Yves here. This article describes why European gas prices have gone to the moon and those price pressures will increasingly affect other regions, albeit not with the same severity.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice
- Heatwaves across the globe have weighed on natural gas supplies.
- Countries are bracing for natural gas shortages this winter.
- Natural gas prices across the globe are soaring, with European prices now trading at what would be an equivalent of $410 per barrel of crude oil.
Heatwaves this summer and expected natural gas shortages this winter are driving gas prices higher and higher.
Europe’s benchmark gas prices surged by 14% in just three days to a fresh record-high, continuing the upward trend from recent weeks, as gas demand for power generation is high amid heatwaves and Russian pipeline supply remains at low levels, while the EU scrambles to fill gas storage ahead of the winter that would see energy and gas rationing, industries shutting down production, and households paying sky-high prices for heating and electricity.
Europe is in the most precarious position, but natural gas prices are rallying in the United States and Asia, too. Gas demand for power is high, and production is flat in America, while major Asian buyers are back on the LNG market to secure supplies for the winter.
As LNG is now a global commodity, benchmark gas and spot LNG prices are soaring all over the world. And they could jump even higher when the heating season approaches.
Europe’s Gas Price Is Now Equivalent To $410 A Barrel Oil
Europe’s benchmark gas prices at the Dutch TTF hub rallied 14% between Monday and Wednesday, jumping by 6% on Wednesday at a new record of $240 (236 euro) per megawatt-hour. Gas prices have already doubled since June, when Russia first reduced supply via Nord Stream, the key pipeline carrying gas to Europe’s biggest economy, Germany.
The European gas benchmark now trades at what would be an equivalent of $410 per barrel of crude oil, which highlights “the debilitating economic impact on the region,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said this week.
Such record gas prices are hitting industries in Germany and the rest of Europe, with companies announcing production halts or curtailments “until further notice” amid soaring energy costs. Industries have warned that reduced production and operations could lead to a collapse of supply and production chains. Governments are scrambling to secure enough gas for the winter while walking a tight rope between alleviating the cost burdens on households and avoiding an industrial collapse and a wave of bankrupt energy companies.
As a result of the gas crunch and a heatwave constraining supply and output from other fuel sources, year-ahead electricity prices continue to soar in Europe, with German power prices, the European benchmark, jumping to over $508 (500 euro) per megawatt-hour on Tuesday—a new record.
Despite faster storage builds than usual, Germany will only have enough natural gas to cover two and a half months of consumption this winter if Russia completely suspends deliveries, Klaus Müller, the president of Germany’s energy regulator, told Bloomberg this week.
“The burden of high gas and oil prices will actually mean that we are going to see some steep contraction in the European economies next year,” Amrita Sen, director of research at Energy Aspects, told Bloomberg on Wednesday.
U.S. Natural Gas Prices Rally, Too
European prices are at record highs and at around seven times higher than U.S. benchmark prices. But the U.S. prices at Henry Hub have surged, too, to the highest they have been in 14 years. This is the result of flattish domestic production, strong gas demand from the power sector in heatwaves, and lower than normal stocks in storage, despite the outage at the Freeport LNG export terminal, which has made available more gas for domestic consumption. The Freeport LNG outage prompted a 39% decline in Henry Hub prices in June. But in July, higher-than-normal temperatures across much of the U.S. resulted in strong gas demand in the power sector, which absorbed much of the Freeport LNG-related surplus and kept natural gas inventories from rising faster, the EIA said last week. Moreover, natural gas price volatility reached an all-time high in Q1 2022, the EIA noted.
Related: Erdogan To Meet With Putin: “We Don’t Want Another Chernobyl”
Working natural gas stocks are 12% lower than the five-year average and 10% lower than last year at this time, according to the EIA.
After a slump in early June due to the Freeport LNG force majeure, U.S. benchmark gas prices have rallied by 70% since the end of June, hitting this week their highest level since August 2008 at above $9.30 per million British thermal units (MMBtu). The European benchmark price in MMBtu equivalents is now nearly $70/MMBtu – roughly seven times higher than American benchmark prices. This wide price differential is expected to pull more LNG exports out of America to Europe, which are already at record highs as the EU looks to replace as much Russian pipeline gas as possible.
Asian LNG Prices Also Soar
Asian utilities are also back on the market to procure fuel for the winter, traders tell Bloomberg. Higher demand in northeast Asia sent spot LNG prices rallying to nearly $60/MMBtu—the highest level since the beginning of March when the Russian invasion of Ukraine drove up northeast Asian prices to a record high of over $80/MMBtu.
With winter approaching, natural gas prices could see further upside as Russian supply remains low, LNG demand rises, and American producers are not rushing to ramp up production.
Eventually, the high prices could spur a response from U.S. shale gas drillers on the supply side, while on the demand side, record prices could accelerate the destruction of demand and sink European economies.
64 comments
Comments are closed.
