HE Arifin Tasrif, Minister of Energy and Mineral Resources, Republic of Indonesia,
Mr Yudo Dwinanda Priaadi, Chair of the G20 Energy Transition Working Group,
Prof. Tutuka Ariadji, Director General of Oil and Gas, Ministry of Energy and Mineral Resources of Indonesia,
Prof. Hidetoshi Nishimura, President of ERIA,
Ladies and Gentlemen, good morning from Doha and Selamat Siang.
I am pleased and honoured to address such a distinguished gathering.
The world faces a multifaceted crisis and the global energy systems suffer from a succession of shocks.
The coronavirus pandemic led to dramatic human losses and considerable economic damage. The world is still reeling from its adverse impacts.
The post-pandemic recovery is sharply slowed down by the combined effects of the highest inflation in decades, supply chain disruptions, tightening financial conditions, and geopolitical tensions.
Developing countries are the hardest hit by high food and energy prices, as well as increased borrowing costs, causing social unrest and political instability.
According to the IMF, the prospects are gloomy and more uncertain, and the balance of risks is skewed towards the downside.
This workshop focuses on one specific dimension of this global crisis, that of natural gas.
Its origin could be traced back to 2015 when the decline in investment began.
Three main factors contributed to this decline:
1) very low gas prices;
2) a misleading narrative that natural gas use is not compatible with combating climate change, and the ensuing pressures to stop financing natural gas projects, despite increasing demand and a production natural decline of 4 per cent per annum on average;
3) the imposed economic restrictions on countries well-endowed with petroleum reserves and with large production capacities.
This decline in investment has been exacerbated by the 2020 pandemic. Natural gas prices hit the bottom, deepening the financial difficulties of gas exporting countries and those of the industry.
History has shown, again and again, that underinvestment can only lead to higher prices in the long run. And this was clearly visible in the second half of 2021, when demand for gas sharply increased, caused by a strong post-pandemic economic recovery, and by the adverse weather conditions in various regions.
The geopolitical tensions in Eastern Europe have further accelerated gas markets’ tightening at a time when the supply from other energy sources such as renewables and nuclear remains much lower than expected.
Given the sheer size of Russian exports to Europe and the impossibility of fully redirecting the concerned gas volumes to other markets in the near term, the resulting supply-demand unbalance is huge, despite production increases in many regions.
As the role of Europe shifted drastically from being the market of last resort for LNG deliveries to becoming the preferred destination, the adverse effects are being felt worldwide. Hub-based gas prices have reached record levels. Demand shift from gas to oil and coal is underway in many regions and industries. Various policy means, such as price caps and subsidies, are used to shield end-users from the effects of high prices. Developing countries, notably in South Asia, face immense difficulties in acquiring LNG cargos, a situation that is creating havoc on their economies and affecting people’s standard of living.
The risks in the short-term are skewed to the downside. Unless the world economy plunges into a protracted recession, it is likely that market tightness will continue in the near future, and may even worsen in case of colder than normal weather in the Northern hemisphere, requiring extremely high prices or even physical curtailments to balance the market.
In the medium-term, gas markets are expected to remain rather tight, despite the increase in investment during the last year and a half. Major gas developments will only come on stream after 2025.
Against this backdrop, I wish to congratulate ERIA for organising today’s workshop to explore short-term solutions to the global gas crisis. Many of the proposals in the concept note are sound, but when implemented, their effects might be too late to ease market tightness in the rapidly approaching winter.
I look forward to the experts’ discussions and the outcome.
Ladies and gentlemen,
The famous poet Jalal Al-Din Rumi wisely wrote: “where there is ruin, there is hope for a treasure”.
I thus believe that it is important to draw the lessons from the unfolding energy crisis.
The recent developments in the energy scene have brought to the forefront of the energy policy debate the issue of energy security, with its two intertwined and mutually supportive pillars of security of demand and security of supply. These are the two sides of the same coin.
The energy policy rethink now underway shall seek a balance between energy security, affordability and sustainability.
Reaching such a balance will depend on national circumstances. There is no one-size-fits-all model.
At GECF, we believe that natural gas plays a pivotal role to this end: fuelling economic growth, expanding social progress and contributing to the protection of the environment.
Available, clean, flexible, and versatile, it is an enabler of the energy transition; a transition that is just, inclusive, and leaves no one behind.
Natural gas helps to transition away from the use of wood and dung for cooking; thus alleviating the adverse impacts of indoor pollution and reducing deforestation.
It contributes to improving air quality; notably in densely-populated megacities.
It is a partner of renewables; providing much-needed backup and stability to power grids.
In developing countries, notably in Africa and South Asia, switching from coal to gas, along with renewables, constitutes the most realistic and cost-effective energy transition pathway.
Natural gas is the cleanest of hydrocarbon fuels. And yet, it could be made even cleaner, by improving energy efficiency along its value chain, reducing gas flaring and methane emissions, deploying carbon capture, utilisation and storage technology, producing hydrogen, and, lastly, promoting the circular carbon economy.
The GECF Member Countries and their companies are active in all these areas.
To fully play its role as an enabler of the energy transition, natural gas shall be affordable. This is possible, provided that sufficient investments are made in a timely manner, in all segments of the value chain.
Investment is what links the present to the future. It is the key to market stability, along with contractual arrangements that not only take into account the capital-intensive nature, long lead time and payback period of gas investments, but also provide equitable risks sharing between producers and consumers.
To this end, policy and financial support are required, as the needs are huge, to the tune of 10 trillion dollars by 2050.
Ladies and gentlemen,
As the focus is understandably on finding short-term solutions to today’s energy crisis, I wish nevertheless to recall the other protracted energy crisis that billions of people in the developing world are suffering from on a daily basis: the lack of access to modern cooking fuels and to electricity.
The Sustainable Development Goal of universal access to energy by 2030 shall remain a priority objective, and shall be achieved, despite the difficulties that the current global crisis may create.
Ladies and gentlemen,
I wish you fruitful deliberations and a positive outcome in your meeting.
Thank you.