Natural gas must be transported at a cryogenic temperature of -160º Celsius to transform dramatically from gas to liquid. The impact of inflation, particularly the escalating costs of natural gas for electricity generation due to war, significantly affects our daily lives…

“On June 13, European natural gas futures hit €36 per megawatt-hour, a near six-month peak, as reported by TradingView. This surge is attributed to apprehensions about LNG facility shutdowns and Europe's push to replenish winter gas reserves. The halt of operations at Australia's Wheatstone gas facility has disrupted the global LNG supply chain. Europe's gas supply faces challenges amidst competition with Asia, where demand has spiked due to a heatwave. Although EU gas storage levels stand at 72.33%, the pace of storage injections has decelerated, sparking concerns over future availability, particularly with the potential shortfall of Russian gas. Germany's Uniper SE has secured €13 billion in compensation from Gazprom for undelivered gas, casting doubts on the dependability of Russian gas supplies.

The current prices in the Henry Hub Natural Gas Spot Price are notably lower than historical peaks. For example, the price hit US$18.92 in December 2000 US$18.54, in February 2003, reached a peak of US$23.45 in September 2005, climbed to US$18.93 in June 2008, and as of August 2022, it is US$9.47 per MBTU. Given these historical fluctuations, the market remains susceptible to potential risks, especially in the complex and turbulent global context we find ourselves in.

Henry Hub Natural Gas Spot Price…

Natural gas has been used in the global energy industry for centuries…

The use of natural gas dates back to ancient times, with its commercial applications expanding significantly in recent centuries. For example, around 1000 BC, natural gas was seen emanating from the ground in flames at the Oracle of Delphi in ancient Greece. By 500 BC, the Chinese were using bamboo "pipelines" to transport gas for the purpose of desalinating seawater through boiling.

Britain's first commercial utilization of natural gas in 1785 marked a pivotal point for global development. However, it was in 1816, in Baltimore, Maryland, that the U.S. distinguished itself. Baltimore became the first U.S. city to use manufactured natural gas for street lighting, marking an important milestone in the early growth of the U.S. natural gas industry.

The indigenous peoples of the United States initially discovered natural gas when they saw the burning of gases near Lake Erie, a phenomenon noted by French explorers as early as 1626. The first successful natural gas well in the U.S. was drilled in Fredonia, New York, in 1821, leading to the creation of the first American natural gas distribution company, the Fredonia Gas Light Company.

In 1836, the City of Philadelphia founded the first municipally owned natural gas distribution company. Today, the United States boasts over 900 public gas systems, with the Philadelphia Gas Works being the largest and longest-standing.

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Today, natural gas occupies a crucial position in the global energy supply…

In the United States, natural gas supplies over half of the energy consumed by residential and commercial customers, and about 41 percent of the energy used by the industry. It is regarded as one of the cleanest, safest, and most beneficial sources of energy.

Ninety-nine percent of the natural gas in the United States is sourced from North America. As the cleanest-burning fossil fuel, natural gas increasingly aids in achieving national environmental and energy objectives, contributing to a more competitive economy. The underground natural gas delivery system, which extends over two million miles, boasts an exemplary safety record.

Since 2004, liquefied natural gas (LNG) has begun to assume a more prominent role in the overall gas supply landscape. Currently, approximately 1% of the natural gas consumed in the country is imported as LNG, and it is projected that the nation's imports of LNG could increase to around 7 or 8% by the end of the decade, which would require the construction of additional LNG facilities.

After the pandemic-induced decline in 2020, the invasion of Ukraine by Russia in early 2022 abruptly interrupted the recovery of global energy consumption. This unexpected event has plunged global energy markets into uncertainty, exacerbating inflationary pressures and slowing economic growth.

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In our quest for cleaner energy, we offer various innovative solutions through our sPower partnership, aiding customers in transitioning to 100% renewable energy consumption. The projects like Pleinmont Solar I and II in Virginia underline our commitment to sustainability and impact on the environment. Our collaboration with Microsoft on a 300 MW solar energy initiative further supports clients in reaching their green objectives.

AES partnered with KIUC for a solar + storage solution, setting a new standard in renewable energy, supporting Hawaii's 2045 goal. Ready to help Microsoft and more with eco-friendly energy solutions, as mentioned by Andrés Gluski, AES's President and CEO.

Is natural gas the bridge that fuels the world’s needs?

Natural gas is seen as a cleaner fuel than coal and oil, but methane emissions from its extraction and transport may lessen its environmental benefits compared to renewable energy sources like solar and wind…

The Intergovernmental Panel on Climate Change, a United Nations entity, has indicated that global greenhouse gas emissions must be reduced by over 40% by 2030 to align with the Paris Agreement's ambitious targets. The role of natural gas in this reduction and the transition to renewable energy is a subject of debate.

Natural gas is often considered a cleaner fuel compared to coal or oil, as it generates fewer conventional air pollutants like sulfur dioxide and particulates. Its carbon dioxide emissions per unit of energy are also about half that of the best coal technology, which ostensibly makes it a preferable choice from a climate standpoint.

However, the discovery of high methane levels leaking from natural gas facilities worldwide casts doubt on its status as a cleaner alternative. Regarding the expectation for fossil fuel companies to self-regulate methane leaks, it is generally considered unrealistic. Therefore, implementing regulations to cap emissions levels and ensuring vigorous enforcement are essential. Nonetheless, many companies are proactive and are setting methane reduction targets for 2025, as well as measuring their emissions, even in the absence of regulatory mandates.