Worth noting here that the EU’s merit-order principle is getting new scrutiny in places like Austria, where 85% of electricity is produced at decades-old hydropower plants but consumer bills are linked to natural gas prices settled in Germany (https://www.derstandard.at/story/2000138406762/wie-der-strompreis-entsteht-und-was-sich-ammerit-order-system) The system is captured by traders and utilities who are raking in the profit and have little incentive to change the rules.
Indeed!!!
Nice to find someone signalling this. There are IMO two major problems or biases in electricity mkts:
1) wholesale prices. at the end of the day al suppliers are paid at the same rate dependent on the most expensive supply delivered each day.
2) Consumer prices. Households pay too much of a penalty for being small consumers and demand more grid complexity. Years ago (I would need to refresh data), in Spain, households accounted for 25% of kWh consumed but paid 75% of overall electricity bills.
We are in times of war and emergency, shouldn’t our clever elites realise that their beloved system is broken?
By whose definition is the system broken? Not, by those who set it up.
Thank you, Ignacio.
“We are in times of war and emergency, shouldn’t our clever elites realise that their beloved system is broken?”
Please go to Marbella and watch them at play. When the season is over in Europe, they will head to the Caribbean. The elite is increasingly like its British rentier forebears, earning money from estates and immersing itself in the social season (currently shooting on the moors / sporting estates). [Search for Glorious Twelfth online.] The system is working for them. As per Chris’ comments on Links yesterday, they see climate change as opportunities to make money and consolidate their power.
Didn’t Martin Lewis say the same about UK wholesale prices for electricity? They are set at the highest cost producer, just to prevent that producer going bust. The Gov could step in and reset this mechanism.
Electricity price in my region of Norway has increased 1389% compared to 2013-2019. Households are protected as the government subsidizes a kilowatt price over 80 øre a kWh. But then there is the 25% MVA, excise taxes (including a carbon tax. No carbon from hydropower but they can’t differentiate sources of electricity.) Then there is the cost of transmission plus MVA.
Prices are set at the margin and that is the price of gas as you mention above.
Something I learned last week, not from MSM, when Norwegian Statnett sells to the British National Grid they share the profit. Analogous, oil company sells to a country and the buyer shares the profit with the seller.
Thanks for this. The incompetence of the political elites is more than evident here. The first casualty of the proxy war in Ukraine was NordStream II. Now we’re supposed to pretend that collapse of the economies of EU countries is all part of freedom for Ukraine–and covers on Vogue magazine.
Yesterday, Fatto Quotidiano devoted spread pp 4 and 5 to articles on the crisis. At center was a graphic with year on year bills for gas: A foundry, from 17,000 euro to 108,000 euro. A producer of ceramics, from 9,000 euro to 17,000 euro. A swimming pool, from 5,000 euro to 16,600 euro. A pasticceria (pastry shop) from 1,900 to 10,200 euro.
One article noted that a textile manufacturer called Fil Man Made Group has already put 280 employees at its mill in Trieste on involuntary vacation and may not reopen at all. Energy bill? From 400,000 euro to 1,600,000 euro.
Naked Capitalism has posted about the shutdown of the ancient glassworks on Murano because of the high price of natural gas. There are more articles in the Italian press.
All of this was preventable: Further, one must ask how Western governments, dominated as they are by economists and various financial wizards and wizardesses, couldn’t figure out that taking away a central component of the economy will lead to collapse.
Meanwhile, not one “Atlantic” leader has said a word of sense about this situation. Of course not one “Atlantic” leader has bothered to make sense on why the proxy war broke out at all.
I guess that I’m still with the Pope as to causes: “NATO’s baying at the gates of Russia.” A bunch of yappy lap dogs. It won’t work out well.
Thank you Yves and DJG.
I worked for Germany’s biggest and baddest bank from 2016 – 21 and am now at its Dutch equivalent, so keep an eye on what clients and their proxies say. I have not seen anything like what you report yet. After Zelensky singled out Auchan, Le Roy Merlin and Societe Generale, Merkel and Sarkozy for facilitating the Russian war machine, the German business establishment and its CDU / CSU political wing have been cowed.
In the good old days, La Stampa, part of the Agnelli empire, may have reported similar to Fatto Quotidiano, but since the more Americanised Elkann branch took over the running of the EXOR / IFI / FIAT group (which includes the long ghastly Economist), the Agnelli group has loosened its ties with Italy and the continent, including Russia (with whom the family firm has traded with since the 1960s), in favour of the Anglo-Saxon world.
Just one quibble: “Further, one must ask how Western governments, dominated as they are by economists and various financial wizards and wizardesses, couldn’t figure out that taking away a central component of the economy will lead to collapse.” I can only comment on the UK and perhaps the Brussels and Bretton Woods institutions I used to work with. There are economists, bankers and diplomats (like NC stalwart David yesteryear) who understand how these things work and are complicated, but the ideologues, bootlickers and opportunists, many of whom BS about economics and markets, but have not studied, are in charge of policy making and get on the air waves Whether it’s Brexit, covid, climate change or Ukraine, the same dynamics are at work. In addition, the experts are rarely good at or interested in office politics, so won’t get into a position to influence matters.
