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Supply and demand issues are at the root of lower natural gas prices in the U.S.


Shell signed a huge deal this week to invest in a liquefied natural gas project in Qatar. When the plant is finished in 2026, it will boost that country's production capacity by 40%. But for now, the price of natural gas is coming down in the U.S. but shooting up in Europe and Asia. I asked Stephen Stapczynski, an energy reporter for Bloomberg who's based in Singapore, why the contrast?

STEPHEN STAPCZYNSKI: One of the reasons why U.S. natural gas prices are falling and Asian and European prices are surging as of late is because of a fire at a key U.S. LNG export facility called the Freeport plant, which is in Texas. Now, that facility caught fire and shut last month. That trapped more natural gas in the domestic American market, leaving less to be exported abroad. So therefore, U.S. gas prices fell because there was more supply. And it cut off vital supplies to Europe and Asia. Therefore, prices abroad jumped. The U.S. has, over the last two decades, turned from a net natural gas importer to a net natural gas exporter for LNG. If all the facilities run the way they're supposed to, the U.S. could become the world's biggest LNG exporter this year, overtaking Qatar and Australia. Now, Qatar also has a lot of LNG. And Germany and other countries, including Pakistan, are going to Qatar to try to sign deals. But the fact of the matter is there just isn't enough LNG to fill the gap left by Russia.

FADEL: Now, one of the big issues you explore in your report on is infrastructure and the importance of these different plants and how liquefied natural gas is moved around the world. Why is this important in the context of these rising prices and dependency on the gas?

STAPCZYNSKI: So let's first look at supply. There just isn't enough facilities to export liquefied natural gas around the world to meet the rising demand in these markets in Europe, in Asia, South Asia, parts of Latin America. The reason for that is there was a bit of a lack of investment over the last decade in LNG export facilities due in part to folks looking at the energy transition and not wanting to be locked into these giant, expensive, multibillion dollar facilities that might not operate for a few years if folks were to shift to renewable energy. So there's no quick fix. Europe is very dependent on Russian natural gas via pipeline. But as those pipeline flows are being curbed, they need to import more liquefied natural gas. And for example, Germany doesn't have any LNG import infrastructure at all right now, so they have to quickly bring some online to get that gas.

FADEL: And they're dependent on Russia for that gas, and they have no way of supplying it to themselves?


FADEL: So this is not about not having enough gas, it's about not being able to get the gas to where it's needed?

STAPCZYNSKI: That is one way to look at it. There is plenty of gas, for example, in the United States. There are these massive shale fields that can produce a lot of gas, but it's trapped in the United States. It's just a huge endeavor. And it's a complicated system because LNG, unlike oil or coal, you can't just throw it onto any normal ship. You have to make special ships. You have to have special infrastructure. You can do it at every port. It's a complicated process.

FADEL: Can you talk about parts of the world where prices have gone up so much that they're not getting the gas they need and what it's doing to these countries?

STAPCZYNSKI: Sure. So you look at a country like Pakistan, for example, in South Asia, they've, over the last few years, become very dependent on liquefied natural gas imports. There's an acute shortage of LNG in Pakistan. And they can't just go into the market and buy more because, one, there aren't shipments available. And the shipments that are available are exceedingly expensive. So because of that, Pakistan doesn't have enough fuel for its industries and for its power plants. And there are some parts of the country that now have, essentially, planned blackouts for 12 hours, more than 12 hours, in a day.

FADEL: And now, you've mentioned that this is hitting people over the holiday and impacting whether they can cook, you know, how it's affecting that Eid holiday for them.

STAPCZYNSKI: Exactly. This weekend is one of the holidays in Pakistan. And it's an important one. And unfortunately, there might be households that don't have fuel, don't have electricity, don't have ability - you know, air conditioners when they're gathered. And it's going to make it very challenging.

FADEL: So what's the solution here? I mean, so many places are now dependent on liquefied natural gas. You describe this moment for liquefied natural gas as similar to the 1970s for oil.

STAPCZYNSKI: In the immediate short term, there's nothing that can be done. There's not enough supply that can come online for the next few years. So it's really something that's called demand destruction, which is where people just consume less. Another thing that countries could do is shift to other fuels. Now, natural gas is a fossil fuel. But when burned in a power plant, it's cleaner burning than coal or diesel or other fuel oils. What could happen is Pakistan or other cash-strapped nations could go back to these dirtier fossil fuels. That would cause more emissions. That would hurt any effort globally to curb CO2 output.

FADEL: So a step back when it comes to climate change?

STAPCZYNSKI: Absolutely. You know, I think that this is a moment for some countries. And they're going to say, instead of going back to coal or diesel, this is our moment to invest more, double down on renewable energy, double down on the future of green fuels like green hydrogen, green ammonia. And that is being done in Europe. It's more challenging for countries like Pakistan that maybe doesn't have a grid that can be easily adaptable to renewables. Maybe that can be fixed. Maybe there can be a large investment from international organizations to help with financing large renewable energy projects in Pakistan. But it's - in the short term, when they're dealing with these acute energy shortages, it is challenging for them to make such shifts. But this is definitely a moment. And this could be a wake-up call for a lot of the power industry to push further towards renewables.

FADEL: Stephen Stapczynski covers energy markets for Bloomberg. Thank you so much for being on the program.

STAPCZYNSKI: Thank you for having me.



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