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The Malabo declaration and natural gas trade

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By Sonny Atumah

Natural gas is believed to be the cleanest of all the fossil fuels because the level of greenhouse gas emission is considerably low. It has become a credible alternative for reducing pollution and maintaining a clean and healthy environment. Natural gas could emit about 55 percent less carbon dioxide than coal and about 30 percent less carbon dioxide than oil in combustion. It is becoming an efficient and competitively priced fuel for electricity generation and heating. The scenario has triggered a global capital expenditure, capex expected to reach around US$1.13 trillion by 2025. It implies a bright future for natural gas investors.

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As the switch from coal to gas gets to feverish pitch, natural gas exporters under the aegis of Gas Exporting Countries Forum, GECF emerged in 2011 in Qatar. It was to promote natural gas as an affordable, abundant and reliable source of energy by encouraging the expansion of natural gas utilization domestically and internationally in different forms and sectors.

The GECF as a gas cartel converged on Malabo, the Equatorial Guinean capital on the 29 November 2019 to discuss the vital importance of natural gas and development of related infrastructure for ensuring global energy security and more sustainable and resilient energy systems. The Gas Exporting Countries Forum members are Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, United Arab Emirates and Venezuela. The Fifth biennial Summit of the GECF Heads of state and government including President Muhammadu Buhari was hosted by President Teodoro Obiang Nguema Mbasogo of Equatorial Guinea. The one day Summit acknowledged the essential role of natural gas in the attainment of UN Sustainable Development Goals, in particular Goal 7, as an environmentally friendly, affordable, reliable, accessible and flexible natural resource for ensuring economic development and social progress. Part of the resolution was to enhance the contribution of natural gas as destination fuel for climate change mitigation and adaptation, and the protection of the environment.

The meeting would not have come at a better time as natural gas has become an instrument of global energy geopolitics. The biennial Summit of the GECF is still faced with major issues; the deep concerns and disagreement as regards the unilateral economic restrictions undertaken without approval of the UN Security Council and extraterritorial application of national laws and regulations against GECF Member Countries that negatively affect the development and trade of natural gas. The 2017 Security Council resolution did not favour some of them that ordinarily supply gas to North Korea that was sanctioned for nuclear power acquisition. Russia as a prominent member of the GECF is still having running battle with the United States in global gas production and supplies. Germany imports 85 billion cubic metres, bcm of natural gas annually, making it the world’s third-largest importer after China and Japan. The Nord Stream 2, NS2 which is the best alternative to bring 55 bcm of natural gas by pipeline from Russia to Germany has become controversial. The United States imposed sanctions on the NS2 pipeline project which is currently under construction. The “Power of Siberia” a long-distance, 3,000-km natural gas pipeline connecting Russia and China which was launched last Tuesday, is still an issue. For China, the deal means less reliance on Liquefied Natural Gas shipments from the US and Middle East countries influenced by the US policy.

The inauguration came on the heels of COP 25 climate summit that kicked off in Madrid, Spanish this week. Where do we go in the fight against global warming? We imagine that natural gas has much less pollution and emission of CO2 meaning that gas-fired power plants would replace shutter coal plants. But is an assumption taken too far as China plans to build 121 GW of new coal-fired power plants; hurting global efforts to cut greenhouse gas emissions.  In 2018, the U.S. set world production records for both natural gas and oil. The growth in production is expected to continue and the U.S. is set to become a net energy exporter by 2020. It is a matter of concern that the natural gas cartel would face market share and pricing problems. According to IHS Markit, U.S. natural gas prices could average below US$2/MMBtu next year, the lowest price in real terms since the 1970s. Demand is rising, but not enough to absorb oversupply. Again, the milder-than-usual December weather prediction is causing investors to brace up for prices that may drop this winter. The natural gas spot prices in the Henry Hub spot price dropped from US$2.47 per million British thermal units, MMBtu on Wednesday, November 27 to US$2.44 per MMBtu last Tuesday, December 3.

It has indeed, been an unstable market that pummels continually. Falling natural gas prices keep heating bills low and that may mean rough times for investors. Gas futures are already about 40 per cent lower than they were at this time last year. Analysts say drillers are now able to increase supply faster than domestic or global markets can consume. An over supplied market means an imminent glut. Before market forces can correct the imbalance, a fresh surge of supply from legacy producers would contribute substantial new volumes. Major gas importers that have constituted themselves into a cartel to subdue prices have cashed in on the opportunity to negotiate more flexible deals and concessions from exporters.

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