Please read this essay from David, https://aurelien2022.substack.com/p/when-sorrows-come, for an explanation of how we got here.
Well said Colonel.
I recall back around 2009 an Irish academic economist – one of the few who predicted the crash – commenting that he knew the economy was screwed when he heard some of his ex students – now prominent banking/media economists – opine on radio and TV that everything was fine and Ireland merely had a temporary liquidity problem. As you say, those with an insight into how things really work rarely have the stomach to do whats needed to make things better. Just look at the Tory hustings.
To refer back to Lamberts favourite management expert, Kurt von Hammerstein-Eduord (and many thanks to Lambert for introducing me to his ideas), we are now run by the hard working stupid officers. Maybe if Ukraine gets hotter we’ll have the opportunity to do what he would have done, and sent them to the Russian front in brightly coloured uniforms.
Thank you, PK.
That makes me wonder what UK academics make of their former charges now in Westminster. This said, Vernon Bogdanor said David Cameron was the most brilliant PPE student he had taught and thought Cameron could teach the course. Cameron rewarded his former tutor and reference provider with a seat in the House of Lords. As the commute from Oxford was somewhat onerous, Bogdanor left for King’s College, London. You can see why students like Cameron are indulged by Oxbridge academia and what results.
Hammerstein-Equord is absolutely correct. It does not matter whether it’s military, civil service or business. Not only are they hard working, eager and stupid, they are often sociopaths.
Your solution echoes what I jested some years ago about dodgy banksters. Send them to clear IEDs in Afghanistan and without any protection.
Thanks for posting the Aurelien essay: I normally follow his work but had missed that one. It’s a good reminder that civilization is fragile and that it works until it does not.
I believe that the tendency he describes for governments institutionally not to solve problems but rather to lurch from crisis to crisis is these days often replicated in the corporate world. I was a consultant for over two decades and saw many companies from the inside. I believe that corporations have become increasingly prone to the behaviours he describes for government. Many CEOs are far more in the mode of financial engineers rather than the operators of the past. They are smart people but respond to the incentives both to get there and then survive. Often, a deep understanding of the true drivers of the business and affinity to the coalface are the antitheses of how to get promoted. Just as with politicians, the ability to engage with “ordinary” (bad expression) people is also less important than it was. Increasingly, kicking the can down the road, making things look (plus sound) good and leaving problems for someone else to fix are the keys to success in corporations too. As well as expounding the right ideologies. Especially in highly monopolistic or oligopolistic environments, which characterize much of the western corporate sector today.
Indeed, the very growth of the consulting sector from a cottage industry back in the 90s to a multi billion behemoth today in both public and private sectors (while western economies have grown slowly, if at all) sums up that tendency. Part of it is corporate back protecting but a large element is simply that most corporations / governments are so clogged up with politics and the minutiae of wall to wall conference calls that nobody has time to do “analysis” and internally people are not fully trusted. External help is therefore constantly needed, which brings its own agendas, of course.
The same tendency that explains why politicians are not thinking ahead to resolve our energy issues may also explain why industrial leaders feel cowed too and unable to react. Just as you note, there are plenty of insiders who know what the consequences may be but the BS fraternity is often in charge.
Thank you, Stephen.
I have observed and agree.
Between Germany’s biggest and baddest bank and its Dutch equivalent, I was at Grant Thornton for a few months. Clucking bell!
I forgot to add what Charlie Munger said, “Show me the incentives and I’ll show you the outcomes.”
“They are smart people but respond to the incentives both to get there and then survive. Often, a deep understanding of the true drivers of the business and affinity to the coalface are the antitheses of how to get promoted.” Some, if not many, of the banksters and other corporate officials and civil servants I have come across have never been to and are not interested in visiting the mine. That is not what will get you noticed at HQ. In addition, it’s a diversion from office politics, bootlicking etc.
A couple of years ago, I heard about a US admiral who has never commanded a ship or served at sea.
Exactly. I met a US Vice Admiral in exactly that position a few years ago. I think there are lots of “administrative” Admirals and Generals these days. They still get to wear lots of medals but it is not exactly Nelson or Wellington territory!
Thank you, Stephen.
One wonders if it’s the same person.
With regard to the days of Nelson and Wellington, may be the buying AND trading of commissions and promotions from those days should be restored. Make crown appointments a commodity.
Right. The eighteenth century model accepted that graft in public office was a reality. Buying and selling positions such as the colonelcy of a regiment simply ensures a fair market price!
Meritocracy was so Victorian…..
Of course, the senior service was allegedly relatively meritocratic even in the days of Nelson with officers having to undertake tough examinations and a long apprenticeship to progress. NAM Rodger “The Wooden World” is very good on this. In many ways, the eighteenth century Royal Navy was even an exemplar of how to run an effective public institution. Today’s public sector could learn a lot by studying it.
