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Push for energy transition, underinvestment in traditional energy fueling high prices: speakers at forum

Highlights

Deficit in investment needed to meet oil demand may be $135 bil in 2021-2025

Registering long-term contracts on exchanges could balance the market

  • Author
  • Rosemary Griffin
  • Editor
  • Adithya Ram
  • Commodity
  • Energy Transition Natural Gas Oil Energy Transition The Path to Net Zero

The push for energy transition and underinvestment in traditional energy sources are fueling the current high prices, speakers at the Eurasian Economic Forum said Oct. 28.

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Rosneft CEO Igor Sechin said that many OPEC+ countries are unable to increase output due to sanctions, and insufficient investment, driven by growing climate concerns.

"A number of OPEC+ countries cannot increase production due to unilateral sanctions, and some countries do not have sufficient investment," he said.

"Also, under pressure from climate activists, implementation of joint projects with international companies is being terminated, forcing the majors to reduce investments in oil and gas production, and redirecting funds to renewable energy," he added.

S&P Global Platts Analytics forecasts that OPEC+ countries' spare capacity that could be sustained for several months or more if returned to market will drop to 2.1 million b/d by January 2022, and fall further to 1.3 mil b/d by May 2022.

Sechin said that based on current trends in project implementation, the deficit in investment required to meet oil demand may total $135 bil over 2021-2025.

"In conditions of uncertainty about long-term demand and oil prices, a significant number of oil and gas companies are not planning to increase investment," he said.

Price volatility

Russian producers said that these factors will continue to impact the market, and prices are unlikely to return to 2019 levels.

"We can't function in a highly volatile gas market for long," Novatek CEO Leonid Mikhelson said during the forum.

"Winter will probably be harsh, but I think that from the second quarter the market will stabilize, having dropped sharply, but we are not likely to return to 2019 prices," he added.

Sechin said that the era of relatively low energy prices which lasted for the last century and stimulated world economic development may be coming to an end.

In recent months, European gas prices have reached record highs. S&P Global Platts assessed the TTF day-ahead price at a record high of Eur116.10/MWh ($39.51/MMBtu) Oct. 5. Platts assessed the TTF day-ahead price at Eur84.725/MWh Oct. 27.

Dated Brent prices have also risen recently. Platts assessed Dated Brent at $84.48/b Oct. 27, up from $71.36/b Sept. 1.

Sechin also suggested that registering long-term contracts on exchanges could balance energy markets.

"The world's largest exchanges, such as New York, London and Shanghai, which register most transactions, could also register long-term energy supply contracts, thereby helping to balance the markets," Sechin said.

In recent weeks, Russian officials have called for greater use of long-term supply contracts to mitigate market volatility.