Donald Trump has made much of America’s new role as the world’s biggest exporter of LNG, and has been actively forcing the pace. He should be careful what he wishes for. The Henry Hub price of gas in the US has risen by 50 per cent to $US4.11 since August, enough to cause the first stirrings of a cost-of-living revolt.
Soaring utility bills played a large role in last month’s elections in Virginia and New Jersey. It does not take much of a rise to cause pain because American households use twice as much energy on average as Europeans. It is well understood that America’s energy infrastructure is so badly integrated that gas already costs just as much today in New England, New York or the Pacific North West as it does in Britain.
The world has been flooded with oil and it’s predicted to get worse.Credit: Bloomberg
As a loose rule of thumb, it costs $1.5 British thermal units (MMBtu) to ship LNG from the Gulf of Mexico to the Dragon terminal in Wales. The current gap – $US4 in Texas versus $US9 in Western Europe – will close as a mechanical effect of pure price arbitrage. America’s exorbitant energy privilege is on borrowed time.
It is one reason why I am more bullish than most on the cyclical recovery in the UK and Europe over the next three years: another is rearmament. It forces a budget rotation from destructive welfare to the disciplinary social compact of the military, with all kinds of industrial and technological spin-offs.
Falling gas prices give Britain a window to sort out its chronic energy problems. If Labour had sense, it would switch the load of levies on electricity bills to gas bills, raising the percentage gradually each year to give people time to adapt.
It is a policy absurdity that a government committed to slashing CO2 emissions and electrifying everything should preside over a warped incentive structure that favours fossil fuels, and actively deters people from switching to heat pumps, electric vehicles or induction cookers powered from what will soon be 80 per cent home-made clean energy.
The International Energy Agency estimates that global oil supply will rise by 5.7 million barrels a day over this year and next, while demand will rise by 1.6 million. The structural overhang is colossal.
It is a chance to end our roller-coaster reliance on the spot price for gas. Baroness Worthington, an energy specialist, has co-written a plea for sanity in Energy Flux entitled “UK-Norway Gas Trade: Time for a New Deal?”
Few are aware that British consumers have been transferring far greater sums to Norway’s sovereign wealth fund than they ever have to Putin or Trump’s frackers. Norway covered almost half of the UK’s entire gas consumption last year.
While the pipeline contracts may be long-term, the price is mostly linked to the spot market on a merchant basis. Norway’s state-owned driller Equinor has a gas lifting cost near $US2 MMBtu in large fields such as Troll – some of the cheapest gas in the world – but earned an average sales price of $US13.5 in 2024.
The rents have been eye-watering. But now Norway has to face the painful phase of the gas cycle. It is the perfect moment for the centre-left governments of London and Oslo to thrash out a long-term accord in their mutual interest, locking in stable prices until at least the late 2030s.
The US is now the biggest exporter of LNG, on ships such as the Aristidis I tanker, pictured docked in Corpus Christi, Texas.Credit: Bloomberg
In my view, the UK should take advantage of cheaper gas to slow the switch to clean power until the grid has caught up with the roll-out of wind power and until the interconnectors from Scotland to England are ready. That means using our gas-fired plants as de facto “peakers” for longer to buttress renewables and to get us through winter doldrums.
In a sense, China has done us a favour. It is covering so much of the North China Plain and Xinjiang with wind turbines and solar panels that it is eating into global gas demand.
China’s solar kits are now so cheap – you can buy a 1kw panel for £100 in Asia – that Pakistan has imported 32 gigawatts over the past two years as farmers and factories abandon the grid and generate their own power. Pakistan has cancelled the purchase of 21 LNG cargoes planned for 2026 and 2027.
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China itself has not imported a single cargo from the US since February and has little inclination ever to do so again: it is moving as fast as possible to end reliance on seaborne energy supplies, deemed vulnerable to a US naval blockade.
The Institute for Energy Economics and Financial Analysis says China’s imports of LNG have fallen 16 per cent this year, but imports have also fallen by 13 per cent in Thailand and 8 per cent in India – partly because of coal switching. Japan will be the next shoe to drop as it fires up more mothballed nuclear reactors.
Trump’s America is going to lose in two ways. Its industrial energy advantage will largely disappear and its fossil fuel export revenues will be worth far less than the White House seems to think.
For those of us in Europe, it is a blessed relief. We can lick our wounds after the violent gas shock of the past four years and reduce our dependency before the next fossil cycle does its worst.
We can finally have an intelligent debate about which parts of net zero make us richer and safer, and which parts make us poorer and more vulnerable – and if you think the answer to that debate is obvious, you are probably wrong.
The Telegraph, London
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