Royal Navy was indeed an exemption. One could not just buy a position for their kids, the kids also had to start from the bottom and actually learn the trade while growing up on Her Majesty’s ship.
The future First Sea Lord Jack Fisher was 14 when he was examined for the navy. And that only after being sponsored by widow of the Governor of Ceylon (his godmother) and also by a niece of lord Nelson.
Of course, around the time Fisher knew what navy was about, navy was anything but: captains wasted their pay to make their ships shiny and avoided gunnery training because gun powder was expensive and soiled their beautiful ships.
In 1881 the British fleet bombarded Alexandria and after firing 30,000 rounds had managed to hit the Egyptian citadel 10 times. Admiralty considered this a success, since the Egyptians scored less hits.
Yep. After 1815 they regressed. The true heyday was circa 1750 to 1805 or so.
My experience, 20 years in commercial lending, for medium large regional banks in US mirrors this.
I’d add that there is a tendency to fix things that aren’t broken, to prove your “worth” by new mid level managers, nearly always making things more cumbersome, less efficient, with no better, often worse outcomes.
Same true with outside vendor applications. Hottest latest program, especially in HR applications, that are typically worse.
Sorry make that 30 years. Lose track of reality with all the non-sense. When I worked for US.gov for two brief stints, as a temp, disaster loans for SBA, the sense that I was working for a mindless monopoly was overwhelming. I was tasked with number of approvals, as fast as possible. Of course that was an unwritten rule.
Fraud be damned.
Also, I’ll give you an example of what big finance did in the early ‘00s, that was never punished. Bear Stearns had a home mortgage division that never required flood insurance for a home in a flood zone, because they didn’t have to: Not a FDIC insured bank.
All those with BS mortgages were deemed to have to be approvals, for disaster loans.
the era of big government is over, and the free traders are having a hissy fit that bill clinton failed to break up russia, and that Xi made a fool of the free traders in the west.
that is all that matters, get the governments that still operate in their countries best interests, get them at all costs.
the deplorable can just go away and die.
today we see how incredibly expensive fascism is.
Re your link–I agree with the parts about current governments being politically disconnected but disagree somewhat with the notion that better competence alone will save us. Some of us would argue that the Covid example, for instance, is one where central governments inserted themselves into a situation that would have been better handled from the bottom up rather than top down. NC’s IMDoc might agree. What really happened is that disaster capitalism kicked in and a non vaccine vaccine was created in a rush and then forced on a public that might have been better off altogether without it.
Which is to say sometimes there is no good solution or perhaps a choice between several bad options. Competence may not help but self dealing will definitely make things worse and unfortuntely burearcrats can be just as subject to “power corrupts” as politicians.
So yes in many ways everything is about politics which the US founding fathers saw as a balance of competing interests. One of them said “hang together or hang separately” meaning, contra Thatcher, there is such a thing as “society.'” Right on.
Very much in agreement. “Competence” that fails to win over trust iof those on the receiving end, I think, is no competence at all. An all common attitude of “fanatical do gooders” is to force their favorite trick on the hapless public (or foreigners, poor, or whoever) whether they like it or not b/c they “know” they are right. Now, it’s even more problematic when they are incompetent, but being competent would not make things much better
Yes, thank you, Colonel, for the link to David’s essay, surely a masterful exposition on the incompetence of the western ruling classes. Or is it incompetence?
I started off the morning with my weekly check-in at Counterpunch and clicked on the link to “Learning How to Die;” at my advanced age, one can always use a few tips. The subtitle: Finding Meaning in the Midst of Collapse.”
Michael Greer has talked about the cultures who view the progression of the world as a cycle: birth, growth, decay, death, the litter of death then providing the medium for rebirth. This circular view contrasts with the prevalent western linear concept of constant growth. Upward and onward, always. Excelsior!
I tend towards the circular model. However, the author of “Learning How to Die,” seems to advocate, seductively, the inevitability and acceptance of the demise, not of Earth herself, but of its current inhabitants, human on up. Sink gracefully into the warm, embracing ooze of non-being. Because we have lost the war.
David makes two (at least) major observations: the tight coupling of our society makes us vulnerable to a break in a tiny link, a cascading failure that has unforeseen consequences. And, the policies and propaganda (and technology) over the past 40 or so years have resulted in the breakdown of formerly strong social and community links. We truly have atomized ‘society.’
Talk about recipe for disaster! Breakdowns coming and no structures in place to repair or patch, plus there will be ‘supply chain issues’ with the duct tape and bailing wire! Oh, you want a microchip? The Mighty Merchant just twirled a button.
As for the ‘incompetence’ of the current overlords, I demur, for they seem to be most competent at what they do; scavenging, vulture-like, the wounded and dying corpse of an industrial society. But larger predators are lurking in the woods, the coyotes, wolves, big cats, grizzlies.
David ends his essay with a plea : “Don’t you think we should be talking about such things now, even very softly?”
