NGW interview: Gas Exporting Countries Forum [NGW Magazines]
The Gas Exporting Countries Forum (GECF) was established in 2008 but unlike Opec, its remit does not extend to attempts to control or affect market prices. Nevertheless, the GECF may consider various scenarios to rebalance the market and mitigate the risks.
We believe that exporters have to co-ordinate for the present and future development of increased flexible long-term contracts that protect their investment and revenue streams as well as satisfy consumers’ needs.
Almost 60% of global LNG trade last year was indexed to oil with an average 11% discount or ‘slope’ (eg $40/barrel Brent converts into $4.40/mn Btu), while the rest was traded using different gas-on-gas pricing. And even though the collapse in oil prices has translated into a decline in oil-indexed LNG prices, they remain higher than spot prices.
But while the GECF supports the exploration of all possible scenarios to ease the challenges the gas market is facing, none of its principle guiding documents allows for co-ordinated action.
GECF has faced the challenge of how to prop up gas production at a stable level, bearing in mind that European storage is full. Co-operation in gas storage would allow more flexible responses to dynamic global gas demand. But each GECF member enjoys sovereign rights over its natural gas resources, and there are no co-ordinated actions. Only five countries in the GECF have underground storage, of which Russia holds the most.
What was the agenda for the 22nd GECF meeting held online in November?
The esteemed ministers reaffirmed their determination to enhance the pace of co-operation to raise the efficiency of the GECF. They also noted the unrestricted functioning of free and flexible gas markets, as well as uninterrupted supplies to customers, in spite of the numerous challenges and decline in revenues.
They also hailed the brand-new Annual Short-Term Gas Market Report, one of the GECF’s key documents which outlines the resilience of natural gas in the near future.
And its Gas Research Institute (GRI) in Algeria is looking for a director to realise the GECF’s research ambition, particularly in the area of technology. The GRI will support technologies that enable the energy transition towards a greener economy at lower costs, with digital technologies at the core of research activities.
The GECF has initiated an Environmental Knowledge and Solutions (EKS) initiative with 12 actions with five strategic objectives. The aims include working with the United Nations Educational, Scientific and Cultural Organisation (Unesco) on sustainable development, natural resources management, and progress in the African continent.
The GECF has also launched awards for individuals or organisations who support the mission and vision of the GECF and raise its international profile. They start next year and will culminate in a gala ceremony to be held on the sidelines of the 6th GECF Summit in Qatar in November.
Financing gas projects is still difficult as it is a fossil fuel and more banks are holding off for so-called ESG reasons. How to secure the funds for long-term projects?
The GECF and its respective national oil companies have a long history dealing with environmental, social, and governance issues.
In general, the level of return in investment is the main component that a traditional investor considers. Nowadays, some banks are focusing on projects that fulfil environmental, social and governance (ESG) aims. We see these banks as strategic partners to counter the environmental threat and a new way to improve sustainability.
The GECF believes that it is unreasonable to prevent the world from enjoying a modern life guaranteed by natural gas. Millions still need access to energy and curtailing the funding of gas projects will only widen the poverty gap. This contradicts the UN Sustainable Development Goals (SDGs).
Furthermore, most forecasters and experts are confident that natural gas’ share will be around 28% in the global energy mix by 2050 and that it will be the fastest growing fossil fuel by mid-century.
As an organisation, we acknowledge the efforts made by the banks and oil companies to implement ESG programmes but we don’t support the ban on gas projects. Availability of funds is one of the pillars of security of natural gas supplies.
It should be noted that the gas industry is highly capital-intensive, and the source of funding is very wide from shared investments, project finance, corporate finance, or other forms of loans. In a project, the choice of source of funding will not depend only on the ESG but several other elements.
Low prices for oil and gas have hit resource holders hard. How can they extract more value from the gas that they sell?
The impact of Covid-19 lockdown measures hit oil demand harder: the gas industry as a whole, and, more so, the GECF, have been able to demonstrate their resilience, reliability and flexibility during this time.
Producers have sought to use technology and creative ways to reduce upstream costs and optimise operations along the gas value chain, rather than capture more rent downstream. In another sense, ‘value’ can be added to gas by reducing carbon emissions and methane leakage and improving its credentials as the world renews its focus on the energy transition and sustainable development.
Of course, this does not exclude the promotion of natural gas in the downstream, which offers more value-added products and creates jobs, diversifies national economies, and makes the final products available to destination markets.
The GECF sees co-operation amongst industry stakeholders as a win-win situation as both producers and consumers have been affected by the market situation. However, low gas and LNG prices have boosted gas demand, particularly through coal-to-gas switching in Asia and Europe.
Extracting the most value from gas is one of the priority objectives of our Long-Term Strategy. Our members are looking for “common approaches for investment, technology, including technological research and development that stimulates gas demand, sharing of best practices and lessons learned, support of security of supply and demand and adoption of principles of equitable risk sharing among the relevant stakeholders.”
Gas competes with coal still. How do you see gas demand remaining strong without hitting GECF revenues?
