The gas gambit

Gas is quickly becoming a global commodity, but the fuel has also become a pawn in a game of geopolitics between large gas producing countries. 

This week’s pod looks at the politics of gas as well as its fundamental drivers and competition, and the need to decarbonise the sector. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guest: 

• Karen Sund of Sund Energy. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. Today we are talking gas. We're talking about the impact of the coronavirus on the oversupply of the LNGs swab. Flooding into Europe. My name is Richard Sverrisson, and today it's a, it's a great pleasure to be joined by Karen Sund of Sund Energy. Welcome to you, Karen.

Karen Sund of Sund Energy: 0:28

Thank you.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:28

So I thought we could start off by talking about the coronavirus and how that's impacted. I mean, it's had a massive impact on demand for oil, certainly in Asia and elsewhere. But more specifically, what, what does it mean for the gas market?

Karen Sund of Sund Energy: 0:42

Well, it's paralyzing a lot of industry. Energy demand is. Drastically down. And the Chinese were quite quick already several weeks ago to claim force ma mature on their LNG contracts. Not all the sellers agreed, but the gas cannot be delivered 'cause they can't use it right now. So already we had the trend of some l and g cargoes looking to Europe instead of Asia as the prices were equalizing and now even more.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:11

Even more. Do you have any sort of numbers on your tips of your fingers or in,

Karen Sund of Sund Energy: 1:15

well, LNG deliveries to China are drastically down and I'm sorry, I don't have

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:21

No, no, no, no worries

Karen Sund of Sund Energy: 1:22

numbers for that. But already we've seen production that was intended to go to China, going to Europe and Japan going to Europe. And already we've been seeing Japanese sellers looking at both other Asian markets for reselling and Europe now. This is quite a unique situation then. I mean, what, what is the, so the Corona comes on top, as you said, of the already oversupplied market.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:48

What kind of impact is that having on prices in Europe?

Karen Sund of Sund Energy: 1:52

Well, they're falling, aren't they? Of course. Exactly. So as OPEC said, when they didn't hold back production so much, What are you complaining about? It's cheap gas.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:01

Exactly. So we're down below 10 euros. A megawatt hour?

Karen Sund of Sund Energy: 2:04

Yeah, well below.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:05

Well below.

Karen Sund of Sund Energy: 2:05

And, and the forward price is not looking like sudden increase either.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:10

So is there any, any, are there any bullish signs out there? Current? Is there anything we can expect to sort of prop up prices?

Karen Sund of Sund Energy: 2:16

You want high prices again? Not really.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:19

No. So you think we,

Karen Sund of Sund Energy: 2:20

it's been a mild winter. There's no constraining. Pipeline supplies, and no one really expected l and g to be so able and willing to deliver into low price markets,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:32

but which it has done

Karen Sund of Sund Energy: 2:33

well, turning off is a difficult thing for many.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:36

Exactly.

Karen Sund of Sund Energy: 2:37

It has to go somewhere.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:37

We've seen, and obviously Asian prices are also at historic lows. Yeah. And it's Henry Hub, so it's a, it's, well, Henry

Karen Sund of Sund Energy: 2:43

Hub is always kind of lower and now it's even lower, so they have to export to not have even lower prices at home. Or cut production, of course. Japan has changed from being a hundred percent oil link at high oil prices to low oil prices for the oil link. And much more sport trading. So the JKM and Singapore prices and all these are way down. And sometimes even lower than TTF, which was seen as completely impossible. It's not that long ago.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:12

Exactly. So we're in a,

Karen Sund of Sund Energy: 3:14

it's basic economics 1 0

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:15

1, isn't it? Absolutely. Yeah, absolutely. No demand, massive supply. Well, it's not

Karen Sund of Sund Energy: 3:20

No demand. Yeah. It's just not, it hasn't increased as much as some had hoped for. And it's been a mild winter in Europe and

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:28

I, Asia

Karen Sund of Sund Energy: 3:28

Well, and yeah. And Anana Asia and, um, Corona On top of that,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:33

if you are a betting woman, Karen, how long would you, would you say these low prices can last? One, one to two years? I. More are we in a, I hate the word, but a sort of paradigm of, of, of lower, of lower gas prices globally? Yeah.

Karen Sund of Sund Energy: 3:46

I don't, I don't see anything making them suddenly go back to what they used to be or what l and g suppliers want them to be. 12 to 18, um, isn't on the horizon as far as I can see.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:58

Yep, fair enough. I mean, I think that's. Perhaps a very good sign for clean power generation in Europe if you're, if you're talking, you know,

Karen Sund of Sund Energy: 4:05

cleaner than coal, but

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:06

cleaner than coal. Exactly. But it's not exactly clean.