Yes, I think we should be talking about such things. Very loudly! Not going gently into that good night, without a whimper, but discussing, at all levels, about how we can use the corpse of an unsustainable society to nourish the germination of a better one. Start with how we scare off the scavengers who are tearing at our flesh.
I should have added that financial engineering, finance capitalism and ordo-liberalismus have little to with industry and the social and political realities of economics.
> It won’t work out well.
Springtime for Ukraine, and Zelensky
Winter for Poland and France….
Nothing beats the original version. Kenneth Mars, Zero Mostel, and Gene Wilder.
Your analogy is even closer than it appears at the first blush of Spring. The plot is based around an evidently Jewish con man making bank on a full blown NAZI’s ravings. That’s on Broadway. The Ukrainian version has Igor Kolomoisky backing Zelensky and the Banderites in a “hostile takeover” of the Ukraine.
You couldn’t make this stuff up. However, hats off to Mel Brooks for devising exactly such a script back in the 1960s.
Now for the sequel; “Prisoners of Lvov.”
Pianist: “Eins, zwei, drei, vier!”
Piano intro….
Chorus: “Prisoners of Lvov! Blue skies above. Can’t keep our hearts in jail!”
I almost hesitate to propose this next production to the investors: “Springtime for Hillary.”
As an exception for EU idiocy I have to mention again the Spanish Ministers for Climate Change and for Energy singling out Teresa Rivera as an example of politician who really worries about people and does her best to fight climate change. I think she was instrumental (with her Energy mate, another woman whose name I can’t remember now) to join forces with Portugal and negotiate the “Iberic Exception” with the Commission (it was hard and Sanchez had to fight hard) that simply recognizes little dependence of Iberian grids with the rest of EU and Russian NG allowing for a price cap which is now helping to keep wholesale electricity at half the price in the EU.
> A foundry, from 17,000 euro to 108,000 euro. A producer of ceramics, from 9,000 euro to 17,000 euro. A swimming pool, from 5,000 euro to 16,600 euro. A pasticceria (pastry shop) from 1,900 to 10,200 euro
Keeerist … so much for #BetteMidlerSyndrome (“I’ll happily pay more …”, via Twitter)
There are some reports that due to these prices the payback period for a solar farm in Germany is now just 2 years which would make it possibly the best investment opportunity in history. Which would be good news, except that the Germans have mostly rolled back domestic panel production in favour of Chinese imports. And China is struggling with production due to its own energy issues. So its nearly impossible to roll out sufficient solar farms to make a meaningful impact in the short term. Wind turbine production is already near capacity, although there seems quite a bit of potential to get new wind farms in place by winter.
The only ‘good’ news on the energy front is that there is strong evidence now of a very severe reduction in demand for a range of products within China (ROK just announced a major drop in exports to China), which probably means within a few months we’ll see major cutbacks worldwide in production (in other words, a steep recession in Asia). This should cut demand for LNG at least.
What I wonder is, given China’s evident prowess in solar panel production, are the Chinese building big solar power facilities in their vast desert regions? If not, it makes one ponder how constrained China really is in it’s infrastructure. Giant “Ghost Cities” are one thing, but huge “Ghost Industries” too?
I admit much ignorance concerning this subject. Enlightenment is desired.
China is rolling out huge domestic solar arrays – 31GW of installed capacity in the first half of this year along. And this is at a time when China is officially on a ‘pause’ in solar production in order to re-order the industry (basically, flush out the many bad manufacturers). They are investing even more in off-shore wind.
The big problem China has faced is that its electricity infrastructure is mostly organised on a regional basis, so its not a simple matter to get energy from the huge windy deserts of the north to the big cities of the east and south. Somewhat belatedly, they are investing in major DC connections, but it will be some time before they can overcome the distance problem.
So in short, the ceiling on further solar in China is not climate or weather or cost or productive capacity – its grid limitations. Not just physical limitations, it seems that there are institutional issues too in the overall ownership/regulatory/pricing system that means change is slower than might be technically possible.
Here you are signalling something that is very important. Many utility suppliers are now seeing returns they never saw in the past (if you are running wind farms, solar farms, nuclear plants, hydroelectric plants you are making big money for nothing given the idiotic structure of wholesale prices designed to make households to pay the most for EU arrogance and stubbornness in the name of sacrosanct merry markets. Notice that these sources mentioned above account for a large majority of kWh supplied in the EU.
Yes – a huge problem I think is that it may be economically rational for owners of capacity to simply take this windfall profit and sit on it. Some investors are trying to roll out capacity rapidly, but as we’ve seen with US fracking there are plenty of investors who have been burned in the past by short term booms and are preferring to just take their profits and retire to a beach. All the more reason to tax them heavily if they don’t reinvest.
To my knowledge, here in Spain, and possibly in other EU countries, the number of applications for utility suppliers (with renewables) has skyrocketed to numbers that are fantastic. Fantastic in several senses: all these cannot be attended if only for bureaucracy, but also require grid investment and adaptation, but also there aren’t enough wind mills or solar panels manufactured for such demand. There would also be shortage of work forces to do those intended wind and solar farms.
