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Columbia Energy Exchange

Making Sense of Surging Gas Prices


Ira Joseph

Around the world, natural gas prices continue to tick upward, surging to levels not seen in more than a decade. 

Russia’s war on Ukraine is largely to blame for high energy prices in Europe as the continent competes with Asia for already tight supplies of non-Russian gas. And the scramble for alternatives to Russian gas has reached the US, where prices have doubled since the beginning of the year.

For a look at what the future holds for natural gas markets, host Jason Bordoff spoke with Ira Joseph. He’s the head of global generating fuels and electric power pricing at S&P Global Platts. 

Ira has decades of experience researching the gas sector and previously worked at the PIRA Energy Group, where he started the firm’s European gas and power and Global LNG Service in 1999. 

The pair discussed the factors contributing to the abnormally high gas prices and the implications for energy security, the clean energy transition and global climate commitments.


Ira Joseph: [00:00:03] When you look at the supply demand balances. Sure. Inventories are slightly below normal now, but they’re not like egregiously below normal. So it really is a risk premium that’s driving most of what’s what’s going on with the price, because there’s a tremendous fear of of of not being long in this market. You know, if if if anything got worse, if if if the Ukrainian system were to shut down or Russian gas weren’t to flow at the levels that it’s flowing now into Europe. [00:00:30][27.1]

Jason Bordoff: [00:00:31] As the war in Ukraine drags on, the global energy community is facing a looming energy crisis. Russia’s invasion of Ukraine has contributed to eye popping natural gas price levels in Europe, as Europe competes with Asia for limited supplies of non-Russian natural gas around the world. The U.S. is now a major source of some of that gas flowing to Europe, even at the same time that natural gas prices have more than doubled in the U.S. since the start of the year, reaching levels not seen since 2008. What does the future hold for natural gas markets? What are the implications for the economy and for energy security and for the transition to clean energy and our climate goals? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. Today on the show, Ira, Josef IRAs, the head of global generating fuels and electric power pricing at S&P Global Platts. He previously worked for PIRA Energy Group, where he started the firm’s European Gas and power and global LNG services in 1999. With decades of experience researching the gas sector, he was the ideal choice to break down what’s happening today in gas markets and energy markets more broadly. I hope you enjoy the show. Ira Joseph, thank you for joining us on Columbia Energy Exchange. Great to see you again. [00:01:59][87.7]

Ira Joseph: [00:01:59] Great to see you again and thanks for having me. Very excited for this. It’s been a. [00:02:02][3.2]

Jason Bordoff: [00:02:02] While. It has. And it’s a timely conversation. I think in general, when people talk about the energy sector, particularly the traditional energy sector, the fossil fuel energy sector has a lot of focus on global oil markets. And we’ve talked a lot about oil markets and gasoline prices. We had Ed Morse on this podcast not long ago to talk about it, not always as much focus on natural gas, but in this crisis, probably even more than usual, because Europe is so heavily dependent on Russia for its natural gas. So we want to do is talk with you about what is happening with with the global gas market today and how that’s being impacted by the Russia Ukraine crisis, how things may play out from here, how it’s affecting the United States, which is now an incredibly important country in the global gas market, in a way far different from what was the case a decade ago. So there’s a lot to get to. Just talk to us today about first what is happening, how should we think about why natural gas? How should the audience think about why natural gas is so important to the conversation about Russia’s invasion of Ukraine and what the potential implications might be for energy prices and energy security. [00:03:12][70.1]

Ira Joseph: [00:03:13] The key, Jason, is is that is that Europe is heavily dependent on Russia for its gas. And Russia in the same way is very heavily dependent on Europe for its exports. So there’s a there’s a real sort of part to do going on here where they definitely have this this this long term relationship that goes in both directions. In any given year, let’s say, you know, just to be safe, between 25 and 40% of European gas supply is coming from Europe, depending on the year, depending on the weather. I’m sorry, coming from Russia. Thank you. Into Europe. So it moves around a lot. But you know, in recent years as UK gas production has gone down, as such, British gas production has gone down. Basically, Europe has been coming more reliant on Russian gas and LNG to balance itself. Now European gas demand isn’t growing very much or hadn’t been growing very much up until the time of COVID. It was essentially flat or going down because of the inclusion of renewables into the energy mix. But at the end of the day, even at flat levels, Europe was becoming more and more reliant on Russian gas and LNG. And then once the the invasion happened and the full war broke out and then Nord Stream two, which was the pipeline, one of the pipelines that the Russians were going to build to go around Ukraine disappeared as an option probably forever, but maybe are not. We can certainly discuss that. Ukraine became right back into the center because the Russians had been minimizing the amount of gas they’ve been pushing through Ukraine year after year after year to a lower level. But then all of the sudden during the war, there was no Nord Stream two option and the volumes have actually gone up. So we have this very, very strange and odd situation where below the ground there’s a huge amount of Russian gas moving through Ukraine. And I mean, I don’t know what other word to use, but cooperative in a cooperative way with the Ukrainians are are moving the gas through the system and then there’s a war going on on top of the ground in Ukraine at the same time. So as I’ve said on Twitter, capitalism below the ground, war above the ground. So it’s a very, very complicated situation. And the Ukrainians in particular in a very, very difficult situation here where, you know, they may or may not want Europe to stop buying European gas, but then they’re also moving a lot of the Russian gas into Europe at the same time. [00:05:24][130.7]

