Natural gas prices threaten the recovery of the global economy and warn of social problems
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Natural gas prices are at a historic high, which is negative news for everyone, from ceramic makers in China to pastry customers in Paris.
The cost of fuel is currently reaching seasonal record levels in most major markets, and it appears that it is poised to rise further, which threatens to derail the recovery from the “Covid-19” pandemic.
The coming winter may give the world a hard lesson highlighting the vital economic importance of gas. Exorbitant prices can hamper household spending and undercut their wages due to inflation, giving central bankers some tough policy choices.
Worse, a virtual shortage of supply could lead to industrial shutdowns, or even blackouts in developing countries, which could cause social unrest.
“Energy is at the heart of the economy,” said Bruce Robertson, an analyst at the Institute for Energy Economics and Financial Analysis. “High energy prices reverberate across the supply chain,” he added, and could dampen the nascent recovery.
Energy costs are rising around the world, as demand recovery from the worst of the pandemic shutdowns runs counter to supply constraints. Oil has already seen a long rally that started in late 2020 and ended at multi-year highs above $75 a barrel in July. Gas also began to rise in earnest at the beginning of summer in the northern hemisphere, when it became increasingly clear that Europe had insufficient supplies to allow the usual refilling of depleted storage sites in winter.
Russia limits gas exports
Russia, the continent's largest supplier, has been limiting pipeline gas exports for a number of reasons, including high domestic demand, production disruptions, and an agreement to transport less fuel through Ukraine.
“There was a downturn as a result of storage delays all summer,” said Alfred Stern, chief executive of Austrian oil and gas producer OMV.
Now consumers in Europe are at the mercy of the weather, and the trajectory of prices will depend on how cold this winter is.
In Europe since then, the rate of gas and oil price hikes has been outpaced, as the problem has not been contained within the region. While Russia's supply restrictions do not directly affect consumers in Asia, they still have to compete with Europe for seaborne LNG shipments, forcing them to pay higher prices to secure deliveries.
“Rising gas prices today is a problem for Europe. It could be a problem for Asia as well,” Francesco Staras, chief executive of Italian utility company Enel SpA, said in an interview with Bloomberg TV.
Connecting Europe, Asia and the US is the LNG market, and higher prices are feeding the domestic US market as higher exports of cryogenic fuels are stimulated.
New York natural gas futures are up 80% since the start of the year to their highest levels since 2018, although they are still significantly lower than in other major global markets.
“The European market and the US market are in a similar position as the heating season approaches,” said Nina Fahey, natural gas analyst at Energy Aspects Limited in New York. “We would likely have concerns about adequate storage if we had cooler than usual weather, given the volume projected exports of liquefied natural gas.
The economic consequences of rising natural gas prices are becoming evident around the world.
France's largest producer of sugar, Tyros, warned last month that the price of fuel was affecting sugar processing in Europe, raising production costs "dramatically", according to a copy of an email sent to customers and seen by Bloomberg News. .
High energy prices are creating "inflationary pressure on all other costs", said Pascal Leroy, senior vice president of basic ingredients at Roccote, a food manufacturer based in northern France.
In China, the world's largest gas importer, ceramic factories were forced to cut production due to rising prices in Guangdong and Jiangxi provinces, according to local reports, while high utility bills "sabotaged" the business of "Mughal Steels" in Pakistan, according to the chief operating officer. Shakil Ahmed.
“We consume gas first and then get a high bill later,” Shakeel said. “How can I go back to the customer saying I need to add an extra cost to the steel I sold you?”
JPMorgan Chase & Co said this week that its manufacturing PMI fell globally to a six-month low in August, although it still indicated expansion.
According to people polled by Bloomberg, poor countries such as Bangladesh cannot buy enough energy supplies to keep their economies thriving. Some of the country's irrigation systems may only be able to operate at night due to potential energy rationing.
“Rejection may be from customers who cannot afford the high prices," said Leonid Mikhelson, chief executive of Novatek.
Fahi of Energy Aspects said US manufacturers have not yet seen a big hit from the rising cost of gas, because many energy-intensive industries such as steel and petrochemicals have also seen prices rise at which they sell their products.
The crisis that is largely occurring in heavy industry in Europe and Asia today could spread close to the political and economic arenas, as if households and firms notice rising utility bills they may seek to raise wages or the prices of the goods they sell, exacerbating the inflationary pressure already created by Strained supply chains.
Headline inflation in the eurozone has already risen to a decade-high of 3%, as European Central Bank officials insist that this post-pandemic rise should be temporary, but that a lasting recovery will complicate their ability to continue to support the economy. Through an ultra-easy monetary policy.
“The probability of producers passing on costs is very high. This means that inflation may not be so temporary,” said Karsten Brzeski, an economist at ING Groupe in Frankfurt.
The rising cost of basic commodities can have social consequences for a long time.
“In many emerging market economies, small increases in the retail prices of fuel or energy could lead to economic hardship and general turmoil,” Eurasia Group analysts said in a note dated August 31. the country since it began importing fuel in 2015.
The cost of energy could become a "hot potato" in the upcoming German elections, said Ole Hansen, head of commodity strategy at Saxo Bank.
“Public opinion is not yet focused on high energy prices,” said Julien Hoarau, head of Energescan, the analytics unit at French company Engie SA, based in Paris. What's going on here?"