At Fossil Fuel’s big CERA Week shindig this week, not much clarity about where energy markets are going in response to the unthinkable closure of Strait of Hormuz.
Above, some concerns expressed by Christine Lagarde, President of the European Central Bank.
Some other voices breaking from the pack, as well.
New York Times Climate Forward via email:
If this is such a big energy shock, why aren’t oil prices higher?
The chief executives of Chevron and Shell expressed a great deal of concern that the futures market for oil, which we have all been watching very closely, doesn’t fully capture the scale of the disruption to the physical trade of oil and the physical trade of products like jet fuel and diesel in particular.
We’re getting really mixed messages about the trajectory of the war moving forward. My sense is that traders are having a hard time making sense of that.
After the Russian invasion of Ukraine, natural gas prices in Europe spiked to 10x or more of previous prices, while those in America went up about 3 x.
Right now, European prices are rising quickly, while the response in America has been muted. The uncertainty about the war, and the vindictive nature of the administration, which has gas-baron Chris Wright at Department of Energy, might be the reason for the reticence.
For decades, liquefied natural gas acted as the global economy’s reliable escape valve during energy crises, keeping factories humming and homes warm.
Now, LNG has become the battlefield itself.
The war in Iran has fractured every node of the regional LNG supply chain. Iranian strikes on Qatar, one of the world’s top LNG producers, have damaged its Ras Laffan facility, knocking out some 17% of its capacity for up to five years, and delayed the country’s massive expansion plans. On Tuesday, QatarEnergy declared force majeure on some of its LNG supply contracts, including customers in China, South Korea, Italy and Belgium.
Meanwhile, shipping through the Strait of Hormuz, which usually carries around a fifth of global LNG, is paralyzed. Buyer confidence in Gulf supply has also been undermined.
Even if the Trump administration and Iran agree to end the war soon, the consequences for the LNG market will be long-lasting—and even more profound than for oil, experts say.
“A global gas market that was expected to be oversupplied (and cheap) will now become undersupplied (and expensive),” consulting firm Eurasia Group wrote in a report to clients.
As the top LNG exporter, the U.S. stands to reap a windfall during the shortage, though adding new export capacity will take years. Still, executives warn that steeply elevated prices could trigger demand destruction and an economic slowdown.
Empires rise, then fall. In 1956, the British Empire, still deep in debt from two world wars, then engaged in military misadventure in Suez. They used to rule the seven seas, but in the end, could not rule a small canal. The Brits were bailed out by the USA, and this marked the place where one empire overtook another. Seventy years later, the USA, a country deep in debt from military overexpansion, engaged in military misadventure in Iran, then lost control of the Straights of Hormuz. The similarities are striking.
…and China is, to use a baseball term, on deck.