Jason Bordoff: [00:05:24] So explain what the situation with natural gas is in Europe today. As you said, they’re heavily dependent on Russia. The volumes coming from Russia fluctuate. They went down toward the end of last year. And you can maybe tell me if it was a result of commercial factors or geopolitical factors. In other words, how much of that is determined by Putin and the Kremlin in Moscow? And now European natural gas prices are incredibly high. They were incredibly high much of the winter. I mean, Europe had a sort of smiles, if not severe form of an energy crisis already even before the invasion of Ukraine. But as you just said a moment ago, Russian supplies to Europe continue. In fact, they’re a bit higher than before the invasion. So what is driving those very high prices and what is the natural gas market situation? How tight are supplies? How, how, how much? What do you see in the European gas market today? How much? How in trouble is it? [00:06:24][60.3]

Ira Joseph: [00:06:25] So in any given year between 100. 50 and 200 billion cubic meters a year of gas will move to Europe. So in U.S. terms, that’s between 15 and 20 billion cubic feet a day, let’s say. Russia is by far and away the largest gas exporter in the world for now. If you include pipeline, gas and LNG. And so they’re very critical to this. The other key suppliers are Norway, LNG suppliers and Algeria. And then there’s a bit of a mix here and there around that. But that’s basically so that sort of lays out where it comes from. Now, prior to COVID, the what was happening was, is that Russia when when Russia was selling more gas closer to the 200 number, the 20 billion cubic feet a day number, because they were also selling on a spot market, they had created a spot market for themselves where they auctioned off incremental gas that wasn’t being lifted under long term contracts. And so they were selling a bunch of, let’s say, long term contract gas and spot gas mixed together as the Nord Stream two issue heated up. And as we came closer and closer to sort of when the invasion happened, the Russians started selling less and less gas to Europe. They also basically dried up the entire spot market. And and probably most importantly to where we came for prices today is they basically stopped filling their own storage located in Europe. And at the time, everyone thought that was a bit odd. You know, why aren’t they filling in these storage? You know, I don’t think people thought of it in a military or a strategic way, but it seemed odd that they weren’t filling up storage, which was the beginning of the start of prices going up. And then we we got into into Europe into winter, I should say, 10 to 15 billion cubic meters below what we would say normal would be on storage with a vast majority of that being the Russian owned storage in Europe itself. Then even though the winter was mild, the troops were building on the border and then the invasion happened and suddenly, you know, this is where we are on prices. Most of the prices, the aspect of where we are prices right now are really driven by the risk of further problems with volumes coming in. In terms when you look at the supply demand balances, shore inventories are slightly below normal now, but they’re not like egregiously below normal. So it really is a risk premium that’s driving most of what’s what’s going on with the price, because there’s a tremendous fear of not being long in this market. You know, if if anything got worse, if if if the Ukrainian system were to shut down or Russian gas weren’t to flow at the levels that it’s flowing that now into Europe. [00:08:52][147.6]

Jason Bordoff: [00:08:53] So so you think the very high natural gas prices, which, you know, were, I don’t know, in Europe seven or eight times what they are in the U.S. and that’s lower now because U.S. natural gas prices have increased quite a bit in the last few weeks. And we’ll talk about that in a minute. But several times what they are here in the United States is partly a risk premium trading activity, speculation on where gas prices are going to go. And I presume part of it is just tell me if I’m right, the sort of fundamentals of if you want to pull natural gas supplies into Europe to fill inventories in advance of next winter, when gas demand tends to spike. [00:09:31][38.2]

