• 3 minutes "Biden Is Running U.S. Energy Security Into The Ground" by Irina Slav
  • 6 minutes How Far Have We Really Gotten With Alternative Energy
  • 9 minutes "How to Calculate Your Individual ESG Score to ensure that your Digital ID 'benefits' and money are accessible"
  • 2 days GREEN NEW DEAL = BLIZZARD OF LIES
  • 11 days 87,000 new IRS agents, higher taxes, and a massive green energy slush fund... "Here Are The Winners And Losers In The 'Inflation Reduction Act'"-ZeroHedge
  • 23 hours Energy Armageddon
  • 13 hours "Natural Gas Price Fundamental Daily Forecast – Grinding Toward Summer Highs Despite Huge Short Interest" by James Hyerczyk & REUTERS on NatGas
  • 14 hours Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 5 days "Forget Oil, The Real Crisis Is Diesel Inventories: The US Has Just 25 Days Left" by Zero Hedge - 5 Stars *****
  • 5 days "The Global Digital ID Prison" by James Corbett of CorbettReport.com
  • 5 days "Europe’s Energy Crisis Has Ended Its Era Of Abundance" by Irina Slav
  • 5 days The Federal Reserve and Money...Aspects which are not widely known
  • 3 days Is Europe heading for winter of discontent with extensive gas shortages?
  • 7 days Goldman Betting on Cryptocurrencies
  • 10 days Сryptocurrency predictions
  • 15 days Putin and Xi Bet on the Global South
Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

More Info

Premium Content

High Natural Gas Prices Could Lead To 2 Million Bpd Extra Oil Demand

Oil prices have vaulted to multi-year highs after OPEC and other major producers opted last week against increasing output by more than previously agreed. However, it's the natural gas trajectory that has been hogging the limelight after gas prices surged more than 300% to trade at its highest levels since 2014, outpacing oil and many other commodities.

With the global energy market remaining on fire, natural gas prices are increasingly impacting crude oil as well, with consumers looking for cheaper fuels to substitute. Indeed, a major anomaly has now emerged: Power producers are doing an about-face by switching from costly natural gas to oil, a reversal from the decade-long trend of transitioning from costly oil to cheaper and cleaner natural gas.

It's a budding but rapidly growing trend that could boost global crude demand by a good 2 million b/d in the space of just a few years.

Gas trading at the equivalent of $200 per barrel of oil 

Gas demand in Europe and Asia, particularly from China, has remained heightened this year due to adverse weather and also as economies emerge from lockdowns. Natural gas markets have lately been energized by expectations of rebounding demand in the looming northern hemisphere winter as insufficient levels of inventories ahead of the winter season have been driving a spike in natural gas prices.

The natural gas rally started in Europe several months ago but has been spreading like wildfire to the rest of the world. 

To put the current elevated prices into perspective, experts are saying that gas prices are now trading at the equivalent of more than $200 per barrel of oil, with Europe and Asia the hardest hit, making oil look dirt-cheap in comparison despite its own impressive rally.

German power prices for 2022 delivery have surged to €120/MWh, more than 3X the average seen during the previous five years while the price of Dutch TTF first month gas has shot up to nearly €85/MWh or $29/MMBtu or more than 5X higher than the five-year average. Meanwhile, U.S. traded natural gas prices recently surged to a seven-year high at $6.25/MMBtu.

Market experts are now warning that runaway gas prices are likely to ratchet up demand for crude by encouraging gas-to-oil switching and exacerbate the current supply deficit in the oil markets.

A combination of supply shortages and lower-than-expected power generation from renewables is forcing utilities to increasingly turn to natural gas and coal in order to maintain the required baseload across the electrical grid.

"This has never happened before at such a global scale. The market has always tried to substitute from costly oil to much cheaper natural gas," Bjarne Schieldrop, chief SEB commodities analyst, has told Reuters.

The magnitude and speed of the switch varies among energy experts.

Schieldrop has put the demand boost at 500,000 b/d, similar to Saudi Aramco CEO Amin Nasser's estimate.

JP Morgan has put the potential boost in oil-fired power generation by power generators switching to oil as high as 2 million bpd but says 750,000 b/d by March is more realistic.

Meanwhile, the normally conservative International Energy Agency (IEA) has placed the demand bump at a more modest 200,000 b/d and says the switch will be more rampant in Indonesia, Pakistan, the Middle Eastern states and Bangladesh.

No longer business as usual

It's no longer business as usual in the oil markets, and the old saying that the best cure for high prices is high prices is unlikely to work.

The big difference this time around is that the focus on ESG and green transformation has reached a fever pitch and effectively curtailed producers' normal long-cycle capex response to surging prices and rising demand i.e., boosting production. Without such a quick response from producers, it appears that the only path is to leave the markets to their own devices until prices reach a level where they trigger demand destruction. 

But with the likes of JP Morgan recently saying that the economy can handle $150 oil, other analysts saying hyperinflation will see oil prices hit $180/barrel by the end of 2022 and OPEC+ clearly willing to defend higher prices, it will be interesting to see how far this oil bull will run.

By Alex Kimani for Oilprice.com

More Top Reads from Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on October 11 2021 said:
    Rising natural gas prices and shortages have led to a switching from gas-to-coal and gas-to-oil adding an estimated 500,000-750,000 barrels a day (b/d) to global oil demand. If this trend continues, we can see Brent crude hitting $90 a barrel much sooner than is projected.

    Until the global natural gas deficit in the market slows down, the switching trend to oil and coal will continue unabated. This could even be exacerbated if we hit a very harsh winter.

    I wouldn’t be surprised if the world is headed towards a global energy crisis.

    Never in the recent history of energy has the global energy market been controlled by two men: Vladimir Putin of Russia on the supply side and Xi Jinping of China on the demand side.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Lloyd Elledge on October 19 2021 said:
    It sounds as though this pending energy crisis was completely unexpected, and the demand for fossil fuels may even get higher. It also appears that demand for both oil and natural gas will continue to rise, due to both population growth and continuing harsh weather conditions. It looks like it will be nearly impossible for major signees of the Paris Accord to comply with their carbon emissions goals; whether those goals were achievable in the first place. What effect will this have on the global environmentalists? We simply don&amp;amp;amp;amp;amp;amp;amp;amp;amp;#039;t have alternative energy sources to replace fossil fuels.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News