There are plenty of fully consented wind and solar farm sites in Ireland. If you can get the hardware, you can get one up and running in 3-4 months.
Its hard to get a grip on what operators/investors are doing, but it seems to me that the wind energy industry is going full steam ahead to build what it can as fast as it can. The solar industry here has been playing hardball with the government (there is about 2GW of capacity consented but unbuilt) to see if it can squeeze out more concessions/grants. Wind is obviously the important one for the coming winter.
A particular complication in Ireland is that we’ve seen a huge roll out in data centres, many of which have direct contracts with renewable operators. They see it in their interest to accelerate renewable investment – even Amazon has invested directly.
I’ve seen it suggested, btw, that some data centres may find it cheaper to use their own emergency backup generators rather than the grid for power over the winter, such is the projected price for electricity. This could provide some relief during peak power periods, but will result in its own problems (not least, localised pollution).
It has aspects of a morality play, almost a reductio ad absurdum of the split in recent years between the financial economy and the real economy. After all, if utility suppliers are making money, then surely that’s the same thing, in the end, as manufacturing industry making money and employing people… isn’t it?
I have a question related with my limitations with English. Your “isn’t it?” Question is a cynical remark, isn’t it?
If not, then I am not reading it correctly.
Deeply, deeply cynical. Also known as the rhetorical trope of fausse-naïvité. I’m sure you have it in Spanish …
Ignacio, another parallel is
“let met get this straight” where someone states what he already knows, but with a touch of clarification for the reader/hearer.
Update – Doomberg
Europe’s Gas Price Is Now Equivalent To $500 Per Barrel Of Oil
Update 2 – Doomberg again
German power prices now $650 per megawatt-hour
I hope this is just forced buying by a trader that blew up because if this is actual demand then yikes.
The developing world is getting hammered by these prices too. Deliveries of LNG for Pakistan and Bangladesh, under long-term contract, were diverted to Europe, and while the sellers paid a penality for violating the agreement, it was still more profitable for them to do so and sell in Europe at prices developing countries cannot afford.
Russian gas is mostly delivered by pipeline. They do not have the capacity to convert a high-volume of this to LNG, and likely won’t for quite some time because the technology to do so is American and is under sanction.
That said, Gazprom is seeing record profits and the Russian government, record revenues. Frequently overlooked is Russia’s domestic gasification program which will see the use of gas, via domestic consumption, far exceed what has historically been shipped to Europe, although sales to India, China, Japan and South Korea are expected to expand as well.
And there’s this:
Proven gas reserves in Russia account for 23.6% of the world’s total reserves, they are developed by 34.7% , and with a fully developed gas transmission system and sales markets, Russia could produce 1.5 trillion cubic meters of gas per year. Formally, as the researchers note, the country’s proven gas reserves will last for 73 years, but in fact, taking into account the yet undiscovered resources and even without taking into account the potential of unconventional reserves, Russia is provided with gas for more than 300 years.
Gas reserves in the United States account for 6.3% of the world’s total, they are developed by more than 76% and the rate of gas extraction is equal to 1.7% per year. For a late stage of development, this is a very high rate of selection. It is unlikely that the United States will be able to significantly increase gas production, and their reserves may last only for 14 years, analysts believe, while noting the need to take into account the role of associated gas and the economic factor when assessing proven reserves.
[Source: gazetta [dot] ru]
This explains, at least in part, the interest of the grand US geostrategists to break Russia in pieces. The cannot tolerate such superiority in resources.
The USA ruling class is still living in the 1990s, and the world is moving on without them.
Not one mention of the word sanction in the article. Amazing how the U.S. banking cartel has convinced Europe to commit suicide on behalf of Wall Street and Trotsky’s grandchildren seeking revenge on Russia.
The Arctic LNG 2 project was originally supposed to be constructed using Russian produced equipment, but the requirements were loosened enough to allow purchase of western equipment.
So, the tech is there, but they now have the problem of the first of the three LNG trains being only 78% complete. Impossible to finish in foreseeable future, expensive to reconstruct with Russian tech.
The LNG Construction Center in Murmansk is preparing to build two modular LNG trains in this and next year (Arctic LNG 2 trains 2 and 3). LNG CC is a strategic investment project inaugurated in 2015 by Russian government that includes over 100 Russian companies.
Even since Russia announced that they were closing gas supplies for three days due to “maintainance”, the price of gas on the spot market has jumped to over $2,900 per thousand cubic meters. And you can imagine what this will be doing to preparations for the winter as far as gas storage is concerned. One senior Swiss policeman was saying ‘Imagine, you can no longer withdraw money at the ATM, you can no longer pay with the card in the store or refuel your tank at the gas station. Heating stops working. It’s cold. Streets go dark. It is conceivable that the population would rebel or that there would be looting.’ That would be true for any European country this winter. So what will the solution be? I would suspect the same that was used against the Yellow Vests but across all EU nations. An answer is needed.