Ira Joseph: [00:09:33] Right. [00:09:33][0.0]

Jason Bordoff: [00:09:33] Those there are limited options for where those supplies are going to come from. And the price in Europe has to rise high enough for cargoes, say, of liquefied natural gas to come into Europe rather than go somewhere else like Asia. Is that how to understand why the benchmark price in Europe, TBTF, as it’s called, is so high today? [00:09:53][19.7]

Ira Joseph: [00:09:53] Yes, I mean, that is critical. And to just take one step back from what you’re saying, that’s also important as as Europe has become more reliant on liquefied natural gas, LNG and Russian gas, European storage has gone from being a regional storage site to a global storage site because Asia does not have a lot of what we would call seasonal storage or commercial storage. And so what happens is that Asia buys a lot of gas in the fourth quarter, in the first quarter, and then they buy very, very little gas in the second quarter and then it starts to build in the third quarter. But what’s happening is when they’re not buying gas, that gas was ending up in European storage. So there’s a true connection here between Asia and Europe, where Asia is not just storing gas for Europe, IMC, Europe is that storing gas for Europe anymore? It’s storing gas for Asia as well. So there’s this there’s this duality to the role of Asian storage, which is also connected to how TF prices, spot prices in Europe are connected to spot prices in Asia, which are called JKM prices, which stands for the Japan Korea marker. [00:10:53][59.8]

Jason Bordoff: [00:10:54] And it just help listeners understand how important this storage issue is in setting the gas price and oil by comparison, less so. Obviously we look at oil inventories, but it’s a more, more steady demand throughout the year. And it is a more fungible global market, not entirely. But if you know, you don’t want to buy oil from one country, you can somewhat easily, depending on where you are, just buy it from other countries instead. Natural gas doesn’t work that way, right? If it’s harder to move. Gas around if you’re connected, say, Russia to Europe by pipeline. Getting that supply from somewhere else or in Russia’s case, selling it somewhere else is is not easy to do. And there’s much more fluctuation in gas demand because the natural gas is used in Europe for many reasons industry, electricity. But I think the largest is heat and that obviously is quite seasonal with cold weather in the winter. So how does that affect how we think about gas supply today and what does that potentially mean for what Europe is going to face this coming winter or the next? [00:12:03][68.5]

Ira Joseph: [00:12:03] Right. So you hit the nail on the head. Seasonal demand, demand between like the summer in the winter roughly doubles for gas demand in Europe. And all of that increment is, let’s just say, for for the heck of it is has to do with heating heating demand. So Europe requires a lot of storage in order to balance. But at the end of the day, and I think this is really important for everyone to understand, is that even if Europe fills up all of its storage and they go into November 1st, when you typically your mid-October typically draw down on storage in Europe, the incremental cubic meter of of gas is still going to be coming from imports into Europe in the middle of the winter. So, yes, there is a cushion, a better question that comes from having a lot of storage. But at the end of the day, Europe is still highly vulnerable to imports, and that’s where the marginal cubic meter will come into the market. And that’s why it’s so connected to the rest of the world, because given the it’s a heating in a residential situation, it’s not just it’s not just, oh, well, you know, will will industry have enough gas? It’s it’s it’s a utility and it’s a it’s a security issue in terms of people being, you know, their houses being warming up, pipes not freezing. There’s there’s a lot and there’s obviously a larger political issue that comes with that as well. [00:13:17][73.5]

Jason Bordoff: [00:13:17] And what does it mean for consumers and industry and business in Europe that natural gas prices are so high right now? We have we have maybe a little more sense of what happens at the gasoline station when oil prices go up, because it’s such a visible price signal. It’s on every street corner and big and big in big letters. What the gasoline prices? Probably less familiarity in most households with what natural gas prices are. But when natural gas prices go up, there are lots of other components to your electricity bill or even your heating bill. How much does that impact the economy? How much does it impact consumers? Well, it. [00:13:53][36.3]