Karen Sund of Sund Energy: 4:08

Not a hundred percent, no. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:09

But, and then we've seen that a massive amount of fuel switching across Europe.

Karen Sund of Sund Energy: 4:11

So even Germany now has been using some gas and that's nice.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:15

But what does this mean? So you've had this scenario, very low prices, you have huge, you know, amounts of supply coming into to Europe. How should or how are. What, what's your reflection on how gas prom or the Russian producers and Norwegian are reacting to this? This situation?

Karen Sund of Sund Energy: 4:32

Not very much so far. And they've both been arguing that we have cheaper gas. So we can beat the LNG. And now the LNG is delivering at very low prices, so cost isn't really coming into it. So as I said to them many years ago, you're killing each other. But they have a strong belief in that their lovely gas is needed and they have lower cost than their competitors, so they will survive because the price will not go below cost. But now it has, and at least for most of them. And as long as they're not holding back, which is difficult for an engineer who's put billions into a facility, they keep delivering at low prices. And the longer they do that, the longer the prices will be low and the longer. Well, increasingly it will be impossible to say I really deserve 15. When you settle for five.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:28

Yeah, no, absolutely. Or three. Absolutely. Yeah. So you don't expect them to turn off the taps anytime soon?

Karen Sund of Sund Energy: 5:33

Well, I would if I were them. But you know, unlike opec, we don't have a similar arrangement for gas, and they all feel that they deserve cash now because they have invested a lot and they, yeah, they all need cash. And if the scenario is let's turn off for 10 years and then come back 2030, then. There are a lot of countries saying 2030, the gas demand will be lower. And certainly Norway isn't talking about reducing their gas exports before 2030, but what, or 40. But what we've

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:05

Yeah, absolutely. So we've had estimates, one of our journalists talk to EOR recently, and also it was on their, on their slides as they presented their results so that their costs are under $2 per M-M-B-T-U. And is that also the case in Russia or is that their costs even lower?

Karen Sund of Sund Energy: 6:21

Depends who you ask. Yeah. Okay. There are very many estimates of Russian costs and some analysts say they are much higher than what the Russians themselves say.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:31

Okay.

Karen Sund of Sund Energy: 6:32

I'm not a cost expert, but they do have some long distances and I. Comes down to what is the alternative? I'm an economist and exactly. What is your plan B?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:41

Yeah. Are you seeing any indications of a plan B so far?

Karen Sund of Sund Energy: 6:44

We've had periods of low prices before. When the oiling price was much higher than the spot price. The Russians were very clear that we shouldn't oversupply the market because the spot price difference then will be much bigger. And that would put even more pressure on the oiling prices that they were holding back. While they were doing that for commercial reasons, the story coming out of Stego was see their technically. Inept. You can't trust them. You should buy Norwegian gas. So that was perceived by some as being free rider. The Russian gas is bigger in Europe than the Norwegian gas. So it's still helped a bit. And of course now there's hardly any oil in contracts left.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:26

Absolutely. And we have seen Norwegian and Russian gas exports. You know, at record highs. Yeah. They keep going up. They keep going up and up incrementally.

Karen Sund of Sund Energy: 7:35

And even if Brussel says We don't like Russian gas, it still going up. That is

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:38

increasing more, which brings me on to, I mean, when Nord Stream two comes on there'll be even more gas coming into the market.

Karen Sund of Sund Energy: 7:43

Well, Nord Stream two is a pipeline. Yeah. Where the Russian gas will flow. Is up to them. Now they've said they'll send a bit through Ukraine.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:52

Yeah.

Karen Sund of Sund Energy: 7:52

And Nord Stream two will deliver it right to the market. Germany is the most important market. For Russia. It was the Germans who wanted a direct link. It was their initiative to get Nord stream to them because they didn't trust going through many other countries, including Ukraine. The EU looks different. So suddenly we are concerned about Ukraine's neighbors that are in the eu. So we can see Merkel. Trying to please both sides. And that is more difficult.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:21

It's a tricky game, isn't it?

Karen Sund of Sund Energy: 8:23

Well, gas flow should match, demand, not flow for the sake of it. Nord stream won't be full if the gas is not needed or bought. How tricky it is. Yeah. There's a diplomatic exercise on the geopolitics. Absolutely. Which is a podcast in itself, perhaps. Yeah, I think so. But I find interesting that the US are pushing. L Freedom Gas l and g more to the east of Europe than to the West. So in a way, the preference flows are crossing in that Norway also, but especially Russia prefers Western Europe. While US seems to prefer Eastern Europe. Many people tell me that, oh, but it's just to push their gas. And I'm like, I think it's political influence using gas. Okay. Croatia, Romania, even Ukraine. Okay. LNG is being pushed way across Europe or around Europe, while of course some is also coming into Western Europe. But now it's. Border lining and dumping, isn't it?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:29

Absolutely. And so this is also happening in Poland and Lithuania, where those, the two Yeah, that's where it started. That's the yeah, yeah.

