Expertise
Gas Market Outlook in Central Asia and Europe
John Roberts, Energy Security Specialist, Methinks Consultancy, Member of the United Nations Economic Commission for Europe (UNECE)
We are all witnessing a paradox in the global economy: On one hand, due to climate change, we urgently need to abandon fossil fuels. On the other hand, as a result of the war in Ukraine, we are more dependent on fossil fuels than ever.
Let’s begin with the so-called climate crisis, which has been ongoing for years and decades. The world must either prevent it or learn to cope with the growing global warming, which, according to the latest Intergovernmental Panel on Climate Change report, will exceed 1.5°C above pre-industrial levels within the next decade.
The intensifying global warming increases and accelerates the risks associated with extreme weather events, such as heatwaves, droughts, and wildfires. As we remain inactive, these risks grow yearly, and the opportunities to rectify the situation diminish daily.
The problem is that any transition assumes a natural pace of implementation, which may not align with our lifespan. Accordingly, the window of opportunity for taking action is slipping away from us.
Another crisis, triggered by the events between Russia and Ukraine since February 2022, has been the disruption of Russian supplies, primarily of fossil fuels. One outcome has been the reduction of traditional Russian pipeline gas supplies to Europe and a wave of sanctions against Russia. This has triggered a crisis, including extremely high consumer fuel prices in most European countries.
This has also caused a significant crisis in developing countries. While the worst may be behind us, and the world has adapted to the situation, thanks largely to liquefied gas supplies from the U.S. and Qatar, the problem persists.
These two crises share a common message: We must reduce our dependency on fossil fuels as quickly as possible. I emphasize that we must reduce dependency, not eliminate it entirely—achieving a complete phase-out of fossil resources will take many years.
We have all witnessed the transformation of the gas market. First and foremost, I am referring to the surge in demand for liquefied natural gas from the U.S. and Qatar. Demand has pushed Qatar to expand its production capacity to at least 142 bln cubic meters per year. Climate change triggered this shift, and the military actions in Ukraine accelerated the rise in demand for LNG.
What is the difference between the short-term and long-term outlook? Gas is needed as a fuel source in the short term. But is gas also required as a backup energy source in case of difficulties with renewable energy? In Europe, new volumes and gas supply contracts may be necessary to replace gas with "clean energy" as part of the long-term energy transition.
Why am I bringing this up? It’s very simple. Anyone wanting to supply gas to Europe must understand that investment in expanding gas production capacity is required now.
Looking at the forecasts for gas demand in Europe, we see an increase until 2030, followed by a decline (see Fig. 1). The question arises: Who will invest in additional production under such circumstances? And it's not Kazakhstan or Azerbaijan. This issue is far more serious than many realize. BP will only invest in major expansion projects at Shah Deniz or deepwater gas production at Azeri-Chirag-Gunashli and other new fields if it is confident that long-term contracts for raw materials will justify its investments.
Renewable energy is not a panacea, as many countries lack adequate energy storage systems. For such countries, natural gas covers peak demand and smoothing consumption fluctuations when "green" energy production is insufficient due to climate or other conditions.