Ira Joseph: [00:13:53] Impacts it a lot. And to add to your point, so just so everyone understands, like before COVID and before any of this happened, US gas prices were, let’s say, 2 to $3 per million BTU, let’s say Europe was, let’s call it 4 to $6 million per million BTU and let’s say Asia was 6 to $9 million Million BTU. Now we have prices at $30 per million BTU in Europe, that’s 30 that’s three O versus what I said before, which was, you know, 4 to 6. So that’s a tenfold more than almost a tenfold increase in prices. So a lot of behavior gets changed at those type of prices, particularly in Europe. And and I would actually argue even more so on the power side than the gas side, although we don’t necessarily have to get into that now. But but people do ration there very, very quickly. So we will see a demand hit or we should see a demand hit pretty, pretty quickly in in the European market to make some of the adjustments. Now, if you if the whole hundred if the whole 150 billion cubic meters of Russian gas were to be cut off, there’s simply no way to make up for that. In the short term. Prices would go through the roof and people would have to ration down to levels where there would actually be shortages. Longer term, it’s a different issue. We can we can sort of discuss how how and how the market can correct for that. But in the short term, there’s sort of no way around when you lose the largest gas exporter in the world and the vast majority of their exports go to the European market, there’s simply no way to adjust for that. It’s just a vulnerability that the market has. [00:15:22][88.8]

Jason Bordoff: [00:15:23] So let’s drill down on that point a little bit more. It’s really important because I think when the conflict started and in the run up to the to the invasion, there was concern about what would happen if Russia would cut off supply to Europe. I think the focus now is as much, if not more, on what happens if the cut off goes in the other direction. We’re seeing more and more horrific images emerging from Ukraine and what Russia’s brutality is doing there. And there is growing pressure on European policymakers to say, yeah, we know it’s going to be economically painful, but we can’t continue to send this much money to Moscow every day if this is what Putin is doing. And it already happened with coal, the European Union said it would not purchase coal from Russia. There’s talk that oil could come next and then probably perhaps what would come after would be natural gas. So the question of can Europe live without Russian natural gas? And you’ve seen a ten point plan from the IEA and you’ve seen the European Commission say they’re going to cut their imports from Russia two thirds by the end of the year. Is that realistic? [00:16:22][59.5]

Ira Joseph: [00:16:23] It would be very hard realistically in the short term. All of those plans are definitely sort of more, I think, long term or even medium term. You would need I was trying to just do some back of the envelope calculations right before we started recording here. Just on the LNG front. If if everyone sort of proportionally cut their LNG imports around the world based on what they imported last year, I mean, he’d be talking massive cuts all over the world. You’re talking 30 BCM from China and Japan, 18 from Korea, nine from India, eight from Taiwan. I mean, these are big, big numbers. [00:16:57][34.1]

Jason Bordoff: [00:16:57] To be clear. You’re saying in order I think the European Union has said they’re going to import 50 billion cubic meters, 50 BCM of additional LNG as part of that goal to replace two thirds. And so you’re you’re kind of walking around the world and saying if everyone contributed to that in proportion to their consumption of LNG, who’s going to have to give up supply? So and that presumes there’s not additional LNG out there, which I guess is what you’re saying. [00:17:22][24.3]

Ira Joseph: [00:17:22] Yeah, let’s let’s just say there’s no more LNG, even though there’s going to be like maybe another, I don’t know, let’s call it, you know, ten BCM next year. It’s not a huge increase in a couple of trains in the U.S., little Mozambique. [00:17:34][11.5]

Jason Bordoff: [00:17:34] So if Europe’s buying more, it’s got to come from somewhere as what you’re saying. [00:17:37][2.9]

Ira Joseph: [00:17:38] It’s got to come somewhere. And basically it all has to come out of Asia. And if it all comes out of Asia, that means Asia burns a lot more coal. And those of you who do follow the news can see that China is ramping up the amount of coal it’s producing. Even the US is ramping up the amount of coal it’s producing. So, you know, for for Europe to burn more gas, basically the formula is, is that Asia has to burn more coal, which is sort of the exact opposite of the pre-COVID sort of net-zero goals, where when we talk about this, we’re always like the fastest way to get to net zero is to replace a lot of coal in Asia with a lot of gas. And now we’re heading in the exact opposite direction right now, albeit temporarily. We’re headed in that direction, sort of temporarily to in order to balance in order to meet those gas the gas goals that Europe would need in order to cut out a significant amount of Russian gas supply. [00:18:24][47.0]

Jason Bordoff: [00:18:25] And President Biden went to Europe and pledged to send additional supplies of U.S. natural gas to to Europe. Is that was that a reflection of kind of what was already in the works in terms of new projects that are planning to come online? Because unlike some other parts of the world, the U.S. government doesn’t decide where exports go. So was that what was your interpretation of that? Is that a reflection of the fact that some additional U.S. LNG is going to come on the market and market forces are probably going to bring those supplies to Europe, just given what the market looks like right now? Or was there something else going on there? [00:19:01][36.2]

