The war of boycotts and sanctions by the Western countries against Russia following the war in Ukraine is at its peak. But it must be remembered that the West includes both Europe and the leader of the free world, the United States. Europe’s geographical proximity to Russia has led it to make Russia a main energy supplier without sufficient thought for alternative solutions.
Natural gas prices jumped 35% over the weekend in Europe when Russia cut off the flow of gas at the Nordstream 1 pipeline. The current price is now more than 5 times higher than it was a year ago. In the US, on the other hand, natural gas prices have remained stable in recent weeks. In general, natural gas in the US has become more expensive. In the last year it increased by 70% but it is still not like in Europe.
The USA is the world’s largest producer of natural gas and this happened almost by accident. Natural gas is in many cases a by-product of oil production. When American companies began using techniques to extract oil from shale formations, these activities also opened up a vast supply of natural gas. Producers have limited ability to export this gas to other countries as liquefied natural gas (LNG), this is an expensive procedure that involves appropriate equipment to transfer, freeze and liquefy the gas.
The US increased the amount of gas it exports abroad this year, but it is still no more than 20% of the total supply. Americans benefit because they don’t have to compete with buyers in other parts of the world. By comparison, the US exports about as much oil as it imports, which exposes the country much more to the volatility of the global oil market. Despite all this, this still does not mean that natural gas in the US is cheap – its price is now at a 14-year high and has tripled Since the beginning of 2021. However, Americans still get a relative discount unlike the rest of the world.
Natural gas in Europe is traded at an average price of 10 times the price in the US. Natural gas is used for electricity and home heating, and to drive industrial plants such as those that produce steel or fertilizers. The rising cost of gas will inevitably hurt consumers in the US as well. Electricity prices in the US are expected to rise by 6% this year and another 3% next year. Goldman Sachs analysts predict that in parts of Europe, electricity bills are expected to triple on an annual basis by early next year.
Another factor that affected natural gas in the US in the last two months was a fire at a central facility for processing and shipping LNG in Texas in June that damaged the US’s ability to export gas. The facility processes about 15% of the LNG that the US sends abroad, and it is not expected to return to operation until November. With less export capacity available, more U.S. natural gas will have to stay in the country, which should widen the discount that U.S. consumers receive.
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