So I asked my dogs for a solution to this crisis as they don’t do politics and don’t have a uni degree. They said that Germany at least should apologize to Russia for trying to regime-change them, ask for the Nord Stream 2 to be opened, and then sort out with Canada a legal mechanism so that all those turbines can be repaired and shipped between Russia and Canada unhindered. And for all this to happen in 24 hours. Dogs are very wise and we should listen to them more. So why is this not happening? I am beginning to suspect that it is a matter of how Olaf Schulz and his government would rather de-industrialize Germany rather than admit they failed and maybe lose power.
This made me laugh but I totally agree with you! There is a solution available that any rational leader thinking of their country’s interests would grasp. The fact that Schulz does not do so is telling.
And what in the blue hell made Switzerland forgo its historic neutrality to side with NATO? Did they lose their friggin minds or are they simply bankers who reflect the principles of their most valued/valuable customers?
I have been wondering the same myself. They are now on the Russian official list of ‘unfriendly’ nations. And Sweden and Finland also gave up on their neutrality policies that go way back. Not sure but I think that Austria has mostly kept their neutrality policy though. But getting back to the Swiss, they must know that their is zero chance that a Russian army will turn up and invade their country – but sided with NATO anyway. The past few years the EU has been cracking down hard on the Swiss to get them to align their policies with the EU itself. So maybe a deal was reached for the EU to back off if the Swiss joined in on the attack on Russia.
Or maybe they noticed an Iron Curtain 2 is descending fast to separate the Atlanticists from the rest of the world, they accepted that since Switzerland can’t change geography and adjusted accordingly.
What comes to Swedish neutrality, as far as I can remember it has always been the most Russophobic kind of neutrality possible. Finland has been sneaking into NATO for over a decade already, for reasons that totally escape me.
To my mind, when the Swiss banks accepted US bank supervision in the aftermath of GFC that ended Swiss neutrality.
Well, the Atlanticists/Neoliberals worldwide are as out-of-control/maniacal greedy and stupid as they come. All PTBs are. It’s a serious flaw in the homo sapiens makeup. I, too, am puzzled over Sweden and Finland giving up their long-held neutrality.
Thank you.
I was often seconded to Switzerland when working in regulatory and trade policy and know the country well, so can help answer that.
Despite what the Swiss public, especially their version of Brexiteers (SVP / UDC / Blocher family plaything), believe, the Swiss establishment has long collaborated with the EU, NATO and USA. It’s sometimes driven by the need for market access or to get their banks(ters) out of a tight spot, including trying to trade Roman Polanski some years ago for some Swiss bansksters held in the US. However, the Swiss and political business establishments are like the rest of the west. They have their own interests and ideas and see this crisis, like Finland and Sweden, as an opportunity to move on from long held positions.
I was always under the impression that Swiss “neutrality” was of the opportunstic-mercantile kind: playing all sides against the middle is good for business. For example buying gold from the Nazis in WW2 without looking too closely at its provenance.
Regarding Austria, perhaps the fact that they have fairly recent history involving a negotiated withdrawal of the remaining allied – especially Soviet – occupation forces post-WW2 serves as a neutrality reinforcement. Wikipedia says thusly about the 1955 State Treaty negotiated between Austria and the USSR (mainly Molotov) a few years after Stalin’s death, which event allowed for a diplomatic breakthrough:
Both, of course.
1) The government (Federal Council — Bundesrat) has 7 members, two of whom heavily lean pro-NATO:
a) Ignazio Cassis (in charge of foreign affairs). He had already made headlines with pronouncements against the UNRWA that mirrored those of the USA and Israel, even going as far as suspending Switzerland’s support of the UNRWA, and generally with his very pro-Israel attitude. Recently, he commissioned his department to work out a report proposing a reform of the Swiss neutrality including close co-operation with NATO and relaxing weapons exports to democratic countries under attack (wink, wink). Swiss nationalists from the UDC are up in arms.
b) Viola Amherd, in charge of the defense. Her role in the selection process of the new fighting aircraft for Switzerland is criticized, as she seems to have pushed for the F-35, played games with the French (negotiating compensation transactions for the acquisition of the Rafale although the decision to buy the F-35 had aready been taken), and is hell-bent on signing the acquisition contract even before the Swiss have a chance to decide upon a popular initiative prohibiting it (which has just been formally submitted with the required number of signatures — Amherd even asked the organizers of the initiative to retract it).
2) Switzerland has a complicated relation with the EU, and it is currently going through a low — as Switzerland refused the conditions that the EU wanted to impose to have unrestricted access to European markets. The EU already retaliated notably by degrading Switzerland status in European research programmes, banning Swiss firms from EU stock exchanges, threatening to exclude Switzerland from the EU electricity market, etc.
