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Much of the world is suddenly worried about running out of natural gas, and the impact is felt in soaring utility bills, closed factories and growing desperation as winter approaches.
Consumers in Asia, Europe and Latin America still reeling from the pandemic are seeing energy costs skyrocket, driven by natural gas prices which have quadrupled in some regions in recent months, reaching record highs. record levels this week. Manufacturers of chemicals, steel, ceramics and other products that require large amounts of energy see their bottom line and, in some cases, halt their operations.
In South Korea, electricity prices have just increased for the first time since 2013, and small businesses that have struggled for months with strict pandemic rules now fear future price hikes. “It is already difficult for small businesses to survive,” the Korean Federation of Microenterprises said.
In Brazil, the worst drought in 90 years has depleted hydropower production, forcing power producers to import expensive natural gas. The government raised electricity prices by almost 7% in September, following an increase of almost 8% in July.
Europeans are also feeling the pinch. In Spain, the government recently said it would take profits from energy companies to help taxpayers. In Italy, residents recently suffered a 14% increase in their gas bills, accompanied by an almost 30% increase in electricity prices.
“We will have to do the dishes or the laundry at night to save money,” said Carla Forni, teacher and mother of two in Bologna.
In China, already the world’s largest importer of natural gas, demand is up 13% as Xi Jinping, the country’s leader, continues his plans to clean up the environment by turning away from coal.
As a major gas exporter, the United States has benefited from strong global demand. Lately, prices which have reached their highest levels in years have prompted calls to curb overseas shipments. US prices, however, are only a fraction of those seen recently in Europe and Asia.
Global shortages are linked to the growing popularity of natural gas as a fuel to generate electricity, as it creates fewer greenhouse gas emissions than coal. In many countries, it is a cleaner alternative to coal-fired power stations as well as aging nuclear generators, while power grids await the expansion of renewable energy sources like wind and solar.
The increased dependence on gas means there is less flexibility in the system, especially when the ability to store gas for times of high use, like winter, has declined in some countries like Britain.
After a slight drop in demand last year during the pandemic, the estimated 4% increase in global gas consumption this year as manufacturing and other activities recover has been difficult for the industry to manage.
The post-pandemic recovery has been driven by “demand for goods rather than services,” said Neil Beveridge, senior analyst in Hong Kong at Bernstein, a market research firm. This focus on manufacturing has resulted in sharp increases in the consumption of natural gas and electricity to power factories and other industries.
Tankers carrying liquefied natural gas from exporters like the United States, Qatar and Australia are heading to China and Brazil, attracted by rising prices. This has reduced deliveries to Europe, where there are fears that unusually low storage levels – caused by a cold snap last spring – could lead to a crisis in winter, when demand for fuel soars in some. country. Disappointing levels of imports from Russia, which are increasing shipments to China, and falling domestic production in Britain and the Netherlands are also tightening the European market.
High gas prices and low wind speeds that reduce the power generated by wind turbines mean that Europe has used more coal than gas in power generation for the first time since 2019, according to Rystad Energy, a consulting firm.
Few industries have been hit as hard as fertilizer manufacturers, who use natural gas to create ammonia, a key ingredient in soil amendments.
Tony Will, managing director of CF Industries, one of the world’s largest fertilizer producers, described how this year the price of gas used at the company’s two UK factories more than tripled, until that CF is losing $ 300 on every tonne of ammonia produced.
The losses exploded into “something so big and so negative” that the business couldn’t continue under these conditions, and he shut down both factories, making headlines across Britain.
Since then, Mr Will has agreed to a short-term solution: he reopened one of the factories with the government covering the losses. The government is helping pay the bills for CF because the manufacture of ammonia generates a valuable by-product: carbon dioxide, vital for the UK meat processing industry as well as for the carbonation of beverages.
CF is not the only fertilizer maker to have fallen victim to soaring natural gas prices. Yara International of Norway said last month it was cutting ammonia production at several factories, and German chemicals giant BASF cut crop nutrient production due to high gas prices.
Mr Will, who was speaking by phone at a fertilizer conference in Lisbon, said he had told the UK government that fertilizer availability could be the next crisis, potentially jeopardizing the country’s crops. ‘next year.
Pressure on natural gas markets is also pushing oil prices up, analysts say. Traders expect that with gas having reached a level in some cases comparable to oil selling for around $ 170 a barrel, there is a strong incentive in some industries to burn oil (recently around $ 75 to $ 80 per barrel) instead of gas for electric power, fueling demand.
The evolution of gas prices from here depends on the severity of the winter, analysts said. A freezing winter could push prices even higher, risking further industry shortages and closures, and quite possibly a rush to respond by lawmakers.
On the other hand, hot weather could cause prices to drop sharply. Futures markets are dropping to much lower levels next spring.
“We put our industry and our households in the hands of the weather,” said Marco Alverà, managing director of Snam, a large Italian gas company.
Weather aside, analysts believe the world may be heading for a tighter energy and gas market than in recent years. The pandemic and other factors have caused companies to delay investing in new fossil fuel projects, including liquefied natural gas terminals. Only about a third of the additional LNG volumes will hit the market over the next three years, Bernstein estimates, as in the past three years. In some countries like Great Britain, nuclear power plants are decommissioned and not replaced quickly.
Growing concerns about climate change, expressed by shareholders or through court cases like a Dutch court ruling in May ordering Royal Dutch Shell to cut greenhouse gas emissions, may make some companies reluctant to invest in new multi-billion dollar fossil fuel projects.
The result will likely be “more volatile” markets, as power grids juggle shifting energy sources, from oil, gas and coal to clean energy, said Carlos Torres Diaz, head of gas and gas. electricity at Rystad Energy. The downside of renewable energies remains that they depend on the sun and the wind.
Eventually, huge solar and wind power plants and other clean sources could help protect consumers from the tyranny of global commodity markets. But the events of this fall suggest the goal is some distance away.
The report was provided by Keith bradsher, Gaia Pianigiani, Jack Nicas, Hisako Ueno and John yoon.
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