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Global Price Rally Calming Down with Natural Gas

Natural Gas markets throughout the world are soaring as the world’s importers realize that there isn’t enough supply to go around. Long, cold winters have depleted gas stocks from Louisiana to Germany, and utilities are scrambling to replenish them. Unexpected supply disruptions and a recovering global economy, however, make keeping up impossible.

As high summer temperatures approach, this is setting up a terrible situation, which will only worsen when demand rises coming winter. After blistering heat waves in some locations have already made it more expensive to run air conditioners, higher gas prices, which hit a 13-year high in Europe this week, will make it more costly to keep the lights on in Madrid or cool flats in Tokyo.

Global Price Rally Calming Down with Natural GasAs the price of crude oil to corn and copper rises, the cleaner-burning fuel is the latest item to contribute to the global inflation concern. Suppose a gas shortage develops during the winter months. In that case, it might prompt European utilities to burn more coal, as they have already begun to do, and China’s power producers to cut supplies to industry, resulting in blackouts, as it did last winter.

Households will face sky-high utility costs, with the worst-case scenario – albeit unlikely – is that they would be without heat or electricity when the cold weather arrives. Gas prices in Europe have risen as supplies plummeted to their lowest levels in almost a decade for this time of year, while rates in the United States and Asia have been increased to their highest levels in years. The gas market had long been divided into geographical zones. Still, in recent years, the increased availability of liquefied Natural Gas and increased liquidity in spot trade have helped it become genuinely global.

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