Coal is one of the main competitors of natural gas, particularly in the power generation sector. However, environmental policies in the context of climate and sustainable development agendas are gaining momentum and even at the height of Covid-19, gas did better than coal. The steep drop in gas spot prices, spurred by oversupplied markets, has increased the competitiveness and has favoured coal-to-gas switching, while lower cost of LNG supplies has opened additional opportunities for price-sensitive Asian buyers. It has also prompted policy makers to reinforce their anti-pollution measures.
Only gas can meet consumers’ needs for an affordable, reliable, sustainable, abundant and clean source of energy, in baseload and peak periods. Coal and renewable energy fail to fill all these important criteria.
Consider Germany: the biggest consumer of gas in Europe, it plans to close all its nuclear reactors by 2022 and coal power stations by 2038 and substitute them with gas and renewables.
Or India: its policy is to raise the share of gas in its energy mix to 15% by 2030 from 6% today. This will be at the expense of coal.
Moreover, the 13th Natural Gas Long-term Plan of South Korea, with a target of 40mn metric tons of LNG demand by 2031, and the new version of Basic Energy Plan in Japan featuring 27% of natural gas in the power generation mix, will sustain gas demand.
And gas demand in China, the main engine of gas demand globally, is expected to grow by at least 50% by 2030, as part of the so-called ‘Blue Sky’ policy.
According to the latest GECF Global Gas Outlook 2050, the share of coal in the global primary energy mix will fall sharply, from 26% in 2019 to 16% in 2050. Meanwhile, positive policy support in many countries will push gas to the top, providing 28%, compared with 23% today.
In absolute terms, we expect natural gas demand to grow by 50% and reach 5,920bn m³/yr by mid-century. But it is essential to foster co-operation and dialogue between gas producing and consuming countries and investors and policymakers for climate change mitigation.
The cost of wind and solar electricity is coming down but it relies heavily on the flexibility of dispatchable gas-fired plant. How can GECF make the case that renewables need gas?
According to the GECF estimates, expansion of natural gas will continue over the next decades. Such projection is also explained by the rapid growth of renewables – wind and solar – and their inherent unreliability. We believe that natural gas will continue to remain a cornerstone of the electricity grid and support the wind and solar energies in the long run.
In power generation, one key indicator of the competitiveness of natural gas is the long-term levelised cost of producing power by using combined-cycle gas turbines (CCGTs). They remain competitive compared with solar, offshore wind and nuclear, with an average cost estimated at around $78/MWh. In the case of onshore wind, the estimated levelised cost of $66/MWh is less but this does not incorporate the hidden costs of integrating wind in power systems, which includes the costs of strengthening the electricity networks and of back-up to accommodate renewables.
Natural gas can provide a lower-cost investment option, as the share of renewables’ investment decreases with lower subsidies. Natural gas also needs less investment in over-capacity than renewables to give the same supply security.
Does the GECF need to undertake a public information campaign to explain that affordable renewables are not enough to win the war on anthropogenic climate change?
First of all, we share the global concern about climate change and strongly believe that natural gas will play a vital role in realising the ambitious SDGs in particular Goal 7: “Access to affordable, reliable, sustainable and modern energy for all.”
At the GECF, we are keen to foster a conducive environment for advancement of climate change actions and we work with a plethora of organisations in the sphere of renewables, for instance, the International Renewable Energy Agency (Irena). The head of Irena, Francesco La Camera, delivered a keynote lecture at an event of ours last month where he stressed the importance of gas in reducing the ecological footprint of the energy industry and steering the world towards a sustainable future.
Further illustrations of our keenness can be seen in the GECF’s participation in COP 24 and COP 25, as well as our rapidly growing relationships with the UNFCCC, G20, BRICS and others.
Do you see a level playing field for energy, or has the European Commission already picked the winners with its support for green hydrogen?
We observe in the recent policy documents and announcements related to the Green Deal agenda that the European Commission wants to substantially reduce the role of all hydrocarbons in the European energy mix, even the cleanest amongst them. For instance, there is an increasing call for electrolysis-based hydrogen using surplus renewable electricity – green hydrogen – as a long-term option to support decarbonisation. It is an expensive option, which might cost over three times more than ‘blue hydrogen’ using natural gas as feedstock. This cost advantage of gas-based hydrogen adds to other synergies between hydrogen and natural gas, such as the possibility of transporting hydrogen in the existing gas pipelines through appropriate blending.
We believe that developing large scale green hydrogen conversion projects is very challenging technically and economically, especially now, when governments need funds to rebuild after the Covid-19 pandemic.
However, while the rhetoric against gas grows louder in Europe, the reality is that gas continues to receive credit in countries that are accelerating the phase-out of coal in power generation and the nuclear industry is facing substantial challenges to renew its old fleet. It is worth noting that more than four-fifths of this capacity is more than 30 years old in Europe. Nuclear is also experiencing longer outages owing to safety concerns.
Gas also offers efficient and environmentally friendly applications in heating, industrial processes and transport. Further, carbon capture, use and storage (CCUS) and blue hydrogen are also viable and cost-efficient routes for long-term decarbonisation.