Ira Joseph: [00:19:01] Not you. You answered your own question there for sure. I mean, the Biden Biden administration was going to take a victory lap for exactly what was going to happen commercially anyway, which was that most of the LNG that the US produces is going to go to Europe now, because that’s where the the best netback is, where the best value is per cargo. XLE LNG, the one noted exception seems to be Korea. Korea seems to be holding on to its U.S. LNG month after month, you know, more tightly than than other areas. But if you look at like the top ten now LNG buyers from U.S. LNG, they’re all it’s all Europe now because because Europe European gas prices are trading at a premium to Asian gas prices. Plus it’s also a shorter distance from the US Gulf Coast to Europe. So the margins are higher. So on to different commercial levels. It makes sense to, to, to, to move the US the move the US LNG to the European market. And then also for people to understand prior to COVID an LNG tanker, if it was doing really, really well, was going to make let’s say 250,000 to maybe $1,000,000 if it was an unbelievable trade on a single cargo. Now every cargo is making between 60 and $80 million per cargo. So it’s a very, very different world we’re in. In terms of these numbers, they’re staggeringly high. We got some cargoes done, over 100, clearing over $100 million per cargo. You know, when you look at the price spread between what what the US prices were and what European prices are and what Asian prices are, these are incredible numbers that we’ve never seen before. [00:20:35][93.5]

Jason Bordoff: [00:20:35] And when let me come back to the question I asked you, can Europe live without Russian gas? You gave some numbers there about how hard it will be to replace Russian gas with LNG from other countries. But presumably there are other options. There is renewable energy, there’s dialing down your thermostat, there’s energy efficiency. Are there? Are there? Why does it all have to be LNG and how much can you do with other sources, hopefully greener sources? [00:21:00][24.7]

Ira Joseph: [00:21:01] Oh yeah. No, I was looking at a pure one for one on gas. You’re absolutely right about that. There definitely can be energy efficiency and energy and demand side measures taken, you know, that can really, you know, limiting thermostat levels in countries would certainly help, you know, this issue in Europe. Certainly a more even a more aggressive aggressive renewables buildout will help that that’s. Certainly will help changing the amount of of hydro distribution there is, you know, the amount of nuclear capacity there is. A lot of this has to do with electricity and electricity generation and availability. And there is some substitution that’s that is potentially available in those markets. [00:21:42][41.2]

Jason Bordoff: [00:21:43] Talk about the timeframe for these things. There’s not a lot of unused renewable energy capacity lying around. You have to build know where to build new. And so there is a sense in which we need to invest in alternative sources of energy reducing dependance on Russia. Hopefully those sources of energy are also zero carbon, but that’s going to take some time. So to meet energy needs today, affordably and reliably, we’re going to still need oil and gas. But but as you were just saying, that oil and gas also takes time. I mean, we have some additional supply today, but it takes how long does it take for a new LNG project to come on line on the export source side or the import side? Germany, I think has announced it’s going to build two or three new LNG import terminals. Those take several years I would imagine to build. So how do you think about the time frame that’s needed and what we can do in different time frames between efficiency, other sources of oil and gas or clean sources? [00:22:37][54.0]

Ira Joseph: [00:22:38] Well, in the longer term timeframe that you’re talking about there, it takes typically to build a new, what we call it, train of LNG, which is basically a production plant of LNG. It’ll typically take between 24 and 36 months. And there I’m being optimistic. So let’s just let’s just say for the heck of it, it’s 48 months, but let’s say 2 to 4 years, depending on the size and the location and whether it’s greenfield, which means new or brownfield, which is not all of that. It takes a significant period of time to do that. On the import side, at a fixed LNG Regas terminal is going to take also 2 to 3 years to build. There are what it’s called, you know, floating gas terminals, which is basically an LNG tanker that re gasifier, natural LNG and turns it into natural gas. Those can be redeployed from places like Brazil where there are quite a few and that are dotted around the world and then moved into Europe and hooked up. That takes much less time. That can be done, let’s say, more aggressively in a 12 to 18 month period of time. But we’re not talking huge, huge volumes here, like the volumes that we’re talking about from Russia at scale are just so much larger than anything we’re talking about here that it’s very, very hard to make an apples to apples comparison. [00:23:47][69.0]

Jason Bordoff: [00:23:48] And what’s your sense? We’ve been talking about whether Europe can get off of its need for Russian gas. The view that Russia might retaliate if the war is not going well, if Putin feels cornered and cut off gas supply as a threat against Europe. There’s talk a little bit about the recent noise that Putin has demanded payment for gas come in rubles and Europe has said, no, we’re not going to do that. Is that a precursor to finding an excuse to cut off supply? How worried should Europe be about Russia cutting off supply? [00:24:16][28.7]

