For him, what we have been experiencing in the last year is, on a small scale, what we can also expect going forward.
“Upstream maintenances have been delayed due to COVID which has resulted in substantially lower production figures in the North Sea and LNG globally,” Mr Vargha says. “Due to the cold April/May and lowest wind/hottest third quarter, consumption has been extremely high in the summer. All of this resulted in severe storage withdrawals during the first half of the year and insufficient filling during summer.”
“On top of that came Russian supply uncertainties that led to the huge price spikes from August/September onwards. A combination of global warming and oil & gas under-investments may have a similar impact going forward.”
Indeed, this won’t be the last crisis and companies must adapt and be able to respond to such situations in the future.
“Extremely tight procedures are needed in every company so that operational, market and credit risks are mitigated and transaction costs optimised,” Mr Vargha explains. Suppliers need to show value in order to pass on some of these costs to their partners. This will drive up operating costs, differentiate the best from the average and probably push the industry to further consolidation.”
Due to the fragility of the energy system and the challenges posed by the transition, companies must also act responsibly to avoid the general public to incur in high prices and disruption in supply. For Mr Vargha this varies across different regions.
“In Europe much of the end-customer pricing is driven by current spot markets, which makes industrial clients pay eventually and in certain markets SME/household consumers as well,” he underlines. “We will see ongoing government action to mitigate this impact on a backwards-looking basis or price caps for customers. However, government subsidies are indirectly funded by taxpayers. In the US prices are substantially lower and in Asia much of the supplies are on a long-term basis linked to Henry Hub or oil indices. This brings average pricing down substantially when compared to Europe.”
Another reason behind the surge in energy prices was the lack of investments in the gas sector, as the industry has been recently demonised.
“If we demonise nuclear, coal, lignite, gas and oil, we will end up with black-outs where we are pushing higher electricity consumption due to EV-s etc,” points out Mr Vargha.
“This is a nonsensical approach. I believe we need to be pragmatic about this, either pushing fossil fuels out in a phased way or consciously reducing demand. Either of them works, but we need to decide what we want.”
“One of the largest impacts of COP26 has been the first step in the de-demonisation of nuclear power,” recalls Mr Vargha. “This is important to meet electricity demand, but further steps are needed which also include natural gas.”
In particular, since the launch of its operations at the beginning of 2021, Croatia’s Krk LNG terminal has made significant contributions to the entire Central and Sout-Eastern European region, delivering gas to the Croatian national transmission network while being connected with Slovenia, Italy, Hungary and other EU countries via non-EU Member States such as Serbia and Montenegro.
Earlier, MET Croatia Energy Trade had booked an overall capacity of 2.67 billion cubic metres (bcm) at the Krk LNG terminal and in April the company received the first delivery, making “MET happy about its booking as 2021 has proved that LNG is a key supply for European natural gas,” as Mr Vargha points out.
Indeed, MET’s presence at the Krk terminal is very important for the Group as the top priority is to link the company’s portfolio in Spain, Turkey and the Mediterranean area to the global LNG market.
“Furthermore, we believe that LNG is good for Croatia and the entire region, in order to increase supply diversity,” Mr Vargha concludes. “We will continue to supply the country with LNG to drive greater competitiveness in the region.”