Buyers in Europe, Asia and Latin America are competing for limited supplies of gas, racing to fill tanks and caverns with the fuel before winter hits the Northern Hemisphere.
Natural gas stocks are alarmingly low around the world, and prices in most places have never been higher after surging to new records in Europe and Asia this week. Demand has jumped as economies have bounced back from pandemic shutdowns, and the squeeze has caught traders, shipowners and energy executives off guard.
Tight supplies from Russia and strong demand in China and Latin America have made European economies including Spain, the Netherlands and the UK particularly vulnerable. The countries in recent years have wound down coal-fired plants and become more dependent on gas.
Even in the US, the world’s largest producer of natural gas, the bidding war has dragged up prices to their highest in over a decade, setting the stage for an expensive winter heating season and higher electricity bills.
Shippers are diverting tankers to the highest bidder, a rare occurrence that adds to the uncertainty in the market. Manufacturers are slowing production because of energy prices, putting the post-pandemic recovery at risk. And China and Europe are firing up coal- and oil-fed plants, setting back progress in moving toward less-carbon-emitting sources of energy.
“The system has gone haywire,” said Øystein Kalleklev, chief executive of Flex LNG Ltd, owner of a fleet of vessels that transport LNG. “The market is unlikely to smooth out soon. The incentives for producers have changed as their investors favour companies that pursue stability rather than chase short-term price moves,” he added.
Even if they did, LNG plants and tankers exporting LNG from the US are already close to capacity and building more is a long-term proposition. Political and regulatory hurdles to getting a major new pipeline to Europe, Nord Stream 2, up and running, meanwhile, may be holding back Russia, another large natural-gas producer, from adding to supply.
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