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How Climate Change Increased The Need For Fossil Fuels In 2021

As the climate is changing, the Arctic is warming four times faster than global averages, causing the circumpolar Jetstream to weaken and move southwards. Consequently, freezing cold air masses – known as the Polar Vortex – descend to more densely populated areas in the earth’s Northern Hemisphere, where humans have no other immediate choice but to increase fossil fuel consumption to keep warm. Analyzing global temperatures and related weather phenomena, Rystad Energy believes that the increased frequency of this weather pattern – which has caused a rise in demand for coal, liquefied natural gas (LNG), electricity and even a bit of oil – is here to stay. Recent eye-popping price spikes and their spread between summer and winter will widen, especially for gas, both natural and liquefied.

With European and Asian markets hungry for natural gas and LNG, storage levels are getting depleted. And with the Polar Vortex expected to create another cold snap in February, a perfect demand storm will likely cause a spike in global demand and contribute to a 4% rise in LNG consumption this year, reaching about 377 million tonnes (MT) in 2021 versus 363 MT in 2020.

Due to the cold snap, North-east Asia has already reached an international LNG import all-time-high in December, when the region imported a record 22 MT. China in particular imported a record 66 MT in the whole of 2020, despite the effect of the Covid-19 pandemic, and is on the verge of overtaking Japan as the world’s largest LNG importer. Rystad Energy expects Chinese LNG imports in 2021 to grow to 72.9 MT, just 2 MT short of Japan’s projected 74.9 MT.

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The Polar Vortex has so far hit Asian and European markets hard, causing a rise in the profitability of LNG, natural gas and coal. Rystad Energy’s price forecasts show that high gas and LNG price levels will likely remain high in coming weeks and are only likely to ease back in March and April as spring approaches in the Northern Hemisphere.

Yet US Henry Hub gas prices remain surprisingly subdued at $2.75 per MMBtu, a steep drop from the peak price of $3.40 per MMBtu registered in late October 2020. There are two main reasons US gas prices are comparatively depressed. First, the Polar Vortex has so far only drifted south over Europe and Asia, and not yet North America. Second, higher oil prices are incentivizing shale operators to tap into drilled but uncompleted wells (DUCs), which increases the domestic supply of both oil and gas.


As more wells are brought online, we see continued pressure on domestic US gas prices, even despite the surge in demand for US LNG exports. Rystad Energy expects the Henry Hub price to average $2.95 per MMBtu in 2021, in nominal terms.

The Polar Vortex, together with increased North East Asian demand for heating, has pushed up Asian LNG prices and the arbitrage window between the US and Asian markets. This has directed more US LNG…

Read More: How Climate Change Increased The Need For Fossil Fuels In 2021

2021-01-23 14:00:00

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