Don't look now, but the price of natural gas is soaring, and it's already creating major headaches over in Europe.
The surge--which started with a cold winter last year, but has been accelerated by a mysterious drying up of supplies from Russia, and Europe's drive to phase out fossil fuels--means prices are now up fivefold from 2019. And there's little hope of change on the horizon. Russia either doesn't have enough supplies or is playing politics to press policymakers for a smooth approval of its Nord Stream 2 pipeline. The price of carbon keeps soaring, making gas plants less attractive to operate. And Europe's biggest gas field, in Norway, is about to go offline.
It all spells trouble for consumers and businesses. European nat gas just soared over 54 euros per megawatt hour this morning--a fresh record. Next-year power in Germany has soared over 91 euros! The Financial Times is warning the global gas crunch could derail the economic recovery. Supplies for liquefied natural gas, or LNG, have also tightened amid strong demand from Asia. Shares of U.S. LNG provider Cheniere have surged 50% this year.
The crunch means that even the dirtiest, least attractive power source--coal--is experiencing somewhat of a revival. The U.K., which is phasing out coal completely by 2024, "had to fire up an old coal power plant on Monday to meet its electricity needs," the BBC reported. (Evidently, this was after its wind power suddenly went dormant.) Have you seen shares of Peabody lately? They're up 6.5% today, and 670% this year, even though the company--the biggest U.S. coal producer--warned investors last fall it may have to file for bankruptcy again for the second time in five years.
The supply situation in Europe is so bad that policymakers are basically praying for a warm winter, lessening demand for heating. Here in the U.S., things aren't quite as dire, but the market is still tight. The price of our benchmark gas has more than doubled from last year's lows, to about $4.60 per million BTUs. But that's still equivalent to about $16 per megawatt hour, if my math is right, which is much lower than what Europe is currently facing.
Even if our nat gas doesn't spike any further, the upward pressure could persist until or unless a huge amount of supply comes online. So, on top of everything else causing supply chain disruptions and cost spikes, this will be yet another headache for the Fed and the Biden administration. Ironically, high energy bills are typically a big catalyst for adoption of cheaper, cleaner alternatives, like solar. It's exactly what policymakers want, in the long run. But it's an extremely regressive way to reach those goals in the meantime.
See you at 1 p.m!