The era of cheap natural gas has come to an end with 1,000% growth – Markets

The era of cheap natural gas is over, giving way to a period of much more expensive energy, which should have a ripple effect on the global economy. Natural gas, used to generate electricity and heat homes, has been abundant and cheap for most of the past decade, leading to increased supplies from the United States to Australia.

This scenario was canceled this year as demand far exceeded supply. Gas tariffs in Europe were at a record last week, and liquid fuel supplies to Asia are close to all-time highs for this time of year.

With several options available, the global market must increasingly rely on less polluting gas instead of coal for short-term environmental goals. But as producers limit investment in new supplies under pressure from investors and climate-conscious governments, it’s clear that expensive energy isn’t going anywhere.

“Regardless of how you look at it, gas will be a transition fuel for decades to come, as the largest economies are committed to achieving their carbon targets,” said Chris Weafer, CEO of Macro-Advisory, headquartered in Moscow. “The price of gas tends to remain high in the medium term and rise in the long term.”

According to the International Energy Agency, demand will grow by 7% by 2024 from pre-Covid-19 levels. In addition, the demand for liquefied natural gas is expected to grow by 3.4% pa to 2035, outpacing other fossil fuels, according to data analyze da McKinsey & Co.

As natural gas prices rise, supplying factories or producing petrochemicals will become more expensive, affecting every corner of the global economy and raising fears of inflation. For consumers, the cost will be reflected in the monthly electricity and gas bills. It will be more expensive to use the washing machine, take a hot shower, or cook dinner. This is especially bad news for poorer countries like Pakistan and Bangladesh, which have revised their energy policies, believing that fuel prices will be lower for a long time.

Natural gas tariffs in Europe have risen more than 1000% from a record low in May 2020 due to the pandemic, while LNG tariffs in Asia have increased sixfold over the past year. Even prices in the United States, where the shale gas revolution has dramatically increased fuel production, have reached their highest levels for this time of year in a decade.

While there are several temporary factors driving gas prices up, such as supply disruptions, a global economic recovery and the shutdown of new LNG export plants, there is a growing awareness that the world is facing structural changes brought about by the energy transition.