Europe's Coming Energy Deep Freeze

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Europe’s energy crisis is going to get worse.?

The ripple effects will be felt around the globe as Russia cuts off natural gas to Europe and factories slow down or halt for lack of fuel. Which in turn means:?U.S. businesses should start planning now for disruptions in the supply of many basic materials.?

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Europe will have no choice but to ration gas?this winter. How strict that rationing gets will depend on many unknown factors…the severity of winter cold there, whether Russia cuts gas sales from already low levels to none at all, any disruptions to gas imports from elsewhere, etc. Can’t be precise about how bad the crunch gets, but severe shortages are entirely possible. We advise you to plan for them.?

Industrial gas users’ supply will be cut first.

Governments will prioritize gas to heat people’s homes, hospitals and other key facilities when rationing hits.?These products are most vulnerable to curtailments because they are so energy-intensive:?Metals…steel, aluminum and zinc products. (Aluminum and zinc smelting take lots of electricity. Much of Europe’s smelting capacity is already idle.)?Cement, glass and paper.

And chemicals…everything from fertilizers and basic petrochemicals to specialty products. Because many chemical plants have to run close to full steam or not at all, and because their products are essential to so many other industries, Europe will try to keep them running wherever possible.?

If gas shortages get bad enough, all of these products will see cutbacks.?

If your business uses any of them, prepare for high prices and shortages .?Especially when it comes to chemicals. Europe collectively makes 14% of the world’s chemicals…the biggest producer of them after China. Note also: 13.3% of semiconductor-starved U.S. automakers’ imported car parts come from Europe.?

Unlike Europe, the U.S. has adequate natural gas and other energy supplies.?

Still, natural gas prices here will rise if and when European gas prices spike. Gas futures contracts are already trading near $9 per million British thermal units in the U.S. A year ago at this time, they were at $4. (In Europe, they’re now over $50.)?Expect European buyers to gobble up every bit of gas U.S. exporters can sell for the foreseeable future. That won’t be enough to make up for lost Russian gas…

Europe can import only so much gas in liquefied form, and U.S. export capacity is also limited.

With U.S. liquefied natural gas export terminals running flat-out, any further price spikes in Europe will push gas costs higher here, to a lesser extent.?That means banner profits for gas producers, shippers and exporters .?And higher gas costs for residential and business customers, too. Eventually, all energy users will feel those effects, since gas generates 38% of power in the U.S., heats millions of homes, and fuels a vast array of industrial processes.?

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