By Emmanuel Addeh
Despite widespread belief that the ongoing crisis in the natural gas industry might hugely impact prices of crude oil, the Organisation of Petroleum Exporting Countries (OPEC), has said the effect will be marginal, given its own scenario analysis.
In a document obtained by THISDAY yesterday, titled, “Brief on Potential Impact of Recent Higher Natural Gas Prices on Global Oil Demand,” the oil producers’ group, noted that the study was necessary given the recent rise in global natural gas prices, and the current low levels of natural storage in various hubs.
Various industry experts and institutions, including the Nigerian National Petroleum Corporation (NNPC) recently made statements to the effect that the rising gas prices might lead to its substitution with other fuels, especially petrol, resulting in higher crude oil prices by $10, according to the national oil company.
Natural gas serves as a fuel for industry, mainly for power generation in manufacturing, refining and petrochemicals and residential sectors, but the report focused only on potential implications for industry because of the technical limitations it poses for residents.
It noted that recently, natural gas spot prices have risen sharply in the United States to reach $5.17/mmbtu on 20 September, compared with $1.34/mmbtu a year ago, due to freezing weather seen in the first half of the year and supply disruptions due to extreme weather conditions, in particular Hurricane Ida.
In Europe, prices have also soared on myriad factors, including harsher winter season seen in the H1, 2021 , interruptions of supplies from Russia, concerns about the slow certification process of Russia’s Nord Stream 2 gas pipeline to Europe, lower-than-average storage levels, record prices for carbon emissions, and limited renewable power output.
Compared with $4/mmtu a year ago in South-west Europe, Liquefied Natural Gas (LNG) prices have soared to $25.70/mmbtu as of 20 September, according to Energy Intelligence, while current natural gas prices in Europe are equivalent to $150/b of crude oil.
The in-house document showed that hikes in natural gas prices incentivises substitution to more affordable fuels, indicating that switching from natural gas to LPG was already taking place as evidenced by reports of some refineries already feeding their furnaces with refinery LPG instead of natural gas.
OPEC stated that an important underlying assumption in its September 2021 market report is that weather conditions forecast for the upcoming winter months would be normal in line with the average of the past 20 years.
However, it noted that assuming a harsher winter in the upcoming winter months, which is from October 2021 through March 2022, it will sustain natural gas prices at high levels and incentivise more fuel switching from natural gas to fuel oil.
But the cartel noted that switching is expected only in certain parts of Europe and Asia, where movement from gas-fired to oil-fired power plants in the power generation sector and from natural gas to heating fuel, might occur.
