There is an energy crunch in Europe right now and experts are warning that a harsh winter could lead to severe energy shortages with huge economic implications.
What does Europe’s energy crisis have in common with the Lone Star State?
Matt Smith is lead oil analyst for the Americas at Kpler, a data and analytics company. He told Texas Standard that high prices of liquefied natural gas – LNG – in Europe and Asia and droughts in South America are making Texas and U.S. LNG a coveted commodity. LNG prices in the U.S. are currently $5 per MMBtu, while in other parts of the world its above $20 per MMBtu.
Listen to the interview above or read the transcript below to learn more about high electric bills in Europe and why they matter to Texans.
This transcript has been edited lightly for clarity
Texas Standard: What is going on here?
Matt Smith: First of all, just with natural gas prices, they are spiking, not just in Europe and in Asia. Natural gas prices in the U.S. are on the rise, but it’s a different story. So, U.S. prices are over $5.00 per MMBtu – that’s the highest they’ve been since early 2014 when the U.S. was going through the famous “polar vortex” with record low temperatures. But while U.S. prices have essentially climbed three points, that’s nothing compared to what we’re seeing in Europe and Asia, where prices in the mid $20s for Europe and the high $20s for Asia. The reason for this has been a bit of a perfect storm: storage was depleted last winter when it was cold and has never really been replenished. And producers have gone through maintenance at the same time as well, which was postponed due to COVID lockdowns last year. This all comes back to the U.S. because about 75 to 80% of U.S. LNG exports head to either Europe or Asia.
When you say LNG, you’re talking about liquefied natural gas?
Yes, exactly. It is essentially frozen to the point where it gets turned into a liquid and then is put unto ships and then transported across the world.
And Texas is a major exporter too.
Exactly. And given that disparity between $5 and $25, these regions will be pulling in as much U.S. LNG as [they] can. So, we can expect exports from the U.S. to be going full tilt from here on out, which is ultimately, you know, probably not ideal for domestic U.S. electricity prices.
You said “postponed infrastructure upgrades.” I think we’ve had something similar here in Texas when it came to our electric grid. Are there any other connections with what’s happening in Europe and what we’ve experienced here in Texas?
They’re going through gas shortage issues, and that’s not necessarily something that we had in the U.S., but it was a concern earlier this year. There was a lack of truck drivers to take fuel to the stations. And there was a concern that as we got into summer driving season, you’d see the pumps run dry. And that’s exactly the situation that’s happening right now in the U.K. because of Brexit, because E.U. nationals have left the [U.K.] leaving a dearth of truck drivers to be able to take this gas from the terminals to the gas stations. And then, just as we see in the U.S., this shortage is really being driven by panic buying.
You mentioned that Europe gets a lot of its LNG from the United States. And we need that stuff, too, especially in the winter. Are we looking at a possible crunch? Maybe a price spike as Europe’s trying to get so much of that LNG and we have needs stateside?
You can already see it reflected in prices here, which [more than] doubled since where we were in March . And if you’re going to have this demand coming from Europe and Asia as we head into winter, then that’s likely to push prices higher in the U.S. because they’re essentially pulling as much LNG, as much natural gas out of the U.S., as it possibly can because the price is so cheap here.[And], it’s not just Europe and Asia. You’ve got Brazil at the moment, which is going through a severe drought and they’re looking to the U.S. as well. 75% of their power comes from hydropower. And because of this drought, they’re pulling in record LNG imports as well. And so, everyone around the world is really after U.S. natural gas right now.