High natural gas prices could lead to an additional oil demand of up to 2 million BPD

Oil prices have plummeted for several years after OPEC and other major producers chose to increase production more than previously agreed. However, it is the natural gas direction that has seen the direction of natural gas, having increased by more than 300% since 2014 by surpassing oil and many other commodities.

As the global energy market continues to burn, natural gas prices are affecting crude oil, and consumers are looking for cheaper fuel to replace it. In fact, one big unusual thing is now: the trend of energy producers shifting from expensive natural gas to oil, a trend that has been going on for decades.

It is a growing but rapidly growing trend that could increase global raw material demand by 2 million B / d in just a few years.

Gas trade equivalent to $ 200 per barrel of oil

In Europe and Asia, especially in China, gas demand is rising due to bad weather, and economies are getting out of hand. Natural gas markets have recently gained momentum due to the recent increase in natural gas prices in the Northern Hemisphere.

Although natural gas production began in Europe several months ago, it is spreading like wildfire.

To keep an eye on the current high prices, experts say Europe and Asia have been hit hard by the fact that gas prices are now trading at more than $ 200 a barrel. Procession.

German energy prices for 2022 supply to € 120 / MWh, Dutch TTF’s first month gas prices to € 85 / MWh or $ 29 / MMBtu or more, averaged more than 3X over the past five years. It is 5X higher than the five-year average. Meanwhile, the United States has recently raised the price of natural gas by 6.25 / MMBtu for seven years.

Market experts warn that current gas prices could boost demand for crude oil by encouraging a shift to oil and exacerbating current supply shortages in oil markets.

Lack of supply and the expected combination of power generation to switch to natural gas and coal to maintain the necessary foundation load on the grid.

“This has never happened before in the world. The market is always trying to replace cheap oil with cheaper natural gas. ” SEB Goods analyst Bjarne Schieldrop told Reuters.

The size and speed of the switch varies between power experts.

Shieldrop puts demand increase at 500,000 b / d, same Saudi Aramo Chief Executive Officer Amin Nasser estimates.

JP Morgan It has seen potential growth in fossil fuels up to 2 million BPD, but in March 750,000 b / d is more realistic.

Meanwhile, the Conservative International Energy Agency (IEA) has set the demand at a modest 200,000 b / d and said the switch is widespread in Indonesia, Pakistan, the Middle East and Bangladesh.

It will no longer be a business as usual

It is not the usual business in the oil markets, and the old adage is that the best cure for high prices is not to make high prices.

The big difference at this point is that the heat on ESG and Green Transformation has reached a fever level and effectively suppressed price increases and demand, i.e. the manufacturers’ standard long-term caps response. Without such a quick response from manufacturers, it seems that the only way is to leave markets to their own devices.

But it will be interesting to see how JP Morgan and his allies will soon be able to handle $ 150 a barrel of oil. This bull runs the bull.

By Alex Kimani to Oilprice.com

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