Energy crisis unpacked. How did we get here, and how can we get out? Natural gas exper t Anne-Sophie Corbeau reflects on how the current energy crisis has emerged, how long it is here to stay and the need for greater investment in natural gas supply.
Anne-Sophie Corbeau is a Global Research Scholar at the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. Her research focuses on hydrogen and natural gas. She has over 20 years of experience in the energy industry, including as
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exceeded supply growth as investors want companies to
emissions is key to getting a licence to operate: the gas
focus on return on investments rather than spending.
industry needs to get cleaner (and more transparent). In terms of investments, I note a regain of interest in
Ann-Sophie Corbeau
GLOBAL RESEARCH SCHOLAR, COLUMBIA UNIVERSITY’S SCHOOL OF INTERNATIONAL AND PUBLIC AFFAIRS.
not; demand is much higher, resulting in record levels in spot gas prices. There is a need to invest to meet these demand needs, while at the same time higher investments will be needed in the development of clean energy sources (renewables, bioenergy) and energy efficiency to
head of gas analysis at BP.
meet decarbonisation targets in the long term.
Is the current energy market tightness triggering the level of extra investment in gas supply and infrastructure that is necessary to bring down prices to affordable levels?
investments made today will result in additional gas
In terms of gas investments, it is fair to say that supplies in a few years from now (shale gas being the exception). In the background, ESG pressure remains strong for many companies, as they are being asked whether their future investments are consistent with the
The IEA has recognised that annual upstream investments
Paris objectives. This is even more the case when they
in gas supply in 2020 and 2021 were lower than the
have net zero objectives as well as concrete (carbon
investments needed in its Net Zero scenario. But the
reduction) objectives in intermediate years (2030, 2035).
supply story in the Net Zero scenario only works if
Also, it is crucial that all producers reduce methane
demand is going along that Net Zero path. However, it is
emissions while meeting growing demand: this is not
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a “drill-baby-drill” environment; reducing methane
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It is important to remember that the definition of affordability will vary from one market to another, and
many LNG projects as Russian pipeline gas supplies to
from one consumer group to another within the same
Europe are dwindling rapidly. One project has already
market. For a Southeast Asian consumer, $25-30/mmBtu
taken an FID in 2022 (Plaquemines), and others could
is simply unaffordable. Also, the mechanisms governing
be expected to follow soon. Even projects that were no
gas price formation differ, which means that the impact
longer on the radar screen (Tanzania) are getting a lot
of higher commodities varies on a regional basis: spot
of interest, suddenly. However, there is a real question
prices are at record-high in Europe and Asia, while oil-
mark concerning Europe – will European companies
indexed prices have increased but remain substantially
commit to long-term investments? A few have signed
lower. Those countries which have regulated gas prices,
long-term LNG deals so far, but European companies
but are exposed to imports at spot prices, are seeing
are facing the question on how to align the long-term
national budgets stretched – this might lead to an
objective of decarbonisation with the very immediate
increase in those regulated gas prices.
need for additional alternative gas supplies. We can see want an 8-10 year contract and sellers want a 15-20 year
How long might we be staying in this high and volatile pricing environment?
contract. The most striking fact however is how many
There are two different questions here: high prices and
long-term contracts Chinese companies are signing (26
volatility. We always knew that the period 2022-25 was
since early 2021 and counting), which is a good sign for
going to be tight, due to the lower LNG export capacity
LNG projects looking at taking FID.
additions. But it is now much tighter because of 1)
how buyers’ and sellers’ views diverge: European buyers
Beyond LNG, there is the question about investments
Europe’s immediate needs of additional LNG and 2) one
in gas supply to meet domestic demand (and sometimes
of the largest plants expected to come online during that
export needs as well). For example, in Europe, this
period (Arctic LNG-2) seems now likely to be delayed.
brings the question about fast tracking domestic gas
More LNG capacity is set to come online in 2025 and
supplies (such as fields in the Black Sea) as a way to
beyond, and it will hopefully rebalance the market. It is
reduce dependency on Russian gas. In the US, we
therefore quite likely that high gas spot prices are with
are seeing unusually high gas prices. The growth in
us for a few more years, unless a major rebalancing
US domestic gas demand and US LNG exports have
happens.
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