Paris summit urges investment for future gas supply

Natural gas is “complementary to renewables” and “a key part of the solution to climate change” in the developing low-carbon global economy, said panelists at the recent 14th International Gas & Electricity Summit in Paris.

By an OGJ correspondent
PARIS, Oct. 28
-- Natural gas is “complementary to renewables” and “a key part of the solution to climate change” in the developing low-carbon global economy, said panelists at the recent 14th International Gas & Electricity Summit in Paris.

But investments must be kept at a high level despite current low gas prices, they said. Otherwise, the global gas market could tighten in 2015 with no new LNG developments scheduled since 2005.

The growing link between gas and power provides “flexibility” in the system to cope for 3-4 years of reduced demand and lower prices, some said. That’s why few “pure players” are left.

Flexibility means power generation that can switch from coal to gas in the UK or from gas to coal in the US, according to several summit speakers. It also means redirecting LNG from the US to Asian markets in response to higher prices.

On the supply side, it means taking advantage of long-term take-or-pay contract clauses and managing carriers to slow down deliveries or to use for gas storage.

Moreover, it could mean improved cooperation between buyers and sellers, with different partnerships along the value chain and new forms of coinvestments, participants said.

Gas producers and utility executives said they expect the market to rebound in a few years due to population growth and new gas-fueled power plants under construction increasing energy demand 50% by 2030.

The large discrepancy between spot and long-term contract prices is posing a problem for some European companies and needs to be addressed, said GDF Suez Vice-Chairman Jean-Marie Dauger. Some speakers predicted the Atlantic Basin might develop into a spot market, with Europe and Asia being regulated markets.

Long-term contracts for supply security but not indexed to oil prices “may not be welcomed by the majority of gas exporters,” said Nordine Ait-Laoussine, president of Nalcosa—an energy consulting firm in Geneva—and chairman of the summit.

The Russia-Ukraine crisis that disrupted European gas supplies in 2008 “had a terrible impact on our gas industry's image,” GDF Suez Vice-President Jean-Francois Cirelli. He fears gas companies are losing the political support as European authorities. “Without political or other incentives, it will be harder to invest,” said Cirelli.

At the summit, consultant Poten & Partners Inc. released a specially prepared 4-year review of the LNG market that points to the worst economic downturn since the Great Depression colliding with a “tidal wave” of new LNG supply. This has led to a vast reordering of the LNG market, but so far the market is in balance, said Poten & Partners.

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