Karen Sund of Sund Energy: 9:35

And people think it's only Trump, but when. Obama was president, he sent Kelly to Stockholm to try to get them to veto Nord Stream two not only to sell LNG, but that is what Eastern Europeans wanted. I see it as kind of, um, flirting exercise.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:53

Okay. So the US is sort of flirting with Eastern Europe. And whereas Russia is and is siding with the Western Yeah. House. Yeah. Yeah. It's a very interesting geopolitical. Game on the back of this commodity called gas.

Karen Sund of Sund Energy: 10:05

And then also it seems to be some, what should we say, communication between the Russians and the Americans. So it was interesting just before Christmas that when there was some kind of agreement between Ukraine and Russia on some flows, within hours, the US put down sanctions on Nord Stream that they've been threatening to do for a long time. And you could almost think that. They would've been more bothersome before. And now they were not so bothersome and they, you know, it was a hundred kilometers left. So Nord Stream two will be built. It's just a matter of time Right now, there's no panic in the markets for missing capacity.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:44

Absolutely not. But how do you see this geopolitical game playing out? I mean, you've got the sanctions on the table now. Yeah. Uh, which is, you know, against the, so the Western. Companies for pipeline. German companies primarily pulled out. Yeah. Yeah.

Karen Sund of Sund Energy: 10:57

Not just German.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:58

Okay. But I mean, the sanctions are against the German companies. That's what we mean.

Karen Sund of Sund Energy: 11:01

They're against Western European countries companies. Sorry.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:04

And how do you expect that to play out, do you think? Do you think that will, they'll follow through and it will hit these hump companies hard? Well, it's been followed through and they

Karen Sund of Sund Energy: 11:12

have left the project. How hard it is. Who knows, but it's an unusual situation between, especially Germany and the US where the US is increasingly seeing Germany as two Russian friendly. While they, they always were, I mean, they always had gas, long gas contracts and on the board of Ross Nft and all, you know, there's been friendship and. Dealings for very many years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:40

It's a, it's a fascinating environment where you have the, the geopolitical game playing out to get, you know, playing out with a, in the background of this, this commodity that we, you know, natural gas.

Karen Sund of Sund Energy: 11:50

And as long as the US offers l and g that is cheaper than Russian pipeline gas, you know, it's not so bad for the customers either. Exactly. But, you know, competition's a good thing, right? Competition's a good thing, but how much will they be? Making money. The private companies that are exporting this gas will be interesting to see, but you know, you see. They're making money, but they were early. Some of the new projects are more upfront on their costs.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:20

Absolutely. That brings me to my next question, if you like. I mean, how, you know, given this environment of, of very low prices, how, how are us, um, exporters, producers, reacting? I mean, is there a chance that some of these, these ships could be locked in, that some of these companies could go bus Steven? I mean,

Karen Sund of Sund Energy: 12:36

everything is possible, but so far all we see is increased. All we see is new F Fis and Energy Information Agency is predicting even more l energy this year than last year. I don't know if they've adjusted for Corona yet, but okay.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:51

Yeah,

Karen Sund of Sund Energy: 12:51

it seems bullish.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:53

The bull keeps rolling, if you like. Yeah.

Karen Sund of Sund Energy: 12:54

And Australia too. I mean, there, there's no sign of shutting down.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:58

Yeah. And the Qatar is, I mean, what, what did they, the

Karen Sund of Sund Energy: 13:00

Qataris, you know, for a long time they were seen as the adult in the room putting in a moratorium because they saw that if, if there's an nous and g. Then that's bad for everyone. But when everyone. Pushes the go ahead. They lifted their moratorium too.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:16

So it's all go on all fronts. There's no or no all go. Yeah, all go. Yeah. So there's but would you hold it back for 50 years? That's an interesting question, Karen. I don't think in the current environment, not really. This week, we're also seeing, a new climate law coming from Brussels or do a green deal. The new green deal. Exactly. What does this mean for the gas sector? I mean, do they have to sort of decarbonize or die

Karen Sund of Sund Energy: 13:37

at some point? Not this week. But there's a lot of decarbonization going on in the markets, and I'm amazed that stang still sees things like. Biogas as such a little thing, we don't need to worry about it. France wants to be a hundred percent decarbonized

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:53

In the gas sector.