Because of all these advantages, we share the view of several European countries that gas is a key solution to shift from coal, and gas projects should be included in the financing support mechanisms set by the EU, including the “Just Transition” fund.
There is a possible gap in the supply stack, given the US production of fracked gas. Does this present an opportunity for GECF members?
Environmental concerns over fracturing are not new, but as your question indicates, it has become more prominent lately.
Since 2010, the US has expanded the level of natural gas production by more than 300bn m³/yr, mostly backed by the expansion of fracking in the Appalachian Basin, the Permian Basin in Texas and the Eagle Ford shale play.
US LNG project developers have created a negative image for fracked gas, especially in the long-term future for gas in Europe with its plans to cut carbon emissions all along the chain.
GECF member countries produce gas from conventional resources. This has a significantly lower impact on the environment. They already have the advantage over other suppliers, especially the shale gas producers, if we factor in the ‘greening up’ of LNG.
GECF member countries sit on 144 trillion m³ of proven gas reserves, which represents 71% of global reserves, most of it conventional. And they account for around 45% of global gas production and 60% of the LNG trade. This is growing, with the Arctic LNG 2 project in Russia, LNG Train 7 in Nigeria and the huge LNG expansion in Qatar. As such, they can boost production and exports by a wide margin.
I have not spoken here about the vast proven gas reserves of some of the GECF members such as Venezuela or Iran, which remain locked up by unilateral economic restrictions.
Furthermore, several GECF member countries have capacity rights in LNG importing facilities, particularly in Europe. Investments can be expanded in the future to capitalise on the opportunities for the supply of gas from the GECF coalition.
In the context of carbon neutrality, greenhouse gas emissions along the gas value chain can impact the long-term future of gas if there are no interventions to tackle this issue. Most recently, we have witnessed an LNG agreement between Qatar Petroleum and Singapore’s Pavilion for the supply of carbon-neutral LNG.
GECF members are established gas suppliers, whose low cost of production has made them secure and reliable suppliers. And using conventional natural gas resources mean that the environmental concerns appear to be stacked in their favour.
Does GECF have its own methane strategy or is that left to individual countries to decide?
The recognition of the environmental role of natural gas has a long history at the GECF, and our members said as far back as the 2011 Doha Declaration that they will independently manage their resources in an efficient, sustainable, and environmentally friendly manner.
In the 2019 Malabo Declaration, the GECF community clearly acknowledged the indispensable contribution natural gas makes to the protection of the environment.
The GECF Long-Term Strategy stresses the importance of measuring greenhouse gas emissions including methane.
The GECF has formulated its own climate framework, which aims to strengthen actions and policies that reduce climate impacts from its members’ energy-related activities. From this exercise, the GECF Environmental Knowledge and Solutions (EKS) initiative was born. The framework consists of 12 actions to enhance the environmental sustainability of natural gas. The framework includes at least two actions regarding methane emissions. The first, related to measuring and reporting methane emissions, is still a challenge and there is a rising need to improve data availability, transparency and harmonisation. The second deals with increasing knowledge sharing on actual projects related to measurement and mitigation of methane emissions.
As well as the earlier mentioned MoU with Unesco, the UNFCC and active participation in COP 24 and COP 25, the GECF is also a regular contributor to the discussions of the UN Economic Commission for Europe (UNECE) Group of Experts on Gas, where we raise the voice of the gas industry and highlight gas’ role in reaching the SDGs.
What role can gas play in the economic recovery?
The advent of Covid-19 hit the gas exporting countries with a double whammy as this disruption coincided with a number of geo-economical developments that added new degrees of uncertainty – low weather-related energy demand, new emerging suppliers in the market and the resultant oversupply and low prices.
Nevertheless, the world of natural gas is used to uncertainties and it manages – time and again – to thrive. In fact, it is during challenging periods like today that natural gas’ unique attributes allow producers to respond quickly and efficiently to market fluctuations and embed this important source of energy into the imagination of policy-makers.
Throughout the pandemic, our members have displayed outstanding discipline and resilience in the continued fulfilment of their obligations towards all contracting parties. It is because of this recent experience, I believe, that when the dust of the ongoing crisis settles and the post-Covid-19 world begins to pick up the pieces, it will be the GECF members who will have emerged stronger, wiser, technologically guided, data driven, and ever more agile.
I have no doubt that the environmental and economic realities of the post-Covid-19 era will in fact help increase the competitiveness of natural gas. The growing consensus among the leaders of the world certainly points to that direction.
As we reach the end of the pandemic tunnel, the world will need an energy partner that can serve as a bridge to a cleaner and sustainable energy transition, provide affordable, modern, and reliable energy to growing populations and future generations, enable the coupling of different energy technologies, from renewables to hydrogen, and accelerate the momentum and scale of the green recovery and sustainable development. In my opinion, natural gas is this partner.
Collaboration is a core strength of our organisation and I believe that dialogue and co-operation will only become more important in weeks and months ahead to enable secure, sustainable and inclusive strategies as the world gets back on the road to recovery.