fuels are expected to develop at a rate of 2.1 percent per year while fossil fuels will grow by an average of 0.7 percent annually," she said.

"Actually, we in GECF have a competitive advantage over new producers due to low-cost production, good establishment on the market and long-term partnerships. Also, continuous efforts are being made by member countries to optimize the costs of production and thus maximize the gas value as per the strategic objectives of the long-term strategy of the GECF," she said.

Belaifa explained that this would be done through the implementation of a new high-level institute, the GECF Gas Research Institute, to be located in Algeria with the aim of sharing best practices and lessons learned in the industry among member countries.

Belaifa highlighted the importance of being aware of the need to consider the cleanest and most sustainable ways to use energy resources and technologies. In this context, she claimed that natural gas is the most abundant, affordable and cleanest fossil fuel.

"It has extraordinary potential to meet sustainability expectations," she said.

She also referred to the growing renewable energy portfolio worldwide but affirmed their share in the energy mix is meager.

"We, in GECF, believe that natural gas is a destination fuel and is the fuel of choice for sustainable development," Belaifa underlined, adding that gas demand would increase in order to support the cleaner growth in global energy while also impacting prices.

-Factors that are increasing Europe’s gas prices

Belaifa, in reference to the upward trend in Europe’s gas prices, said that gas prices in Europe have been growing this year due to colder than expected weather, low underground storage, and relatively higher carbon prices.

"These drove prices in Europe up. But we see that for 2019 and 2020, the prices will decline because we will have more LNG coming. Next year, 52 million tons of new LNG capacity is to be commissioned. It will come into the market gradually," she explained.

In addition to more LNG on the market, she said that GECF countries are investing in pipelines and have now started to produce and supply to Europe.

Azerbaijan is a GECF member country and through the Trans Anatolian Natural Gas Pipeline (TANAP), it started to export to Turkey.

"We will have more new pipeline gas coming from GECF countries that will provide 140.5 billion cubic meters of gas per year to Europe and to China by 2019-2020," she stated.

These pipelines include those in the Southern Gas Corridor namely, the TANAP with 16 billion cubic meter capacity, the TurkStream with 31.5 billion cubic meters, the Power of Siberia with 38 billion cubic meters and the Nord Stream 2 with 55 billion cubic meters of capacity.

The new pipeline export capacity to Europe via the Nord Stream 2, TurkStream, and Southern Gas Corridor represents 19 percent of Europe’s gas consumption in 2017 while the new pipeline export capacity to China through the Power of Siberia represents 16 percent of China’s gas consumption last year.

Commercial flows of 16 billion cubic meters from Azerbaijan to Turkey through TANAP, which connects Azerbaijan to Turkey and Europe, started this summer.

She warned, however, that the ongoing decline in local gas production in Europe would drive European gas prices higher in the first half of the next decade and increase carbon prices in Europe post-2020.

GECF is an international governmental organization that provides a framework for exchanging experience and information among its member states.

The forum has 12 member countries including; Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates, and Venezuela, while seven countries have observer status -- Angola, Azerbaijan, Iraq, Kazakhstan, Norway, Oman and Peru.