With natural gas prices headed for a winter high, the resulting difficulties for importing countries are just one of the factors driving the climate-busting fossil fuel out of world markets, the Institute for Energy Economics and Financial Analysis reports, in an update that includes a victory lap for IEEFA’s own prediction last January.
“In January 2021, IEEFA warned that over US$50 billion in gas power projects and LNG import facilities were at risk of cancellation in Bangladesh, Pakistan, and Vietnam, as gas-fired electricity became unaffordable in emerging markets,” the Cleveland-based organization writes. Now, the “number of countries being able to supply electricity due to exceptionally high prices brings into question further expansion or new development of gas import infrastructure” in those same three countries as well as India.
“If the fuel is unaffordable,” IEEFA asks, “why have plans to increase its use?”
The analysis lays out a scenario in which aspiring exporters inclined to gamble on liquefied natural gas (British Columbia Premier John Horgan, take note) find it increasingly difficult to deliver their product at a price their customers can afford. While production increases from LNG giant Qatar would tend to push prices down, IEEFA cites fossil fuel divestment, customer concerns about cost, rising exploration and production expenses, and “climate headwinds” facing LNG as factors that will keep pricing the product out of the market.
“Customers clearly see that renewable energy costs continue to fall, making gas an uncompetitive fuel,” writes IEEFA Energy Finance Analyst Bruce Robertson. “As a result, they are not committing to long-term gas contracts, with contract terms commonly 10 years now compared to 20-year-plus contract terms just seven years ago. Shorter, more flexible contracts make obtaining finance for capital intensive, 30-year LNG projects problematic.”
As well, “it is now generally accepted that gas is not a ‘transition’ fuel to cleaner energy systems, but rather just another carbon-intensive, high-emitting fossil fuel, similar to coal,” he adds. “Carbon pricing and carbon tariffs—increasingly common features of the global economy—are stifling gas’ ability to compete in global energy production.”
In a separate analysis earlier this week, Robertson and IEEFA Energy Analyst Milad Mousavian say Australia’s latest plan to spend A$5.1 billion on offshore gas exploration through 2027 will cost the country 2.5 gigawatts of renewable energy capacity and 4,800 jobs.
“The government has opened up huge exploration areas to expand Australia’s offshore industry, and in the next 10 or so years will be expecting an explosion in development drilling like the one that started before the LNG boom began,” Mousavian said in a release. “However, considering massive global divestment from fossil assets towards renewables, and the inherent risks in the offshore sector, another wave of offshore development is unlikely to occur.”
That means “government and industry must quickly assess the risks and calibrate their vision to avoid stranded assets in Australian waters.”