Longer walk to economic recovery as global gas prices surge

Natural gas prices are experiencing a historic surge, and that’s bad news as fuel costs are already at record seasonal highs in most major markets and are likely to rise further, threatening the recovery from the Covid-19 pandemic.

The coming winter could give the world a painful lesson in how gas has become widespread and vital to the economy, reported Bloomberg.

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Affordable prices can lower households’ spending and lower their wages through inflation, giving central bankers some tough policy choices. Worse yet, real supply shortages could disable large parts of the industry, or even trigger blackouts in developing countries, potentially leading to social unrest.

“Energy lies at the base of the economy,” said Bruce Robertson, an analyst at the Institute for Energy Economics and Financial Analysis. “High energy prices reverberate through the supply chain” and could put a dent in the nascent recovery, he said.

Energy costs are rising around the world as an improvement in demand from the worst of the Covid-19 lockdowns is hit by a supply crunch. Oil has already gone through a protracted rally that began in late 2020 and ended in July at a multi-year high above $75 a barrel.

The gas began to rise in the early summer in the Northern Hemisphere, when it became increasingly clear that Europe did not have enough supplies to allow normal refilling of storage sites in winter. The continent’s largest supplier, Russia, is limiting pipeline exports for a number of reasons, including high domestic demand, production disruptions and a deal to reduce fuel transit through Ukraine.

The LNG market is one that connects Europe, Asia and the Americas, and higher prices there feed into the domestic US market by encouraging more exports of the super-chilled fuel. Natural gas futures in New York have risen as much as 80 percent this year since 2018, although they are still very low compared to other major global markets.

Around the world, the economic consequences of the natural gas rally are becoming clearer. In China, the world’s biggest gas importer, ceramics factories have been forced to reduce production due to high prices in Guangdong and Jiangxi provinces, according to local reports. According to Chief Operating Officer Shakeel Ahmed, the rise in utility bills has “ruined” Mughal Steels’ business in Pakistan.

“We consume gas first and get a higher bill later,” he said. “How do I get back to a customer saying I need to add an additional cost to the steel I sold you?” Some poor countries, such as Bangladesh, cannot procure enough energy supplies to keep their economies thriving. In Pakistan, the government has been critical of the purchase of the country’s most precious LNG shipments since it began importing the fuel in 2015.