This year has been extraordinary in many ways. COVID-19 outbreak expanded into a global pandemic situation, which forced almost every country around the globe to announce a lockdown of communities or even closure of national borders. The fall in industrial demand for many raw materials, components and end products resulted in severe problems for various industries. Different energy product prices dropped to levels that we never even thought possible.
How should we view the situation? It was a devastating wake-up call for the whole world. The spread of a virus in China and a local lockdown of a production facility can disrupt the supply chain and, in the worst case, stop the production of another product on the other side of the world. Consequently, companies have now started to think about the importance of the diversification of production sites and the supplier network of raw materials and components. Could this change impact also the energy markets? Are we now going to see an acceleration towards environmentally friendly energy sources?
International trade flows will be important for years to come. The maritime sector is going to play a crucial part also in the future. A shift to LNG-powered vessels from ‘dirty’ fuel oil pushed by the International Maritime Organization’s (IMO) emission regulations, along with local environment regulations and improved LNG truck economics over diesel are expected to expedite LNG growth as a transport fuel. The overall growth in fossil fuels was always going to come to an end, but the COVID-19 crisis may have accelerated this by more than a decade. Although liquefied natural gas (LNG) is also a fossil fuel, it will offer a bridge towards a future with carbon-neutral energy solutions. Liquefied biogas (LBG) is one of those solutions that will come more readily available to our customers as we expand our production capacity to match the increasing demand.
Market environment with low natural gas prices and higher emission prices can intensify the move toward a low-carbon society.
Today’s market environment with record low natural gas prices coupled with higher emission allowance prices can actually intensify the move toward a low-carbon society. With the current price levels, even the most efficient coal-fired power plants are not economical compared to gas-fired power plants. The supply of LNG has increased significantly during the past few years especially from the U.S. Gulf Coast, and supply will continue to outpace demand also during the coming years. European gas inventories are also at record high levels. These factors should keep the natural gas prices at relatively low levels in Europe for the coming winter.
The Nordic power market has also been trading at record low price levels that we have rarely seen in the past. I think these extraordinary events will support the electrification of the economy even further. Renewable energy production, such as wind and solar, will continue to gain ground in the energy mix. Gasum is part of the solution providing baseload energy during the less windy and less sunny days. We have a special opportunity in our hands to make the next leap towards environmentally friendly energy solutions.
The writer is Head of Trading at Gasum.