3 November 2021 - 18:06
  • News Code: 353351
Gas Market Developments, Tsars and Alternative Fuels

TEHRAN (Shana) -- The gas market has undergone many changes and, of course, crises in recent months. The increase in the price of this clean fuel by more than 100% has caused many experts to be surprised and reputable international institutions to make new predictions. In line with these developments, the Oil and Energy Information Network (Shana) has sought the opinion of several senior energy economics experts in this field.

*** Amin Shokri: Gas is Still Affordable

-Given the rising price of gas, will this fuel still be a reliable and cost-effective source of energy?

The feature of gas reliability is independent of its price. Incidentally, part of the reason for these high prices is the instability of power generation systems from renewable sources such as lack of wind or drought and depletion of water behind dams. Regarding the cost-effectiveness of this clean energy, we must take into account that with the increase in gas prices, the price of alternative energy has also increased, for example, the price of coal has reached its highest level in recent weeks, which if we consider the environmental benefits of gas, we can confidently say that it is affordable.

-How much will rising gas prices increase oil and coal consumption in the long run?

The US bank Goldman Sachs predicts that rising natural gas prices will increase demand for crude oil by 2 million barrels a day. Nigeria's oil minister has put the figure at one million barrels per day, and Amin Nasser, CEO of Saudi Aramco, has said that demand for oil has risen by 500,000 barrels a day due to rising gas prices. The difference between these figures, however, shows that one should look at it with skepticism. The increase in gas prices, given that its main consumption is in the power plant sector, seems to have a greater impact on coal consumption. Coal consumption in the first half of this year in the European Union, which is at the forefront of environmental discussions, reached about 197 million tons, while last year it was around 160 million tons. This has set a new record for carbon prices, as power plants are forced to buy carbon licenses from the market as they consume more coal.

-How long will we see the rising price of gas?

It is fundamentally impossible to predict the price of a commodity such as gas that is subject to weather conditions. Predictions made by financial institutions and banks either go wrong or they start making estimates after the price goes up, which is usually too late, but given that investment in the upstream part of the gas industry during the coronavirus pandemic has been strong affected and environmentalists also cause many problems for oil companies, we can say that this imbalance between supply and demand continues in the short and medium terms. The number of active drilling rigs in the world has not yet returned to pre-COVID era, and the time interval between drilling a well and completing it is about 6 months. Assuming new wells are drilled right now, it will take several months for them to become operational. However, in the long run, due to the nature of the gas market, the situation will return to normal. I can say that the rising trend of gas prices is not over yet.

*** Fereydoun Berkeshli: On the Eve of the Gas Age

-How effective do you think the role of large oil producers is in increasing gas prices due to the limited supply of crude oil?

Oil and gas are substitutes, and scarcity affects each other, so limiting the supply of oil by OPEC+ producers (a coalition of OPEC and non-OPEC members) is a factor in increasing gas prices, but it should also be noted that the current energy crisis has not been experienced in this way in peacetime. Currently, in addition to gas, seven minerals in the world such as oil, copper, lithium, etc. are in short supply, and the only material that is not deficient is uranium. Unfortunately, there is a fear of a maximum return to nuclear energy.

-Can it be said that oil determines the price of gas in the market?

No, this cannot be true. With the events that have taken place in recent months and the price of gas has increased about 2.5 times in terms of calorific value of oil, in fact, it should be said that gas has been assigned to oil and the increase in oil prices in recent times has been due to rising gas prices. You see, there is no excess capacity in the oil market right now, and in the case of OPEC+, the excess is only on paper. OPEC+’s current adherence to the 117% production cut agreement has been reported, which means that the members of this coalition do not have the resources to produce more crude oil, and only Iran and Venezuela have real surplus capacity. As this trend continues, I believe that prices will rise sharply in the winter quarter of 2022 without the return of Iran and Venezuela to the market. With this trend, we must say that now is the golden opportunity for gas, and in fact, we are now on the eve of the gas age.

-The beginning of the gas age means the end of one fossil energy and the beginning of another fossil energy, which is contrary to the Paris Agreement.

Yes, it is absolutely true, and if they come forward with the same goals as the Paris Climate Agreement, I believe they should be tried for crimes against humanity. It remains to be seen how this issue will be addressed at the Glasgow Climate Summit, the results of which will undoubtedly have far-reaching implications for the oil and gas industry. Now we have to wait and see.

-How much do you know about Russia's role in the recent world gas crisis?

Obviously, in any development in the global energy market, the biggest ones are the focus. In natural gas, Russia is the main player, but I believe with or without Moscow, the global gas price corridor has changed. We also felt this way in the 1990s about oil prices, a permanent farewell to single-digit prices below $20. This was the motive of Iran for establishing the Gas Exporting Countries Forum. OPEC (Organization of the Petroleum Exporting Countries) also had no role in prices in the first decade of its life in the oil market. Now is the time for gas. It should be noted, however, that the coronavirus outbreak in early 2019 has severely affected investment in the oil, gas and many other industries. Unfortunately, in many sectors, supply has lagged behind demand and the gas market has been affected, so it is safe to say that the end of the COVID-19 pandemic is more dangerous than the virus itself.

-And Russia's role in the recent crisis?

In the recent crisis, Russia has actually had an impact on gas prices by restricting supply in order to pressure the United States to lift sanctions on the Nord Stream-2 pipeline. Perhaps it can be said that Russia has now taken control of Europe through gas diplomacy. It should be added that 40% of Russia's foreign exchange earnings come from the sale of oil and gas.

*** Morteza Behroozifar: Gap between Gas Supply and Demand in Europe

-How much will the increase in gas prices in the spot market affect the price of gas with the pipeline, which is more long-term, and how much will signing of long-term gas contracts marginalize?

Before answering this question, I must say that the price of gas is determined in different markets, in the United States, it is a function of supply and demand, and in Europe and Asia, it is a function of the price of crude oil and petroleum products, nevertheless there is also an increase in oil prices, and as you have just seen, the price of crude oil in world markets has been affected by the change in gas prices in the spot market, but in answer to your question I must say that long-term contracts are a security for suppliers and consumers. For example, for Germany, which wants to import gas through the Nord Stream 1 and 2 pipelines, security of supply, and for Russia, as the supplier of gas for these lines, the security of demand is important to be able to sell part of the gas it has invested in its production, although it can be beneficial if there are quantities left that can be sold on the spot market, but the benefits of a long-term contract cannot be overlook by the parties. It is almost out of the question for us to think that rising prices will cause prices to fall out of the long-term mode or disrupt the signing of long-term gas contracts.

-How much has declining gas production in the Netherlands, Britain, Algeria and Norway increased the price of this energy carrier?

The decline in gas production in these countries is not relevant now, and for years the decline in gas production in these countries has begun and will continue, but what is important is that the decline in production in Europe is more than the decline in demand. Imports will make Europe more dependent on gas, although this has had little effect on prices, given that gas production in Europe has been declining in recent years. It is necessary to say that the demand in the European market is not increasing and in some scenarios there is a decreasing trend.

-Many believe that the price of artificial gas has risen and consider these figures unrealistic, do you agree with that?

No, it is not. The skyrocketing price of gas in world gas markets is due to declining production and investment. Unfortunately, with the spread of the coronavirus, many production activities have been affected, and the gas industry has been no exception.

- Some people call Russia the main culprit for the increase in gas prices? What is your opinion?

I do not agree, Russia may have taken steps to restrict supply, but according to the contracts, it has delivered gas to its customers.

News Code 353351

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