As the Cyprus Cabinet ratified the EastMed gas pipeline project, which is intended to transport natural gas from the Levantine Basin in Israel and gas fields in Cypriot waters to Greece and Italy, the price of LNG was at about US$1.7 per million British thermal units (mmBtu), down from about US$4.5 at the end of 2018.
At the ratification, Energy Minister Giorgos Lakkotrypis said that the consortium would “soon begin seeking buyers” for EastMed gas.
This is however, likely to be a hard slog, industry analysts warned. Before the novel coronavirus crisis, demand for gas had been expected to stay high, and supply was forecase as being relatively scarce.
Then, the bottom fell out on global LNG benchmark prices in March 2020 due to oversupply brought on by COVID-19, according to a report by the International Gas Union. And then 41.8m tonnes of new capacity were added last year. To top matters off, Qatar, which is a low-cost supplier of natural gas, is expected to forge ahead with a substantial expansion.
The result? Many producers are expected to shut down production, according to a report by consultants Rystad Energy.
Meanwhile the International Energy Agency predicts a worldwide decline of five per cent in gas consumption in 2020.
Investment decisions for proposed multibillion-dollar liquefied natural gas export terminals — which can take up to a decade to plan, permit and build — have been delayed or canceled in Australia, Mozambique, Qatar, Mauritania, Senegal and the United States in the past two months. Analysts estimate that investments of about $50 billion will be held up over the next two year.
Nothing seems to be going as planned. The International Gas Union reports “global disruptions may play important roles in short-term, and eventually long-term, trade activities. But, increasing LNG market liquidity and trade flexibility may lead to reduced short-term risks of such disturbances. Other risks are less visible and may result in regionalized impacts.”
It could be argued, as some analysts do, that this low point in gas prices and sales is temporary, and will reverse as the economy kicks off.
Unfortunately, there is another view, in which purchasers take advantage of the slump to switch over to renewable energy sources for many different uses.
The price of renewable energy in its various forms has decreased sharply, and its use is usually supported by government incentives.
The biggest danger is that battery storage techniques for renewable energy are improving rapidly. With this issue resolved, renewables could become much more popular and easier to use.
Meanwhile, worldwide investments in oil and natural gas are forecast to decline by almost one-third in 2020, according to the International Energy Agency (IEA).
Given this spectre of what the IEA calls “unparalleled decline,” embarking on a new energy-producing project faces serious challenges, to say the least.
Analysts see very little clarity in forecasts for upcoming energy demand, and little chance to profit from the business in this phase.
“A combination of falling demand, lower prices and a rise in cases of non-payment of bills means that energy revenues going to governments and industry are set to fall by well over $1 trillion in 2020,” the IEA concludes.