World embraces dirtier fuels as gas soars sky-high


(Bloomberg) – With high natural gas prices showing no signs of abating and supplies getting harder to come by, cheaper and dirtier alternatives to fuel are looking increasingly tempting to eager buyers. energy.

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Liquefied natural gas prices in Asia are now around $50 per million British thermal units. On an energy equivalent basis, the price of gas was about double the price of diesel in early August, with high sulfur fuel oil and coal even cheaper, according to data from S&P Global Commodity Insights.

In Europe, the situation is similar, with natural gas at around $60, at least triple the price of HSFO and propane, according to energy consultancy FGE.

Natural gas has become the most sought-after commodity as Russia, a crucial source of piped gas to Europe and LNG to Asia, maintains a stranglehold on supplies amid a global energy crisis. There is not enough for everyone and the situation is expected to get worse as winter approaches. At the same time, soaring prices are making fuel unaffordable for some countries. The result is that buyers rich and poor are increasingly looking at alternatives.

“With concerns that supply will become very tight this coming winter, various governments have recently announced that they will allow more fuel oil and coal to be burned in power plants,” said Steve Sawyer, director of refining at the consultancy. industrial FGE. “If the flexibility to burn fuels other than natural gas is already installed, then we suspect it’s already being used,” he said.

The International Energy Agency on Thursday raised its forecast for global oil demand growth from 380,000 barrels per day to 2.1 million barrels per day, in hopes that industry and oil producers electricity will switch their fuel to oil. The additional demand that prompted the revision is “extremely concentrated” in the Middle East and Europe, the agency said.

The IEA’s view was echoed by Damien Courvalin, head of energy research at Goldman Sachs, who expects the switch from gas to oil to represent 1.5 million barrels per day of additional demand this winter, compared to one million barrels per day last year. Demand will come from the power sector as well as industries, he said in an interview with Bloomberg.

In Asia, Pakistan and Bangladesh are among the countries with large facilities that can switch between natural gas and fuel oil for power generation.

Pakistan and Bangladesh “have significant oil-generated power capacity and face severe budget constraints to continue buying expensive LNG,” said Max van der Velden, principal consultant at Wood Mackenzie. “They’re trying to keep the lights on and avoid serious economic strain by using fuel oil.”

The gas switch is a setback in the global push for cleaner energy. Many countries have turned to natural gas as part of decarbonization efforts because it is the cleanest fossil fuel. Dirtier alternatives, from coal to liquid fuel, will make it harder for nations to meet their climate goals.

The European Commission will continue to allow an increase in coal-fired power generation this year and next, temporarily reversing the long-term decline in coal consumption in Europe, Fitch Solutions analysts said in a note. August 8. And rising LNG prices will encourage power producers around the world to switch from gas to coal wherever possible.

But there are limits to the amount of fuel switching possible. The lack of oil-fired power generation capacity is a problem, as it can be difficult to bring oil- or coal-fired power plants back into service.

“Restarting such plants will depend on how well they are shut down and then maintained,” FGE’s Sawyer said. “Don’t expect such plants to appear overnight.”

Most of Japan’s oil energy capacity is currently unused. According to van der Velden, the plants are old and expensive to restart, will only operate for a short time and will face environmental and political setbacks.

“Japan will still experience annual growth in fuel oil demand for the power sector, but its benefits are limited,” he said.

Still, the financial incentives to switch fuels are hard to ignore, and FGE expects more countries to push for restarting oil-fired power plants. “The process will have to start now if they want to be ready and work to help meet winter demand,” Sawyer said.

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