Gas price faces increasing instability moving forward – Energy Finance Analyst

Mar 25, 2021 News

“The extreme volatility of spot prices combined with the increasing volatility of contract prices will see many projects become unbankable.” – IEEFA Energy Finance Analyst, Gas/LNG, Bruce Robertson

IEEFA Analyst, Bruce Robertson.

Kaieteur News – Energy Finance Analyst, Bruce Robertson, is warning buyers of Gas and Liquefied Natural Gas (LNG) to beware of what is to come. On behalf of Institute for Energy Economics and Financial Analysis (IEEFA), Robertson said that the inherent volatility of the gas commodity is expected to increase in 2021, and that gas customers all over the world can expect that substantially higher prices will be a distinct possibility.
“While contract prices have been relatively stable in the recent past,” Roberton said, “this stability is likely to give way to a renewed period of volatility as drilling activity has been low, gas industry investment in production and development has stalled, and oil and gas companies continue to experience financial instability and poor financial health around the world.”
This prediction is not coming from a novice. According to IEEFA, Robertson has been an investment analyst, fund manager and professional investor for over 35 years. He said that such volatility in spot prices causes gas-fired power plants to be under-utilised, as gas can sometimes be expensive and unaffordable to source.
IEEFA posited that, that price spikes and volatility will exceed that which has been experienced in the last years, with increases in tariffs for gas and electricity customers as well. This means the electricity produced by gas will become unaffordable in emerging markets, because those markets are more price sensitive.
Robertson explained that recent spot price volatility has led to tenders being cancelled, and that prices are being offered at uneconomic rates.
“The extreme volatility of spot prices combined with the increasing volatility of contract prices will see many projects become unbankable.”
He noted that this has affected customers in Pakistan, Vietnam and Bangladesh.
“Volatility and increasing gas prices have placed 42.6 gigawatts (GW) of proposed LNG power projects in Vietnam, Bangladesh and Pakistan at risk,” Robertson wrote. “These projects need LNG import infrastructure such as ports, regasification facilities, and pipelines to get the imported gas to the power stations. We estimate the cost of doing so at over US$1.25 billion per GW.”
The ability of each country to fully utilise their existing LNG powered electricity generation plants, will be inhibited, IEEFA said. This puts over US$50 billion in proposed gas-fired power projects at risk of cancellation due to high LNG prices.
This warning comes at a time when Guyana is sorting out the logistics for a plan to bring associated gas from the Liza Phase One operation, to shore, to power the country. The gas would be way more than Guyana needs, raising questions about how Guyana’s energy sector will be able to manage it without becoming financially unsustainable.