Post-pandemic impact on the world’s gas markets
Three specialists analyze the challenges for the natural gas market as a result of the pandemic in HAEE's 1st Virtual Event
The coronavirus pandemic causes significant changes and repercussions for the energy market, which were analyzed during the 1st Virtual Event organized by the Hellenic Association for Energy Economics (HAEE) on April 21 with the participation of three experts.
Specifically, the participants were Dr. Kostas Andriosopoulos, Professor in Energy Economics, ESCP Business School & Vice-President, DEPA, Rene Butz, chairman of the Global Gas Centre and Panagiotis Mitrou, Global Gas Segment Manager at Lloyd's with Valerie Ducrot, managing director of the Global Gas Centre / World Energy Council as moderator.
During HAEE's virtual event the effects of the pandemic on natural gas was analyzed, with an eye on LNG, tourism and shipping.
Kostas Andriosopoulos: A new landscape in the natural gas market with increased penetration of LNG
Professor Kostas Andriosopoulos, Professor in Energy Economics, ESCP Business School & Vice-President of DEPA, noted that the fact that oil prices became negative created a small panic in the market. Prices of natural gas in Europe have fallen to historic lows (in the US they are under 2$/MBTU). He mentioned that we are living in a period of low prices and this will continue in the following months because of Covid-19 and the drop of economic activity and he added that all the above together with low LNG prices constitute a brand new picture in the Greek market for the big players (DEPA, Mytilineos, PPC, Elpedison, Heron etc).
Pipeline gas may not be as competitive any more. LNG, through the spot market, creates a new landscape and is equally competitive, while the power production mix has changed in the country (in March lignite fell below 10%) and LNG penetrates with competitive prices.
Dr. Andriosopoulos said that in market terms we are expecting increased competition in the market, precisely because of LNG. "Whoever has long term gas supply contracts (through pipelines) will face a competition problem because their competitors will be able to buy much cheaper gas through LNG in the next 2-3 months. A greater penetration of gas in the power production mix is required, but this will depend on power prices in neighboring countries. Unfortunately, right now everything points to them being lower than Greek prices, therefore imports will be more attractive", he estimated.
As for the role of natural gas as part of the Green Deal, Dr. Andriosopoulos said that gas can support the deal and renewables growth as a transnational fuel in the next ten years.
He also spoke about necessary investment in gas infrastructure, mentioning the Alexandroupolis FSRU as an example. As he noted, great interest expressed during the binding phase of the market test proves the market's support for these projects.
Rene Butz: A difficult period ahead
Mr. Rene Butz, chairman of the Global Gas Centre, estimated that prices will remain low during the second half of 2020 and he also spoke about the limited storage capacity, which is expected to fill at the beginning of summer.
Concerning conditions brought by the pandemic and the lockdown to the gas market, he said that European demand has dropped by 18-20%. "We must see what happens in the next few months and how the crisis will evolve. The next few months will be a difficult period for producers, especially the ones in the US", he mentioned. As for gas's role as part of the Green Deal, he highlighted its strategic role.
Panagiotis Mitrou: The right conditions must be set for the market's proper operation
Mr. Panagiotis Mitrou, Global Gas Segment Manager at Lloyd's, analyzed the effects of the pandemic to shipping fuels and relative investment. According to him, investment in supply has not been hit as much as other investment and this may be because in the case of the shipping supply chain we are talking about long term projects. Despite the negative market sentiment, LNG's growth has not been notably disrupted. However, one of the issues to be solved is the managing of such disruptions and measures to limit effects during future crises so that the gas market may operate normally.
As for transport and demand recovery, he noted that there are opportunities for LNG, but it is too early to tell how much demand will recover and what will be the new dynamic between the different commodities.
"It is encouraging that we are transitioning from coal to gas", he added.
Commenting on whether the crisis can accelerate LNG's penetration in shipping, he said that this may be the case, however the right regulatory framework can pave the road towards this end. "The road to green commodities is long and there are smart ways and technologies to make that fuel more efficient", he added.
"We hope things will return to normal. In the best case we are looking at a hard year, but afterwards conditions will be more encouraging for the gas market", he estimated.