“Over the next two years, it would seem that the gas prices could remain high and this is because demand is higher than supply”, so explains to Globes Gina Cohen, an expert in energy and a consultant to energy companies and international bodies on the issue of global gas markets. According to Cohen, a significant increase in gas supplies is only expected towards the mid of this decade.

The gas prices on the European hubs reached $30/MMBtu at the weekend after they had already broken above $40 earlier during the month as they did in Asia – a peak of all times.

What are the reasons for this current crisis?

It is what is known as a perfect storm. It was a combination of a number of factors, both on the supply and on the demand side, that led to this gap that led to a hike in prices.

From the supply side, the first issue is weather related, from extreme weather conditions that damaged supplies. The Ida hurricane in the Gulf of Mexico, drought in South America, lower production from the water streams in China and lower hydro-power in Norway combined with very low winds leading to 50% less wind power than in 2020. In addition there have been a number of unexpected malfunctions and fires hitting gas infrastructures from Norway to Russia.

Another significant factor, was under-investment by producers, which have yet recuperated from the low prices at the peak of the corona epidemic, when demand crashed and they remained with large surpluses of gas that they were unable to sell. In April 2020, for example, the price on the main European Hub, the Dutch TTF fell to $1.84 per MMBtu and less than $3 in Asia. The gas industry is a resource intensive industry that requires huge investments and a long time lag to increase production in order to keep up with demand. This under-investment was reflected in a fall in production from gas fields in Europe such as those in the North Sea, and gas storage in Europe fell to 16% less than the 5-year average.

From the demand side, we saw strong recuperation in consumption as the global economy grew by 6% since the beginning of this year, combined with a coal winter in Europe and the US that increased demand for gas for heating. China and South Korea saw an especially big hike in demand with total global demand for LNG increasing in a short time span by 5%. China experienced a shortage of coal following a ban on imports from Australia and supply problems from Mongolia, all of which increased even more the demand for gas.

The environmentalists have declared “war” on gas because it emits destructive GHG emissions that speed up global warming. Has their battle succeeded to hurt the current supply?

The green organizations did everything in their power to curb and strangle financing to the oil and gas industry and they succeeded to a large extent by indeed causing a starving off of capital. We saw a strong readiness by banks and financial institutions to cut of money supplies to the industry, exactly because of the environmental struggle. I personally have no doubt that this struggle contributed to an energy shortage and in fact contributed to a worse outcome for the environment due to heighted use of more polluting fuels such as coal and even oil, because oil became cheaper to use in Europe than natural gas. One has to understand that if the world wants to move towards a zero-carbon future – this will require immense investments and will be reflected in higher energy prices.

One could claim also that the gas companies hurried to divide their profits buy paying dividends instead of investing in the development of infrastructure and that they too thus bear a partial responsibility for the crisis. Do you maybe think that the regulators should intervene and forbid gas producers to pay out dividends and thus incentivize them to earmark all their profits to invest in the development of gas infrastructure?

This is what the oil and gas companies did in the past as there whole business is focussed on replenishing their own supplies, but then the pendulum swung as investors felt the pain of losses and the only way they would continue to invest is if they were assured a certain rate of return.

Like everything else in life if you over regulate it, you risk to choke it. I think it best if the companies find the right balance between investing in production and the ability to entice investors to believe in the sector.

Was it a mistake by the countries in Europe to relay on the Nord Stream 2 pipeline as a reliable source of gas supply?

The Europeans didn’t trust this pipeline and did everything in their power – with the help of the USA – to thwart and slow down this pipeline. But that is not the main problem, Russia has 12 pipelines supplying Europe and LNG and supplies over 40% of European gas consumption. The Russians played hard to get this year by supplying only the volumes they had to by their contract and not more to put pressure on the EC to provide the approvals for Nord Stream 2 and to exempt it from 3rd party access.

Until 2008, Gazprom sold nearly 100% of its gas to Europe based on oil-linked prices, today that share has fallen to 20%. It is in fact through regulatory intervention, ending in an antitrust suit in 2018, which led to a settlement requiring Gazprom offering Europe “competitive gas pricing”. But if one looks today, oil linked prices in long-term contracts are today three times lower than spot and future prices. Those entities that have a long-term price based on oil, are thus even today paying much less.

It is said that the solution to the crisis lies with the President of Russia, Vladimir Putin, who can simply open the taps and increase the supply of gas to Europe

At the outset of last week, Putin indeed announced that this is what he would do – but it hasn’t happened yet. It is not clear whether the Russians really want to increase the supply of gas and if yes, whether they can. For example there were reports that the Russian cannot for now increase supplies because their own storage is still below a desirable level and they want to first and foremost replenish supplies for their own needs. What is certain is that the Russian as bearing pressure on the Europeans to get them to commit to long-term contracts – and this is one of the conditions they are dictating before they agree to increase supplies.

To what extent can the US fill the gas shortage in the global and European markets?

In 2020, the US exported 60 bcm of LNG and its capacity stands at 92 bcm. This year, they are expected to increase LNG exports by 30% despite the fact that at this point the US hub prices – namely Henry Hub – are at their highest price since 2007. The Americans put pressure on the Europeans on the matter of restricting Nord Stream 2, inter alia, in order to promote the sale of their own gas – but American gas is not a panacea. The problem is that the global gas supply market has hurdles that need to be remedied, and inter alia suffers from a lack of connectivity.

So are gas prices expected to return to their pre-crisis level and if yes, when and under what conditions?

It is very difficult to predict what direction gas prices will take and there are diverging views regarding the foreseeable future of this current crisis. Under an optimistic scenario of a mild European winter and a recuperation in the supplies of gas from Norway, this can lead to lower prices. A harsh winter on the other hand, will fore countries in Europe to dig into their storage supplies and could bring to a further temporary shortage and a further hike in prices. There are experts who estimate that the TTF hub prices can fall by 50% from their current levels by September 2022, namely reach about $15/MMBtu.

I don’t want to risk making any price forecasts, but in my view, over the next two years we will continue to see high prices, because demand is greater than supply. A significant step growth in supplies in only really expected by mid-decade.

In Israel, many believe that if it were possible to find realistic solutions to store solar energy that it would be possible to forsake gas as the main fuel. What do you think?

One has to remember that the sun only enables to generate electricity for 19% of the time. One can set up solar facilities in open spaces but the potential is limited and other solutions such as on rooftops are much more expensive than using natural gas in Israel. It is clear that there is a need for facilities that can store energy over long hours in an efficient and affordable manner – but today this technology does not yet readily exist.

On the global level, countries cannot and do not rely only on sun and wind for renewable energy generation. Countries around the world develop alternative sources such as nuclear, biomass and hydro together with the continued use of fossil fuels – until the transition process will be completed.

Today no one denies that the energy transition and the move away from fossil fuels is a reality. The problem is that the talk around the energy transition in the world has been unrealistic and even counterproductive. The solution to the climate crisis cannot be a knee-jack reaction, such as immediately stopping all fossil fuels and replacing them with renewables. Global market is 80% fossil to transform this to 0 carbon is gigantic tasks. It will be very difficult to preserve the correct balance between supply and demand in a market that is in transition towards renewable energies and therefore I believe we can expect many more volatility going forward, even if not necessarily as extreme as the current crisis.


Gina Cohen
Natural Gas Expert