Gas Leaders Urge More Investment in Supply to Avert Shortages

(Bloomberg) -- Sky-high energy prices from Europe to Asia are highlighting the need for more investment in natural gas supplies while renewable energy output still lags, traders and executives gathering in Amsterdam said.

Lessons from the crisis that has forced some industrial plants to curb output, power plants to switch to dirtier fuels and led to a collapse of some energy suppliers in Britain dominated the Flame conference, the gas industry’s first major European get-together since the pandemic.

“Unfortunately, based on some of the under-investment over the last few years in gas infrastructure around the world, you are getting big periods of volatility,” Tarek Souki, executive vice president for LNG marketing at U.S. developer Tellurian Inc., said Tuesday in an interview in Amsterdam on the sidelines of the event. “We clearly don’t have enough infrastructure to provide the gas that we need to keep prices at relatively stable levels.”

Gas prices in Europe have surged more than 200% since the start of the year even before the worst of the winter cold spell, as storage levels are low, Russia is capping flows by pipelines and liquefied natural gas shipments are heading to Asia instead.

The increase won’t last forever as markets will find an equilibrium, Souki said. The industry largely expects prices to ease once Russia adds flows, and in particular, when its Nord Stream 2 pipeline starts shipments. But those plans and the schedule remain unclear. After the winter is over, prices also typically decline.

For now, with no quick options to ease the energy crisis on the supply side, one way to respond to the high-price environment on the demand side is to improve energy efficiency, Antonio Canseco, head of LNG at Swiss utility and trader Axpo Solutions AG, said in a separate interview on the sidelines of Flame.

“There is a lot of energy wasted on a daily basis,” he said.

The industry has become too reliant on “a very quick and very smooth” energy transition to cleaner sources, he said. That has slowed investment in new infrastructure and new LNG supply, while what the market needs starts with commitments from buyers before sellers can begin building their production facilities. In addition, the pandemic and the crash in prices last year further postponed or shelved some of the planned projects.

“Maybe as a backup we need more investment in gas supplies for the mid-term that people are avoiding because they think the energy transition is there,” Canseco said. “One of the lessons of this price crisis is that we need to invest a little bit more in mid-term gas supplies.”

Europe has to attract LNG by taking some “joint statements” and also promoting investments in infrastructure, Jean-Christian Heintz, head of LNG at Alpiq Holding AG, another Swiss utility and trader, said on a panel at Flame.

“We are going to need gas and LNG infrastructure for another few years,” he said.

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