Global gas prices are at “extreme levels” due to low inventories and strong demand in Europe and China, and the market is set for a reasonably bullish five-year outlook, said Russell Hardy, chief executive officer of Vitol.
In a pre-recorded interview for the 2021 edition of the annual Platts APPEC conference, Hardy said global oil market has had a “pretty orderly” 2021 thanks in part to supply management by the global producers, but overall demand remained 4 million barrels per day behind the pre-COVID-19 levels of 2019.
Extreme cold weather last winter thinned natural gas stocks in the West and inventories have failed to be rebuilt in time, resulting in record prices near $26 per million British thermal units (mmBtu).
“The low inventories have not been replenished in the way we like … the prices are at extreme levels that are way in excess of the cost for the supply chains to manage to manufacture fertilizer and other chemicals,” said Hardy.
Weather will be the single dominant factor driving demand and supply this winter, and the market is embracing for a few more months of volatility, he said.
Demand, however, has been less elastic especially from growth centres like China, where imports for both liquefied natural gas and pipeline gas have expanded strongly, he said.
While oil remains its dominant business, Vitol has pledged $1 billion in spending on green projects for the process of transition towards more environmentally friendly energy sources.
Hardy said carbon dioxide could emerge as a new physical commodity, especially in Europe, as more firms engage in the business of its capture, transport and storage.
The global shipping industry is also turning greener beyond capping sulphur content in conventional fuel oil from 2020, by adopting zero-carbon emitting ammonia and lower-carbon liquefied natural gas (LNG) as new bunker fuels.
After a slow start over the past few years, the first vessel fuelled by ammonia is expected to sail in 2024, and use of LNG as marine bunker fuel is expected to gain traction around 2025 and 2030, he added.
Despite growing innovation promoting the use of digital ledgers in energy trading to fight fraud, Hardy believes these technologies have their limits as some business in the “complicated space” of oil trading, such as floating storage, are not yet governed by digital technology.
Source: Reuters (Reporting by Chen Aizhu; Editing by Tom Hogue and Kenneth Maxwell)