...natural gas is the hottest commodity in the world right now. It’s a key driver of global inflation, posting price jumps that are extreme even by the standards of today’s turbulent markets — some 700% in Europe since the start of last year, pushing the continent to the brink of recession. It’s at the heart of a dawning era of confrontation between the great powers, one so intense that in capitals across the West, plans to fight climate change are getting relegated to the back-burner.
In short, natural gas now rivals oil as the fuel that shapes geopolitics. And there isn’t enough of it to go around.
It’s the war in Ukraine that catalyzed the gas crisis to a new level, by taking out a crucial chunk of supply. Russia is cutting back on pipeline deliveries to Europe — which says it wants to stop buying from Moscow anyway, if not quite yet. The scramble to fill that gap is turning into a worldwide stampede, as countries race to secure scarce cargoes of liquefied natural gas ahead of the northern-hemisphere winter.
The New Oil?
Germany says gas shortfalls 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 that carries Russian gas to Germany is due to shut down on July 11 for ten days of maintenance, and there’s growing fear that Moscow may not reopen it. Group of Seven leaders are seeking ways to curb Russia’s gas earnings, which help finance the invasion of Ukraine — and backing new LNG investments. And poorer countries that built energy systems around cheap gas are now struggling to afford it.
“This is the 1970s for natural gas,” says Kevin Book, managing director at ClearView Energy Partners LLC, a Washington-based research firm. “The world is now thinking about gas as it once thought about oil, and the essential role that gas plays in modern economies and the need for secure and diverse supply have become very visible.”
Natural gas used to be a sleepy commodity that changed hands in fragmented regional markets. Now, even though globalization appears to be in retreat across much of the world economy, the gas trade is headed in the opposite direction. It’s globalizing fast — but maybe not fast enough.
Many countries have turned to natural gas as part of a transition to cleaner energy, as they seek to phase out use of dirtier fossil fuels like coal and in some cases nuclear power too.
‘The Current Crisis’
In Asia, the fuel is now about three times as expensive as a year ago. In Europe, it’s one of the main reasons why inflation just hit a fresh 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 American gas, US manufacturers warn that more sales abroad will mean higher costs at home. The market reaction to the Freeport fire illustrates a “clear connection between LNG exports and the inflationary impacts to domestic prices for natural gas and electricity,” says Paul Cicio, president of the Industrial Energy Consumers of America.To meet all the new demand will require a massive wave of investment in supply. That’s already under way, and it got a boost at last week’s meeting of the Western world’s biggest economies, where G-7 leaders vowed to back public investments in gas projects — saying they’re “necessary in response to the current crisis.”
“You have global gas prices so high that they incentivize the signing of new long-term contracts,” says Samantha Dart, head of natural gas research at Goldman Sachs. “We are seeing those announcements coming left and right, with a lot of US proposed liquefaction facilities.”