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Energy transition will fuel volatility in gas market: panelists

Highlights

'Deep integration' emerging between gas and renewables

But stronger correlation will fan volatility amid extreme weather

Gas has 'increasing role' in non-electrified energy mix

Asia will embrace natural gas to complement intermittent renewables in the transition to a net-zero carbon future, though a stronger correlation between demand for the two energy sources may fuel volatility in the gas market, panelists at the 10th LNG Producer Consumer Conference said Oct. 5.

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"The relationship between gas and renewables will be of deep integration rather than substitution, [but in supporting] a large-scale development of the latter, volatility in gas demand will inevitably increase especially [during] peak winter heating and power season," Jiang Xuefeng, vice president of CNPC Economics and Technology Research Institute said during a late evening panel session.

Such market volatility has already played out in the market for spot LNG supplies this year, in part fed by the South America's worst drought in recent history.

International Energy Agency director Keisuke Sadamori pointed to a six-fold increase in Brazil's LNG imports so far this year as one sign that the drought-hit country is turning to flexible gas supplies to fill massive electricity requirements resulting from significant losses in its hydropower output.

Sadamori, who is with the office for energy and markets security, noted, however, that the spike in Brazil's demand has also contributed to a tightening of LNG supplies and sharply higher prices for the commodity both in the Atlantic and the Pacific basins.

Asian spot LNG prices in September soared past $30/MMBtu for the first time in any September. S&P Global Platts JKM price was assessed at $39.671/MMBtu on Oct. 5.

India's energy minister, R.K. Singh, said during a special address on the sidelines of the panel session that the latest bull run in LNG prices "will definitely impact those countries relying on natural gas for heating and utilities."

He acknowledged that in this respect, India "is very price sensitive", but stopped short of directly commenting on how the country could respond to the market volatility.

The vice president for LNG at Thai state-owned energy group PTT, Sucheela Suwan, described price stability and affordability as a "key focus", taking in how spot LNG prices have reversed from record lows during summer 2020 to smash records both in January and September.

She urged for "collaboration among buyers" to "ease supply shortages."

Gas key to decarbonizing Asia

The current price volatility is nonetheless not deterring Thailand or its Southeast Asian neighbors from expanding the use of natural gas to decarbonize their growing economies.

Thailand's latest power development plan showed natural gas will still contribute over half of the energy going towards power generation by 2037, even as the share from renewables expand to 18% from 8% in 2018, Suwan said, adding that it is impossible to rely solely on renewables given the lack of viable, advanced energy storage technology.

Indonesia has taken a similar view, with projections from its Energy Council suggesting domestic gas demand will see support even after peaking in 2040, one panelist from national oil company Pertamina said during his presentation.

"The amount of gas demand beyond 2040 will be driven by renewable growth as well as the focus on emission reduction," Pertamina's senior vice president, Aris Muiya Azof, said.

Panelists reiterated one consensual view within Asia that the use of gas to displace coal and other dirtier burning fuels will still yield meaningful reductions in emissions.

The growth story for natural gas in Asia goes beyond the power generation sector.

In India, the fertilizer sector is "the mainstay" for domestic gas demand, with fuel switching in refinery and city gas distribution emerging as two major growth drivers, Gail India director for marketing, E.S. Ranganathan, said.

Shell Energy's vice president, Steve Hill, classified many of these growth drivers as "non-electrified energy demand" that call for hydrogen and biofuel to be developed as cleaner alternative sources in the future,

Until these alternatives turn commercially viable, Hill argued that natural gas "still has an increasing role to play" in meeting non-electrified demand as economies seek to decarbonize their footprints.

"The world does not have reliable energy solution without fossil fuels [as yet] -- that's why we keep talking about net zero rather than zero carbon transition," he said.