Much of the world is suddenly worried about the shortage of natural gas, and this is reflected in soaring utility bills, factory closings and growing despair as winter approaches.
Across Asia, Europe and Latin America, consumers still recovering from the pandemic are finding energy costs soaring due to rising natural gas prices, which have quadrupled in some regions in recent months, reaching record highs by this week. Manufacturers of chemicals, steel, ceramics and other energy-intensive products are cutting their profits and, in some cases, suspending their operations.
In South Korea, electricity tariffs have just risen for the first time since 2013, and small businesses that have struggled for months with tough pandemic rules are now wary of future price spikes. “Small businesses are already having a hard time surviving,” said the Korea Microenterprise Federation.
In Brazil, the worst drought in 90 years has depleted hydropower generation, forcing electricity producers to import expensive natural gas. The government raised electricity prices nearly 7 percent in September after rising nearly 8 percent in July.
Europeans also feel in a quandary. In Spain, the government recently announced it would take profits from energy companies to boost payer ratings. In Italy, residents recently faced a 14 percent increase in their gas bills, accompanied by a nearly 30 percent jump in electricity tariffs.
“We will have to do the dishes or do laundry at night to save money,” said Carla Forni, a teacher and mother of two from Bologna.
In China, already the world’s largest importer of natural gas, demand rose 13 percent as Xi Jinping, the country’s leader, pushes forward his plans to clean up the environment by ditching coal.
As a major gas exporter, the United States benefits from strong global demand. Recently, prices, which have risen to their highest levels in years, have prompted calls to restrict supplies overseas. However, US prices are only a fraction of those recently seen in Europe and Asia.
The global shortage stems from the growing popularity of natural gas as a fuel for power generation, as it generates less greenhouse gas emissions than coal. In many countries, it serves as a cleaner alternative to coal-fired plants as well as aging nuclear generators. as power grids await the expansion of renewable energy sources such as wind and sun.
Increased reliance on gas means there is less flexibility in the system, especially when gas storage capacity during periods of heavy use, such as winter, has decreased in some countries, such as the UK.
After a slight drop in demand last year during the pandemic, the industry found it difficult to cope with the projected 4 percent increase in global gas consumption this year, due to the recovery in manufacturing and other activities.
The recovery from the pandemic was fueled by “demand for goods, not services,” said Neil Beveridge, senior analyst in Hong Kong-based market research firm Bernstein. This emphasis on making things has led to a significant increase in the consumption of natural gas and electricity in power plants and other industries.
Tankers carrying LNG from exporters such as the United States, Qatar and Australia sailed towards China and Brazil, attracted by higher prices. This has led to reduced supplies to Europe, where there are fears that unusually low storage levels – triggered by a cold snap last spring – could lead to a crisis in the winter, when fuel demand surges in some countries. Disappointing levels of imports from Russia, which is increasing shipments to China, and falling domestic production in the UK and the Netherlands are also constricting the European market.
High gas prices and low wind speeds that cut wind turbine power generation mean Europe has used more coal than gas to generate electricity for the first time since 2019, according to consultancy Rystad Energy.
Few industries have been hit as hard as fertilizer producers, which use natural gas to produce ammonia, a key ingredient in soil improvement.
Tony Will, chief executive of CF Industries, one of the world’s largest fertilizer producers, described how the price of gas used at the company’s two UK plants has more than tripled this year until CF lost $ 300 per tonne produced. ammonia.
The losses escalated to “something so big and so negative” that the company could not continue operating on these terms, and he closed two factories, causing headlines across the UK.
Since then, Mr. Will has agreed to a short-term solution: he reopened one of the factories, and the government covered the losses. The government helps pay the CF bills because ammonia produces a valuable byproduct: carbon dioxide, vital to the UK meat processing industry as well as carbonated drinks.
CF is not the only fertilizer producer hit by soaring natural gas prices. Yara International of Norway said last month that it is cutting ammonia production at several plants, and German chemical giant BASF has cut crop nutrient production due to high gas prices.
Will, who spoke on the phone from a fertilizer conference in Lisbon, said he told the British government that fertilizer availability could be the next crisis, potentially jeopardizing next year’s harvest.
Analysts believe that pressure in natural gas markets is also driving up oil prices. Traders expect that as in some cases gas has reached a level comparable to selling oil at around $ 170 a barrel, there is a strong incentive in some industries to burn oil (recently $ 75 to $ 80 a barrel) instead of gas for electricity, demand for fuel.
Analysts believe that the further dynamics of gas prices depends on the severity of winter. A cold winter could push prices even higher, which could lead to further shortages and halts in production and, most likely, to a fight with lawmakers.
On the other hand, warm weather can cause a sharp drop in prices. Futures markets will drop to much lower levels next spring.
“We are putting our industry and our households in the hands of the weather,” said Marco Alvera, CEO of Snam, a large Italian gas company.
Weather aside, analysts say the world may be aiming for a tougher energy and gas market than in recent years. The pandemic and other factors have forced companies to postpone investment in new fossil fuel projects, including liquefied natural gas terminals. Bernstein estimates that only about a third of the additional LNG will enter the market in the next three years, as in the last three years. In some countries, such as the UK, nuclear power plants are being decommissioned and not replaced quickly.
Growing concerns about climate change, expressed by shareholders or in court cases, such as a Dutch court ruling in May ordering Royal Dutch Shell to cut greenhouse gas emissions, may make some companies hesitant to invest in new multi-billion dollar fossil fuel projects.
According to Carlos Torres Diaz, head of gas and energy at Rystad Energy, the result is likely to be “more volatile” markets as power grids manipulate energy sources from oil, gas and coal to clean energy. The disadvantage of renewable energy sources is that they depend on the sun and wind.
Ultimately, huge installations of sun, wind and other clean sources can help protect consumers from the tyranny of global commodity markets. But the events of this fall indicate that the target is at some distance.
The report was provided Keith Bradsher, Gaia Pianidjani, Jack Nikas, Hisako Ueno and John Yoon…