The Future of Energy Transition: Challenges and Investments Required for Sustainable Natural Gas Supply
30% and holding our natural gas position... What could pull it higher?
Natural Gas Weekly(Hold your long positions. We are up almost 30% since our entry. Your trailing stop should be well in to profit by now. I would assume this has more room to run at our current juncture.)
Whats happening in the world of natural gas?
1. Ukraine trading/storage-In a recent announcement on national television, Ukraine's Prime Minister Denys Shmyhal revealed the country's decision to allow non-resident traders to utilize a significant portion of its natural gas storage capacity. With a substantial 30 billion cubic meters (bcm) of underground storage capacity, foreign traders might soon be permitted to use 12 to 15 bcm for gas storage, marking a significant opportunity for European countries. This move comes as Ukrainian state oil and gas firm Naftogaz has already provided up to 10 bcm of storage to Europe this year, demonstrating Ukraine's commitment to supporting the continent's gas supply. Foreign traders have swiftly responded to this opportunity, as the volume of natural gas stored in Ukraine has risen to 2.2 bcm in early October, up from 1.8 bcm in mid-September. With Europe's storage nearing full capacity, Ukraine's surplus offers a timely solution to the region's energy concerns, potentially bolstering its security of supply for the upcoming winter season.
2. 7 trillion-As the world grapples with an ongoing energy transition, the shift from traditional fossil fuels to renewable sources remains a gradual process, with natural gas projected to play a pivotal role until at least 2050. Concerns about the global natural gas supply have intensified, underscored by the need for significant investments in liquefied natural gas (LNG) export facilities and infrastructure upgrades, amounting to a staggering $7 trillion, as indicated by the Institute of Energy Economics, Japan. The report outlines the necessity for substantial emission reductions and heightened investment to ensure a stable gas supply throughout the coming decades. Bloomberg's recent discussions with industry experts, including Kenichi Hori of Mitsui & Co., further emphasize the critical long-term role of LNG in the energy transition. Despite the vital role of natural gas, challenges such as financial constraints and supply chain disruptions loom, posing potential hurdles for the offshore wind energy sector.
Where is EU’s natural gas coming from-Amidst Russia's aggressive actions and energy tactics, the imperative of diversifying energy sources has taken center stage in the agendas of European nations. The journey toward diversification entails substantial investments in infrastructure, including the development of new pipelines and LNG terminals. Recent data from Eurostat, as presented by Statista's Martin Armstrong, underscores a notable shift in the EU's gas supply dynamics. While Russia historically held the top spot as the EU's primary gas supplier via pipelines, its share decreased significantly by 21 percentage points in the first quarter of 2023. In contrast, countries like Norway, Algeria, and the UK witnessed an increase in their gas supply shares. Similarly, the share of liquefied natural gas (LNG) supplied by Russia declined by 5 percentage points, with Norway, Qatar, and Algeria observing an upward trend, while the U.S. experienced a notable decline in its share over the same period.
4. European gas prices experienced a sharp surge of almost 7% on Monday, triggered by concerns over supply risks. The Dutch TTF gas futures, a crucial benchmark index for European natural gas prices, spiked to €54 per megawatt-hour, marking its highest point since mid-February. The escalation followed reports of Egypt's gas imports plummeting to zero, stoking apprehensions about the country's ability to resume deliveries to the European market. Amidst this, the Egyptian cabinet disclosed a drastic drop in their natural gas imports from 800 million cubic feet per day to zero. With Egypt relying on imports from various sources, including Israel, the news has raised worries about potential disruptions in the supply chain, particularly as the country grapples with diminishing domestic natural gas production and frequent power outages amid soaring temperatures.
As the specter of gas scarcity looms over Egypt, the country is facing a confluence of challenges, including a significant decrease in natural gas imports, exacerbating daily blackouts for its populace. The dwindling gas supply coincides with surging demands driven by the intensifying heat, adding strain to an already fragile energy infrastructure. With concerns about the stability of gas provisions on the rise, the situation underscores the vulnerability of the region's energy landscape and the profound impact of geopolitical dynamics on global energy markets.
Israel Hamas war and the affect European gas prices?
Natural gas prices in Europe have soared about 40% since the war between Israel and Hamas started.
The amount of gas flowing from Egypt to Europe is relatively small, and with European gas inventories nearly full, the ongoing crisis in the Middle East hasn't immediately impacted the demand. Yet, looking ahead, there's a potential for prices to rise even more if Israel encounters obstacles in delivering the anticipated volume of natural gas to global markets.
Prior to the closure of the Tamar gas field, Israel had produced a substantial 12.3 billion cubic meters of gas in the first half of 2023, and projections indicated that the country was poised for a record production year in 2023.
Jason Perz AAO Research