The steep rise in global gas prices has been attributed to a multiplicity of factors, albeit attributing this trend to the clean energy transition is inaccurate and misleading, Dr Fatih Birol, Executive Director of IEA asserts.
Facing strong turbulence, the global natural gas market has experienced disturbing incidences as some natural gas firms in the UK and some parts of Europe have folded up.
These have been driven by a combination of “a strong recovery in demand and tighter-than-expected supply, as well as several weather-related factors.”
“Recent increases in global natural gas prices are the result of multiple factors, and it is inaccurate and misleading to lay the responsibility at the door of the clean energy transition.”Dr Fatih Birol, IEA Executive Director
According to the IEA, this reflects the cold and long heating season in Europe last winter as well as the lower-than-usual availability of wind energy in recent weeks. On a wider scale, this recent phenomenon is not different from the current global gas market dynamics.
As with the European case, so were cold spells witnessed in East Asia and North America in the beginning of 2021 followed by heatwaves in Asia and drought in various regions.
In Asia, gas demand remained strong throughout the year, mainly driven by China as well as Japan and Korea. On the supply side, unplanned outages of liquefied natural gas (LNG) across the globe and delayed maintenance from 2020 led to a lower-than-expected production of LNG.
Considering the foregoing, these ‘nightmares’ could prolong as the European gas market may “face further stress tests” if “unplanned outages and sharp cold spells… occur late in the winter, ” the IEA said.
Clean Energy Transition, solution to the energy issues
New information indicates Russia is fulfilling its long-term contracts with European counterparts— but its exports to Europe are down from 2019 level. IEA believes that Russia could still increase gas availability to Europe and ensure storage is filled to adequate levels pending the coming winter heating season. Also, this will lend credence to Russia as a reliable supplier to the European market.
Electricity prices have climbed to their highest levels in over a decade following the surge in gas, coal and carbon prices in recent weeks. The hike in gas prices led electricity suppliers in a number of European markets to switch from gas to coal for power generation. This switch would have worked well to cushion the market except for the increase in the price of carbon emission allowances on the European market.
“Today’s situation is a reminder to governments, especially as we seek to accelerate clean energy transitions, of the importance of secure and affordable energy supplies– particularly for the most vulnerable people in our societies,” Dr Birol indicated.
“Well-managed clean energy transitions are a solution to the issues that we are seeing in gas and electricity markets today – not the cause of them.”IEA Statement
According to IEA, the links between electricity and gas are not leaving anytime soon. Meanwhile, as clean energy transitions advance on a path towards net zero emissions, global gas demand will start to decline.
Towards that end, gas will remain an important component of electricity security. This will remain the case in countries with large seasonal variations in electricity demand, IEA indicates.