Karen Sund of Sund Energy: 13:54

Yeah, in the gas sector. And what Norwegians forget is that most of the gas is for distribution to heating. It's not just gas generation, but that is what gets focused, especially by and other power boys. Course, the thing is the large volume of distribution. It goes to heating households, they won't suddenly go electric, partly because the electricity prices are too high. But changing the nature of the natural gas that they, or the gas that they are using for heating will reduce emissions quite drastically. At the same time, all. European EU members are net importers of gas, whether it's from Norway, Russia, or us, or many other options. Making biogas by capturing methane and then putting it into the pipeline. It is good for the economy. It's good for the trade balance. It's showing that you're doing something for the climate. It's good for the farmers. It's all kinds of issues that politicians and also. At EU parliament level, sea are needed for this so-called green shift. They need employment, they need self-sufficiency. So importing fossil fuels is not going to grow as soon as it's possible to cut Absolutely. From any country.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:21

But there's also the H word here, hydrogen. Are you a believer in hydrogen as a solution for, you know, the decarbonization of the gas sector? Or one route anyway?

Karen Sund of Sund Energy: 15:31

I dunno what it means to be a believer. Okay, hydrogen is there. Tiny, tiny, tiny. It can be made from natural gas. Blue, it can be made from electricity, which uses a lot of energy. So I think energy system efficiency needs to be talked about at some point. It can also be made from biogas, and if that is capturing methane, that could be negative emission technology, which is cutting double hydrogen can be transported in pipelines, especially if they are. PVC instead of steel can be used. It's much more similar to what people had in their gas works before they got natural gas. So they just need to change. Some burners can be blended into natural gas and other energy forms. So it will happen. It's just the pace, maybe bio is simpler, less explosive, more energy efficient, but they're cousins. It's H two and C four. The only thing that differs is CO2 and when that CO2 comes from green, it's easier to play around with it and even emit it. So you can make one from the other. If you have too much hydrogen, add some CO2 and you have gas.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:49

And the other way around, of course, but some experts will say that, you know, through the, the massive rollout of renewable energy, especially, uh, wind and solar,

Karen Sund of Sund Energy: 16:57

you need something to eat over

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:59

and you can use that excess energy when there's a very, you know, sunny or a windy day. You can, you can use that to produce, uh, hydrogen.

Karen Sund of Sund Energy: 17:06

Yeah, yeah, yeah. But. As people said 10 years ago, we've got so much l and g, we can, we've got so much gas, we can export l and g. Yeah, you can. But if everyone does it at once, it's not so profitable. If everyone wanting to make hydrogen is aiming for negatively priced electricity, it won't be negatively priced.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:25

Yeah. Yeah. So these are basic market fundamentals. Fundamentals that need to come into the picture,

Karen Sund of Sund Energy: 17:30

and there will be storage and there will be, you know, all kinds of clever things. Where I look for innovation is, um, on the commercial side, how do we make good value chains? How do we appreciate technologies that cut more than others? And I find much more research and innovation is being done on the technology. Bits, uh, rather than how to make them profitable to use.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:55

Okay. How long have the, the, you know, the big oil and gas majors got to sort of pump out this gas? I mean, we, you said sort of five, 10 years, or, I mean, but, but on gets to 2030. Where's the demand for fossil fuels gonna be? I mean, well, there's

Karen Sund of Sund Energy: 18:09

still gonna be a demand for fossil fuels and countries outside Europe don't have the same ambitions yet. The cop reporting. Is showing increase for many countries, and some of them will try to replace coal with gas. But being a biogas girl also, everyone has sewage. Almost all developing countries have animal manure that can make gas. And if you're in Kenya or if you're in Vietnam and you can make your own from your own rubbish, cut your emissions from that and reduce your import in hard currency. I think that will happen. Unless we all go vegan but how quickly it goes, oh, well yeah, that's another discussion, but how quickly it goes. And 2030, of course it will still be gas used many places. Especially when it's cheap, that will do a first increase in some countries. Now we see Bangladesh importing and so on. And then when is the next step? When is the real cutting happening and let's say. Fossil free eu. By 2050. That's the challenge for Norway and Russia when it comes to gas exports.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:24

Absolutely. We'll see. We'll keep a close eye on developments. I think Karen,

Karen Sund of Sund Energy: 19:28

and I think that's only natural, but that also means that even the oil companies are now seeing that demand could fall. So that, as you were saying earlier, just means that I don't want to stop. So do it while you can. Absolutely. Even if it's low prices.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:43

Perfect. Keran, thank you very much for a discussion on what's happening in the gas market and a glimpse into the future as well of the low carbon world potentially for the gas sector. It was a pleasure having you on the Mont podcast. We hope to have you on board again. Thanks for having me. That's about all from the Monte Week. Clip podcast this week. Remember to keep up to date with all our stories on Monte News and follow us on Twitter, LinkedIn, and subscribe on Apple Podcasts and Spotify. Thank you and.