Natural gas has long been oil’s poor step-cousin, a commodity that many ignore until they have to pay their heating bill.
Now, natural gas is the lead player in a drama that is gradually dragging down the world economy. A surge in the price of the commodity—along with other fuel sources, like coal and propane—is forcing countries to reduce factory production, and could drive heating and electricity prices sky-high this winter.
In the U.S., natural-gas futures rose above $6 per million British thermal units (BTUs) during the week, nearly quadrupling from their pandemic lows. Oil demand is rising with gas, as some utilities are likely to switch their input fuel to oil as gas stays expensive.
The problem is even more acute in places that have to import more of their fuel. Europe and Asia are bidding up the cost of liquefied natural gas, or LNG, to secure enough for winter. European gas prices have roughly quadrupled from their five-year average, and were recently trading at a record $32 per million BTUs, according to S&P Global Platts Analytics. The Asian benchmark price hit an all-time high of $34 on Thursday.
There is no simple answer for why multiple energy sources are expensive and scarce today. A cold spell late last winter in Europe led to low levels of gas in storage. U.S. producers, which account for the largest share of gas production in the world, have held back on drilling new wells as they work to get their balance sheets in line after years of overspending. The Chinese economy had been rebounding, causing demand to surge just as supplies were running low. And the prices of other commodities such as coal have been rising too, making it difficult for power producers like utilities to switch their input fuels. Oil and gas have also been beset by the same problems facing all global markets—too few workers to move the fuel.
Climate change’s role in the power crunch is also tricky. Carbon emissions are leading to more severe weather that is damaging energy infrastructure….
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