The shortage of natural gas makes the world tremble, and more so as winter approaches

Much of the world is concerned about the sudden shortage of natural gas, and the impact is being felt in rising utility bills, factory closures and growing despair as winter approaches.

In Asia, Europe and Latin America, consumers still reeling from the pandemic find the price of electricity skyrocketing, driven by natural gas prices that have quadrupled in some regions in recent years. months, hitting all-time highs this week. Manufacturers of chemicals, steel, ceramics and other goods that require large amounts of electricity are seeing their profits shrink and, in some cases, suspend operations.

In South Korea, electricity rates just increased for the first time since 2013, and small businesses that struggled with months of tight restrictions due to the pandemic now fear price surges ahead. "Survival itself is difficult for small businesses," stated the Korea Microenterprise Federation.

In Brazil, the worst drought in 90 years has depleted hydroelectric production and forced power generators to import expensive natural gas. The government increased electricity prices by nearly 7 percent in September, after rising nearly 8 percent in July.

And beyond

Europeans are also feeling the effects of the crisis. In Spain, the government recently said it would withdraw profits from energy companies to help consumers. In Italy, residents were hit by a 14 percent increase in their gas bills, accompanied by a nearly 30 percent increase in electricity rates.

"We will have to wash the dishes or the clothes at night to save money," said Carla Forni, a teacher and mother of two in Bologna.

In China, already the world's largest importer of natural gas, demand has risen 13 percent as Xi Jinping, the country's leader, presses ahead with plans to clean up the environment by ditching coal.

The United States, one of the main exporters of gas, has benefited from strong global demand. In recent times, prices, which have risen to their highest levels in years, have prompted calls to curb shipments abroad. However, US prices are just a fraction of those in Europe and Asia these days.

Natural Gas

The global shortage is linked to the growing popularity of natural gas as a fuel for power generation, as it generates fewer greenhouse gas emissions than coal. In many countries, it serves as a cleaner alternative to coal plants and aging nuclear generators as power grids wait for the expansion of renewable sources such as wind and solar power.

Increased reliance on gas means there is less flexibility in the system, particularly when the capacity to store gas for times of high use, for example in the winter, has diminished in some countries such as the UK.

After a slight drop in demand last year during the pandemic, the power industry has struggled to cope with an estimated 4 percent increase in global gas consumption this year, driven by the industry's recovery and other activities.

The post-pandemic recovery has been driven by "demand for goods rather than services," said Neil Beveridge, Hong Kong-based principal analyst at Bernstein, a market research firm. The concentration on the manufacture of goods has led to a large increase in the consumption of natural gas and electricity to supply factories and other industries.

Tankers carrying liquefied natural gas from exporters such as the United States, Qatar and Australia are heading towards China and Brazil, attracted by rising prices. This has reduced deliveries to Europe, where it is feared that exceptionally low storage levels (caused by last spring's cold snap) could lead to shortages in winter, when demand for this fuel soars in some countries. Disappointing import levels from Russia, which is increasing deliveries to China, and declining domestic production in the UK and the Netherlands are also causing tension in the European market.

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Coal again

High gas prices and low wind speeds, which reduce the power generated by wind turbines, cause Europe to use more coal than gas in power generation for the first time time since 2019, according to consultancy Rystad Energy.

Few industries have been hit as hard as fertilizer manufacturers, which use natural gas to create ammonia, a key ingredient in soil improvers.

Tony Will, CEO 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 more than tripled this year, to the point that CF was losing $300 for every ton of ammonia produced.

The losses became "so big and so bad" that the company couldn't continue under those conditions, and it closed both plants, making headlines across the UK.

Since then, Will agreed to a short-term deal: he reopened one of the plants and the government took the losses. The government is helping pay CF's bills because the manufacture of ammonia gives rise to a valuable by-product: carbon dioxide, vital to the UK meat processing industry as well as carbonation of drinks.

Oil rises

According to analysts, the pressure in the natural gas market also contributes to the increase in the price of oil. Traders anticipate that with gas reaching a level in some cases comparable to oil, which sells for around $170 a barrel, there is a strong incentive in some industries to use oil (which these days costs between $75 and $80). a barrel) instead of gas to obtain electrical energy, which fuels demand.

The evolution of gas prices depends on the intensity of winter, according to analysts. A frigid winter could drive prices higher, risking further shortages and industry shutdowns and, most likely, lawmakers rushing to react.

On the other hand, hot weather could cause prices to drop sharply. Futures markets show a drop to much lower levels next spring.

“We are putting our industry and our homes in the hands of the weather,” said Marco Alverà, CEO of Snam, a large Italian gas company.

Weather aside, analysts say the world may be lurching toward a tighter gas and power market than in recent years. The pandemic and other factors have caused companies to delay investment in new fossil fuel projects, including liquefied natural gas terminals. According to Bernstein's estimates, only a third of the additional LNG volumes will come onto the market in the next three years. In some countries, such as the UK, nuclear power plants are being decommissioned and not being quickly replaced.

Growing concerns about climate change, expressed by shareholders or through court cases such as a Dutch court decision in May that ordered Shell to cut greenhouse gas emissions, may make some companies hesitant to invest in new multi-billion dollar fossil fuel projects.

© 2021 The New York Times Company

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