Natural gas will continue to be essential for electricity production for decades…

After the pandemic-induced decline in 2020, the recovery in global energy consumption was abruptly interrupted by Russia's invasion of Ukraine in early 2022. This unexpected event has plunged global energy markets into uncertainty, exacerbating inflation and slowing economic growth.

The invasion of Ukraine by Russia made the E.U. realize the risks of relying on the Kremlin for natural gas.

Reducing dependence on Russian gas, which accounted for 40% of E.U. demand last year, is challenging. President Vladimir Putin is not making it any easier. Even before the invasion of Ukraine, Gazprom, the state-backed export monopoly, started reducing natural gas sales to European customers, depleting storage and limiting pipeline flows. Ultimately, it’s the result of hasty, ill-conceived energy projects driven by various very personal needs of certain European politicians. It culminates in the frustration of Andromeda.

Comprehending the risks associated with sea canals can avert errors in energy management…

The obstruction in the Suez Canal in 2021 had a limited impact on the global gas market but caused significant volatility in the LNG shipping market in the year’s first half. The disruption led to a surge in LNG spot charter rates for steam turbine carriers in January 2021 due to heightened LNG demand during a colder-than-usual winter season in many gas-consuming regions. A shortage of available LNG carriers exacerbated this surge in the spot market and congestion at the Panama Canal.

Despite the initial rate increase, charter rates plummeted to an annual low in early March 2021 following a decrease in LNG demand. The grounding of the containership Ever Given in the Suez Canal on March 23, 2021, further disrupted the shipping industry, including the LNG segment, by halting vessel traffic in the waterway and causing uncertainty in global markets.

The Suez Canal is critical in global LNG transportation, connecting Atlantic basin markets with Middle Eastern and Asia Pacific markets. In 2020, many laden LNG carriers transited the Suez Canal, mainly transporting LNG from Qatar to Europe and Russian and US LNG cargoes to the Asia Pacific.

The blockage in the Suez Canal resulted in numerous vessels, including LNG carriers, waiting to transit the canal. Some LNG carriers opted for alternative routes, such as circumnavigating Africa’s Cape of Good Hope, leading to increased shipping costs and longer delivery times. The blockage lasted a week, with vessel traffic resuming on March 29, 2021, preventing a large-scale disruption to the LNG shipping market.

While the transportation of crude and oil products experienced more significant disruptions and freight rate increases, the impact on the global gas market was limited. The delays in LNG deliveries did not significantly affect LNG spot charter rates, which only saw a modest increase over the blockage period. The availability of LNG carriers on the spot market was not significantly impacted by the blockage, as there was sufficient shipping capacity in early 2021.

The disruption primarily affected LNG loading and discharging schedules at various ports, but LNG shippers were able to catch up on these delays later. However, had the blockage been more prolonged or occurred during the winter season, its impact on gas markets could have been more substantial, leading to tightening LNG supply, increased spot charter rates, and rising spot LNG prices?

The Suez Canal disruption underscored the dependence of global trade, including the LNG segment, on this vital trade route, highlighting the inconvenience and increased costs associated with alternative routes. While it is unlikely that the LNG industry will shift to alternative trade routes following this incident, stakeholders should consider and manage the relevant risks associated with disruptions at the Suez Canal. This may involve fair cost-sharing agreements in supply and charter contracts, including alternative trade routes in charter agreements and prioritization of gas storage development by LNG-importing countries to mitigate supply disruptions in case of similar accidents.

At this point, two particularly relevant questions may seem absurd, yet they emerge:

Firstly, were the NordStream pipeline operational, the current natural gas situation in Europe might be markedly different. There could be greater stability and lower-priced supplies with a network of NG terminals across the continent. Secondly, the responsibility for the destruction of the NordStream pipeline, built at an astronomical cost of US$11 billion, remains officially unaddressed by any government.

“Adopting the principle of the legal rule of administrative silence, which is considered positive, clarifies the responsibility for the explosion of the empty pipe…

Last words…

The current crisis provides an opportunity to accelerate the transition to cleaner energy sources. Although economic instability and short-term policy decisions may create challenges, the high prices of fossil fuels and record-high emissions provide strong incentives to reduce reliance on these energy sources or improve their efficiency. The potential economic benefits of such transitions, including job creation and reduced healthcare costs, can outweigh concerns over energy security and lead to a more sustainable future. The current energy crisis is more complex and urgent than the oil price shocks of the 1970s, as it affects all fossil fuels and has widespread effects on electricity pricing. This underscores the need for immediate and comprehensive action to avoid potential widespread economic repercussions.

Many governments have pledged to implement sustainable practices, which has laid the foundation for numerous current energy policies. Some of these commitments have been reinforced by new initiatives to improve long-term energy security and expedite energy transitions, such as the US Inflation Reduction Act and the REPowerEU Plan. Since the start of the pandemic, governments globally have spent approximately USD 1.1 trillion on clean energy transitions. Tightening monetary policies worldwide may raise near-term borrowing costs, potentially affecting clean energy projects dependent on financing. Nevertheless, clean technologies remain the most cost-effective option for new power generation in many countries. The development of new energy technologies requires the use of rare earth elements, which has led to a new form of imperialism, particularly in Africa, with China and Russia playing significant roles. However, the reserves of rare earth elements are limited. As of 2024, the countries with the largest reserves and production of rare earth minerals are China, with the largest reserves at 44 million metric tons and the highest global production, followed by Vietnam with 22 million MT; Brazil, with 21 million MT, Russia with 10 million MT, India with 6.9 million MT, Australia with 5.7 million MT, the United States with 1.8 million MT, and Greenland with 1.5 million MT, are the leading producers of rare earth minerals. China is the dominant player in the rare earth mining industry. The energy sector will continue to be a crucial factor in geopolitical conflict.

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