The last thing Switzerland wants is to be sanctioned by the EU, which is its largest trade partner. EU multiplied accusations of Switzerland helping Russia to circumvent sanctions under the pretense of neutrality. The Swiss government decided to bow to the, huh, strongly worded intimations of the EU and adopted most of its sanctions against Russia — the calculation being that Switzerland had less to lose by sanctioning Russia than being sanctioned by the EU. Well, Russia put Switzerland in the list of “unfriendly countries”, and called for negotiations on the political future of Syria to take place elsewhere than in Geneva; the July session was subsequently cancelled, and there is growing unease in Switzerland as to the risk of seeing the country lose its role as a prime center for diplomatic negotiations thanks to its neutrality status.
The handwriting was on the wall when natgas prices were in the dirt and laws regarding energy export were updated. This promptly led to the USA ceding a huge manufacturing advantage (low input cost think plastic manufacturing) and led to a huge boost for the petrochemical industry along the gulf coast (think liquification, and export led price boosts). At the same time, seeing Nordstream II for what it was, further Russian tentacles into Europe (Germany), the whole thing was neatly wrapped in a bow when uber experienced politician Angela Merkel stepped aside. Now the excrement is hitting the fan in a very well orchestrated move that sees Germany’s input costs soaring, China scrambling for supply and and the ribbon wrapped turd blowing up in everybody’s faces except for those best positioned to afford the pain (that would be us). Is anybody seriously surprised?
Except that China isn’t scrambling too quickly– it seems they’re dragging their feet on the Mongolia pipeline, hoping for better long-term pricing of Russian gas for a project that is designed to serve 100M Chinese. They definately need the gas though, unless they back-up their hydroelectric with more nuclear.
Yeah, it sure looks like the USA has neoliberalized Western Europe, good and hard. Did the USA trash manufacturing there out of spite? I don’t think that the USA ruling class has any intention of “reshoring” production to the USA, as that’s all but impossible to do in a high-cost society, so it would seem that we are gifting Asia (and Russia) the opportunity to capture European market share.
Today I learned that natural gas is priced differently for different regions. I thought oil was priced at a worldwide level?
No, oil prices are also based on regional supply, so for example Brent (North Sea oil) has different price than West Texas. For example, Brent is now priced at $93, while West Texas is priced at $87.
Also, oil is typically priced at the delivery point, West Texas delivery point IIRC is Galveston or somewhere around there, so price for a customer in India will be quite different as it involves transport cost in addition to the oil cost.
The article says: “As LNG is now a global commodity, benchmark gas and spot LNG prices are soaring all over the world.”
The amount of gas that can be converted to LNG and transported is essentially fixed because compression plants take years to produce, the number of LNG tankers is limited and the shipyards making them have 3-4 year backlogs. Natural gas and LNG are linked global commodity, but the pipeline system is regional and the LNG system is worldwide. Prices reflect that.
In recent years there has been an excess of high-fixed-cost LNG production, so the “interruptable” and spot prices for “next month” deliveries have been very, very low. Bangladesh, Pakistan and other poor nations have taken the risk and purchased LNG loads at very low “last minute” prices but that approach was dancing-on-the-precipice. Now the fixed supply of LNG is getting very high bids from Germany, China and Japan and the poor countries find themselves with literally zero options. This is an under-reported- for now- disaster.
The price for LNG is so high that almost no manufacturer can be competitive using it. So German industry is faced with either shutdowns or government subsidies. My bet is a combination of both and a “consumer first” rationing system. The US Texas Gulf petrochemical industry will prosper because ethylene made from pipeline gas will be much cheaper that ethylene made from LNG in Germany. This is akin to the US Whiskey Rebellion in 1800; corn was too heavy to transport economically so Ohio River farmers distilled it into whiskey which was worth 50x the price of the same weight in corn.
Russia and the US are both “pipeline continental” countries- except for the northeast US consumers who have limited the pipeline network; they are in for a shock. The LNG they usually get at reasonable prices via ships from the Gulf of Mexico is now heading for Europe where it will get much higher prices. The inevitable result will be shortages and higher prices which will not happen until after the November elections, as I’m sure the Democrats have noticed. And how will European voters react when they realizes that the temporary ban on cheap Russian gas is about to become permanent, that the European petrochemical industry is about to vanish and the American industry replace it?
So the bottom line is pipeline networks can adjust and limit price changes. The LNG market less so.
Copenhagen has its Little Mermaid. It might be timely for some group to commission a statue of the Little Match Girl to place at some appropriate spot in the city — on a major path to Tivoli perhaps? I believe in the power of art to make a statement. Although a statue of the Little Match Girl might be more fitting and appropriate to other cities less enlightened than Copenhagen, I think the original should be in Copenhagen since Hans Christian Anderson is theirs.
[It is outside the domain of the discussion around this post but — A Little Match Girl somewhere along the Miracle Mile in Chicago?]
The world seems to be stumbling into collapse along the quickest and most painful paths lead by — I cannot think of suitable nouns and adjectives to describe the quality and nature of the leaders. There are no Pathfinders.
Add hydropower to the list of constricted electricity sources as the heatwaves and droughts continue.