Tight gas markets to persist

Thursday, 19 January 2023
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Tight natural gas markets are to be expected for the next couple of years, due to inadequate investment in new projects, the Qatari and UAE Energy Ministers said at a forum last weekend. 

Another year of big changes in natural gas prices could "distort demand" and "distort" the role gas will play as a baseload for power for a number of years, UAE Energy Minister, Suhail al-Mazrouei said on the 14th January at the Atlantic Council's Global Energy Forum in Abu Dhabi, reported Platts.

Saad al-Kaabi, Qatar's Minister of State for Energy Affairs, told the forum that he expected gas prices to remain volatile this year, but emphasised that Qatar does not want high gas prices, as that would destroy demand. He also said that the market will be tight until at least 2025, when more supply is expected.

"When we talk about the lack of investment and the lack of interest from financial institutions to finance fossils or oil and gas projects, part of that is also the lack of understanding that it is the future for many countries when it comes to energy strategy," Mazrouei stressed.

European countries, which have reduced their consumption of Russian gas, will have to use its gas for prices to stabilise, Kaabi added.

"Russian gas is going to come back to Europe, in my view," Kaabi said. "Once the situation is sorted out, that will be a big relief from the whole gas sector and stabilise prices. High prices are not good for us. We want a happy buyer that can continuously pay."

LNG spot prices should be fair to gas producers to stimulate investments and should be higher than $8-$9 per MMBtu "to make sense for investment," Mazrouei said.

China to return

Kaabi said prices haven't spiked significantly, due to the warm winter in Europe and China's zero COVID-19 policy, but Chinese re-opening may change the markets again.

"There is a huge growth and the only reason you're not seeing that huge growth or that pull, whether it's the oil or gas is really China lockdowns and winter being warm," Kaabi later told reporters on the sidelines of the forum. "But as soon as China has a full opening, and you will see that economic growth in China go back on."

Although gas prices have stabilised, they are still relatively high and the market is bracing itself for the introduction of an EU gas price cap in mid-February, with concerns the mechanism could have unintended consequences. However, this has since been delayed.

European Commission President, Ursula von der Leyen, declared in late December that Europe was effectively "safe" for this winter with EU stocks still at healthy levels for the time of year.

EU storage sites were filled to a peak of 95.5% of capacity by mid-November, comfortably beating the bloc's own targets.

Kaabi added: "I do not agree gas is a transition fuel. It is a destination fuel until we have realistic solutions. We are bringing a lot of gas into the market, but it is not enough."

The lack of new LNG export facilities in 2023 will constrain natural gas supply and force global gas markets to balance on demand destruction and existing stocks, according to S&P Global's 2023 energy outlook.

Europe, struggling with an energy crisis, could see even tighter gas and power markets in 2023, as it faces the first full year without significant volumes of Russian pipeline gas.

Qatar is talking to more European and Asian buyers and expects to lock in all volumes of its North Field expansion projects by the end of this year, Kaabi said. 


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