• 03 Feb 2022

By Diego Gavagnin

The "night has to pass…" we mentioned in our end-of-year commentary, is hardly leaving us. The world market, and in particular the European market, due to the Ukrainian crisis and other factors that have led to the explosion of natural gas prices, is now waiting for the end of winter, when consumption for heating and demand and gas supply will return to balance. However, we have to count on international diplomacy.

This crisis, the first since the LNG market became global, coincidentally compared to the oil crisis of 1973, will require a profound reflection on how to deal with other possible future crises, both for big and small scale LNG. Italy and much of Europe have entrusted their energy security to gas pipelines, instead of building an adequate number of plants to receive LNG, which can arrive from all over the world by ship.

However, the situation is so serious that remedies will have to be found, as was done for oil in 1974. And one of the remedies will certainly be LNG. Growth will continue and gain even greater speed, as often after crises like this, which open up new opportunities and force us to look far ahead.

LNG as a transition fuel to 2050 to replace other fossil fuels has no alternative. Even if the Chinese demand is partly at the origin of the triggering of the crisis, we can only be happy if that country, which drags all of Asia, leaves coal and oil to switch to methane. Especially since the arrival of bioGNL and decarbonization processes make it increasingly attractive.

At the present there is a global competition for the construction of new liquefactors and regasifiers, as well as the implementation of the existing ones, driven not only by the current (absurd) prices, but also by the evidence of the role that LNG has assumed in the last few years. Up to now, this function has been little perceived, also due to the exaggerated attention paid to renewable electrical sources, which are slow to arrive.

Above all, the small-scale LNG market has grown in the shadows, and this justifies, but only marginally, the distraction and difficulties of intervention by policy makers for the necessary support measures, adopted rapidly in other sectors. No blame can be placed on this new industrial chain.

What is most perplexing about the current situation is how the lower environmental impact of LNG compared to all other available fuels is not recognized in practice. Every LNG truck that is currently idle (or sent to work in Germany, where it does not pay for motorways) is replaced by a diesel truck, which has a greater impact in terms of Sulphur, particulate matter, nitrogen and CO2 emissions.

This also applies to buses and isolated industries, where perhaps those who can find themselves having to use fuel oil. Today, paradoxically, those who have voluntarily invested in the ecological transition are penalized the most. Absurd, and a dramatic signal for all other areas of the energy transition, which without the commitment of private entrepreneurs will go nowhere.

Italy cannot live on public subsidies. It is merely a matter of recognizing the greater environmental value of natural gas, as the European Commission has also decided by keeping it in the Taxonomy for public aid to transitional energy sources. Moreover, the taxonomy does not concern the small scale, which in normal market situations has shown that it can walk on its own feet.

Another absurd aspect of the lack of timely state intervention is that every cubic meter of LNG added to consumption reduces the country's energy dependence on gas pipelines, which bind us inextricably to suppliers, as the current crisis – after those of 2006 and 2014 – has once again dramatically highlighted. Is it possible that not even this is not recognized?