Overproduction of natural gas drives prices to record low ({{contentCtrl.commentsTotal}})

Natural gas consumption and prices are falling
Natural gas consumption and prices are falling Source: Eesti Gaas

The warmer than average winter, competing fuels, and fierce competition between gas sellers have led to natural gas prices falling to their lowest level in a decade. At the same time, gas consumption is decreasing and private consumers are turning to alternatives.

Last autumn, the price of natural gas fell to its lowest level in the last decade and has continued to fall since then. One of the reasons for the long-term decline in gas prices is the oversupply of gas on the world market and the unwillingness of major producers, especially the US and Russia, to reduce gas supplies. The coronavirus has also played a role in the price drop last month - Chinese companies are refusing to accept new supplies of LNG, or liquefied natural gas (LNG), which has pushed global prices for LNG to rock, according to Reuters.

Estonia's largest and practically the only gas importer, Eesti Gaas, which imports most of its gas from Russia, does not see a big problem with the low price, but sees good news for the consumer.

Raul Kotov, Member of the Board of Eesti Gaas, told ERR that the price of gas is influenced by the price of competing fuels, such as heavy and light fuel oil, as well as by competition between gas sellers. However, this year's warm winter in Europe and the coronavirus in Asia meant that stocks traditionally collected before winter turned out to be too high and there was an oversupply.

He said: "Traditionally, gas prices have been lower in the summer months and higher in the winter due to higher winter consumption and lower summer consumption. This was also the case in 2019. At the beginning of the year the price was higher, in summer it fell and in autumn it started to rise again. However, the unexpectedly warm winter in Europe and the corona virus reduced demand in both the U.S. and Asia. If the price rose in December, then in January it has already fallen and forecasts continue for it to fall in February and March."

Kotov said prices are expected to rise again in November, but that gas prices should stay lower prices than in 2018-2019 for the next two to three years. 

Consumption is falling, consumers are looking for alternatives

For consumers, lower prices are good news. At the same time, the Ministry of Economic Affairs and Communications said gas consumption has been declining, as shown by last year. The use of natural gas is expected to increase and be used in new areas such as district heating and transport.

The gas system operator Elering reported consumption in Estonia decreased by 8.6 per cent last year compared to 2018, totaling 4.8 terawatt hours. "The reason for the decline is probably still the outdoor temperature and the partial switch from gas to biofuels in district heating," said Ain Köster, communications manager at Elering.

Raul Kotov pointed out the same reasons, especially the warmer weather and that new household boilers have started to run on wood chips. District heating is an important area for gas, however, since one fifth of the gas consumed in Estonia is used there. One third is used exclusively in industry.

However, Kotov does not think private customers are looking for alternative fuels. "Individual private customers tend not to give up gas, because gas heating is the most convenient fuel - it is automated, there is no storage required, and it's clean - it is the most popular" he said.

Kotov noted alternative solutions are more likely to be considered when there is no connection, or it is too expensive to connect to, gas.

The number of gas consumers has not been influenced by the accidents reported in the media which are connected to gas heating and carbon monoxide poisoning, he said.

State policy directs people away from using gas

As gas is not part of renewable energy, its consumption is also affected by the national energy policy.

For example, heat pumps may be preferred in new residential areas because they have "certain advantages due to the new minimum requirements for energy efficiency," Kotov said.

"Even with new developments, gas heating will continue to be the prefered choice, provided district heating does not limit it. But real estate developers' preferences are increasingly influenced by climate policy. However, since you cannot rely solely on solar or wind power in Estonia, we can see the future with combined solutions such as solar plus gas," Kotov said.

Estonia's energy policy favors renewable fuels, which means that the use of natural gas for district heating has decreased year by year, while it is still needed to cover peak loads, especially during cold weather or winter, and as a reserve fuel.

However, in industry, natural gas continues to be important, even indispensable, because it offers greater flexibility in managing industrial processes while being both environmentally sustainable and economically sound, Kotov noted.

"So we are moderately optimistic about the gas usage of industrial companies and we see growth opportunities. Instead, the amount of natural gas consumed in the future depends on how local industry as a whole is doing, whether it will survive in competition with other countries," he said.

One area where the use of natural gas is on the rise is in the transport sector, which is increasingly becoming biomethane. Estonian biomethane is used in both public and freight transport.

Kotov said three biomethane production complexes are expected to be added to Eesti Gaas this year and production will double compared to last year. However, this does not mean natural gas will quietly disappear from the market.

"Natural gas will not disappear from road transport, as biomethane production requires time-consuming investments, and natural gas is available at all times. Natural gas is like a bridge in the transition from fossil fuels to renewable energy sources and the natural gas infrastructure plays a very important role here, including in the development of hydrogen technology," Kotov said.

According to Kotov, natural gas has great potential for growth in the shipping industry as there are an increasing number of LNG-powered vessels.

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Editor: Helen Wright

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