Most Read by Bloomberg It sounds like a story for the local press, at most – except that more than three weeks later, economic and political shockwaves are still reverberating across Europe, Asia and beyond. That’s because natural gas is the hottest commodity in the world right now. It is a key driver of global inflation, posting price jumps that are extreme even by the standards of today’s troubled markets — about 700% in Europe since the start of last year, pushing the continent to the brink of recession. It is at the center of a dawning era of confrontation between the major powers, one so intense that in capitals across the West, plans to combat climate change are being relegated to the back burner. In short, natural gas now rivals oil as the fuel that shapes geopolitics. And it’s not enough to get around. It is the war in Ukraine that has taken the natural gas crisis to a new level, removing a crucial part of the supply. Russia is reducing pipeline deliveries to Europe — which says it wants to stop purchases from Moscow anyway, if not yet. The race to fill that gap is turning into a global outbreak as countries scramble to secure scarce cargoes of liquefied natural gas ahead of the northern hemisphere’s winter. The new oil? Germany says gas shortages could trigger a Lehman Brothers-like collapse as Europe’s economic powerhouse faces the unprecedented prospect of businesses and consumers running out of power. The main Nord Stream pipeline carrying Russian gas to Germany is due to shut down on July 11 for ten days of maintenance and there is growing fear that Moscow may not reopen it. Group of Seven leaders are looking for ways to limit Russia’s natural gas profits, which are helping to finance the invasion of Ukraine — and supporting new LNG investment. And poorer countries that built energy systems around cheap natural gas are now struggling to afford it. The story continues “This is the 1970s for natural gas,” says Kevin Book, managing director of ClearView Energy Partners LLC, a Washington-based research firm. “The world now thinks of natural gas as it once thought of oil, and the essential role natural gas plays in modern economies and the need for a secure and diverse supply have become very visible.” Natural gas used to be a commodity that changed hands in fragmented regional markets. Now, even as globalization appears to be winding down in much of the world economy, natural gas trade is moving in the opposite direction. It’s globalizing fast — but maybe not fast enough. Many countries have turned to natural gas as part of a cleaner energy transition as they seek to phase out the use of dirtier fossil fuels such as coal and, in some cases, nuclear power. Major producers – such as the US, which has quickly risen through the ranks of LNG exporters to rival Qatar as the world’s largest – are seeing growing demand for their output. Forty-four countries imported LNG last year, nearly twice as many as a decade ago. But the fuel is much more difficult to transport around the planet than oil because it has to be liquefied in places like the Freeport plant in Texas. And that’s why a small explosion at a facility considered nothing special by industry insiders — not the largest or most sophisticated of the seven terminals that ship LNG off American shores — had such a big impact. . “The Current Crisis” Gas prices in Europe and Asia have risen more than 60% in the weeks since Freeport was forced to temporarily shut down, a period that has also seen further supply cuts from Russia. By contrast, in the US, fuel prices fell by almost 40% – because the outage means more of the natural gas will remain available for domestic use. There were already many signs of extreme tightness in the market. War and Covid may be plaguing every commodity from wheat to aluminum to zinc, but few compare to the volatility of global gas prices. In Asia, fuel is now about three times more expensive than a year ago. In Europe, it is one of the main reasons why inflation has just reached a new record. Natural gas remains cheaper in the US — but even there, futures had more than doubled this year before the Freeport shutdown. With key political allies from Germany to Ukraine desperate to buy US gas, US manufacturers are warning that more sales abroad will mean higher costs at home. The market reaction to the Freeport fire shows a “clear relationship between LNG exports and the inflationary effects on domestic gas and electricity prices,” says Paul Cicio, president of Industrial Energy Consumers of America. To meet all the new demand will require a huge wave of supply-side investment. This is already underway and was given a boost at last week’s meeting of the western world’s biggest economies, where G-7 leaders vowed to support public investment in natural gas projects — saying they are “necessary in response to the current crisis”. Among the urgent infrastructure needs:
Export facilities: Rush for LNG accelerates projects in North America and beyond. Last month, Cheniere Energy Inc. gave the go-ahead for a terminal expansion in Texas. In April, a Canadian LNG project backed by Indonesian tycoon Sukanto Tanoto got the go-ahead to start construction. In Qatar, Exxon Mobil Corp. and Shell Plc are among the energy giants with stakes in a $29 billion project to boost LNG exports. “You have global gas prices so high that they are incentivizing the signing of new long-term contracts,” says Samantha Dart, head of gas research at Goldman Sachs. “We’re seeing these announcements coming left and right, with multiple proposed US liquefaction facilities.” Import terminals: In Europe, plans for about 20 terminals have been announced or accelerated since the start of the war in Ukraine. Germany, which has no LNG terminals, has earmarked about $3 billion to charter four barges and connect them to the country’s grid. The first one is supposed to go online around the end of this year. Emphasizing the need for speed, Vice Chancellor Robert Habeck pointed out that Tesla Inc. managed to build a factory near Berlin in just two years and said it was time to cut German red tape. “First, dig the trench where the pipe will go,” he said. “Then, comes leave.” China, the world’s top buyer of LNG last year, is in the midst of one of the biggest constructions the industry has ever seen. Ten new import terminals are scheduled to come online in 2023 alone, and capacity will roughly double in the five years to 2025, according to BloombergNEF. Pipelines: Even with more capacity to accept LNG shipments and convert it back into natural gas — a process known as regasification — Europe lacks the infrastructure to transport it where it might be needed. Spain, for example, has Europe’s largest regasification facilities — but has only two pipeline connections to France across the Pyrenees, capable of carrying just over a tenth of those volumes, according to Bloomberg Intelligence. Tankers: Shipyards in South Korea, where most of the world’s LNG tankers are built, are seeing a surge in orders that is leaving them with a shortage of skilled labor. They were forced to look outside the country to places like Thailand for welders, electricians and painters, increasing their quotas for migrant workers.
In some cases, all this means a shift away from policies aimed at combating climate change — especially in Europe. Government-backed lenders such as the European Investment Bank and the European Bank for Reconstruction and Development, which had focused on financing renewables, have signaled a shift and said they are now more willing to support natural gas projects. Not enough, according to Bloomberg Intelligence, which estimates that LNG imports could meet 40% of the region’s natural gas needs by 2026 — double last year’s amount, but far less than the volumes supplied by Russia . “Never More Obvious” That’s why warnings of a recession in Europe’s gas economies are escalating. Last week, the German government said it was in talks to bail out utility Uniper SE, which is losing about 30 million euros ($31 million) a day because it has to cover missing Russian gas at skyrocketing market prices. . Companies such as chemical giant BASF SE say they may have to cut production. Deutsche Bank cited growing risks of an “imminent German recession due to energy glut” and pointed to rising energy prices in Italy and France as well. Morgan Stanley has predicted that the entire eurozone will be in recession by the end of the year. For some emerging economies – which must increasingly compete with rich countries such as Germany in bidding for LNG cargoes as natural gas goes global – the consequences have already been devastating. In Pakistan, which built its energy system on cheap LNG, planned blackouts plunge areas into darkness during the summer months. Malls and factories in major cities have been ordered to close early and government officials are working shorter hours. Thailand is curbing LNG imports due to rising prices, potentially putting the country at risk of fuel shortages. Myanmar, which has been struggling with political instability, halted all LNG purchases late last year when prices began to rise. India and China have also cut imports. “Where gas markets were once largely regional silos, we now have a globalized spot market that has linked the world’s exposure to the fuel that has become critical to many economies,” said James Whistler, managing director of Vanir Global Markets. based in Singapore. energy and environment brokerage. “This has never been more…