Ira Joseph: [00:24:17] I think they should be worried because I think especially with the way the invasion is going in Russia, it could be a logical next step here in terms of you can easily see an information war breaking out where Russia blames Ukraine for cutting off transit gas through Europe. Ukraine blames Russia. There could be a big fog of of of war issue here where where the gas transmission system gets right in the middle of it at some point and and then clouds the whole situation more again. European gas prices surge even more. It causes a lot of economic heartache. And then, you know, in terms of the ruble thing, you know, I think I think that’s kind of more window dressing than anything. You know, if people are going to pay in rubles, then they’re really paying in euros and then they’re just opening up a ruble account to change the the the the the value of that or the cost of the gas from euros to rubles. I don’t really consider that a big thing. I think that’s a straw man in the whole equation here. I’m much, much more concerned about somebody, you know, disrupting something very sensitive in Ukraine or Poland, for that matter. That that to me, is a much, much bigger concern right now if the war is not going the way for either side here, shall we say, it’s not just Russia. It’s a lot of a lot of disruption could be caused here for a lot of different reasons, which I think is why you have the big risk premium in the market and why we have $30 gas. I mean, if you look at the fundamentals of the market where storage is, where supply is, where demand is in any other year, you know, the price would be, you know, well below $10 and I would argue probably below $7. But so much could go so wrong so quickly here that that that that there’s just too much there’s too much at stake here, not to be anything but long in the market. And that’s the way the market is trading. [00:26:08][110.5]

Jason Bordoff: [00:26:08] If Europe were to decide not to buy Russian gas, if that were plausible and possible, I hear you saying it would be very economically painful. What would the impact be on Russia, how much revenue comes from that? And could it just sell that gas somewhere else to China or somewhere else instead? [00:26:24][15.6]

Ira Joseph: [00:26:24] Yeah, I mean, as it stands. Russia does not have the ability to swing its gas supply between Europe and Asia, which is an important thing to understand. They were planning to do that and are planning to do that in the future. But it’s the Siberian gas fields that that that largely are the source of supply for for the European market are not connected to the Asian market in any way, shape or form. So it’s either they have to sell the gas to Europe or they have to store it domestically, they have to consume it domestically or they have to shut it in. That’s kind of what the what, where, where it is right now. There’s no ability to, as I say on Twitter, one if by land, two if by sea, the two off by sea, they can do they can swing their LNG back and forth between Asia and Europe, but they cannot do that yet. Yet it is important here into the into the Asian area, specifically the Chinese market. Now, they do plan to do that and want to do that, but then for them, that creates a whole other risk profile for Russia. Do how how dependent do they want to be on the Chinese gas market for more and more amount of their gas supply long term? And they think that’s a strategic decision that that there’s certainly way now relative to the European market. But it is not it’s not a no brainer for them to say, oh, we’re just going to sell all of our gas to China, because then they become as vulnerable to Chinese pressure as they do in anywhere else in the world by having basically a sole buyer. [00:27:44][80.1]

Jason Bordoff: [00:27:45] Yeah. And of course, the same question exists for China, which has always, always put a premium on diversification of its energy import sources. It would not feel comfortable has, as has shown in the past, it would not feel comfortable with, say, 40% of its oil supply coming from one country it intentionally diversifies. To talk about how important the United States is to all of this, we are now the largest exporter of LNG, and that’s a dramatic turnaround from what the situation for the U.S. was just, you know, ten, 15 years ago. Talk about U.S. natural gas exports and how important they are as part of the response for Europe now as it tries to figure out a way to potentially live with less dependance on Russia. [00:28:35][50.3]

Ira Joseph: [00:28:36] Well, the U.S. is really important right now. It would be more important if it could export more LNG right now. But basically, the U.S. is exporting the most amount of LNG it can export. It also exports gas to Mexico, which means Mexico needs less LNG imports. But let’s just say the U.S., if it could export more LNG, it would it’s roughly around any given day. It’s between an 11 and a half and 13 billion cubic feet a day of exports. So that’s kind of where it is. And then we’re going to have to more train start up this year, which will add another, let’s say around 1.5 billion cubic feet a day of exports by the end of the year. And and the price signals all suggest that the gas will continue to go to to Europe. But but as you sort of pointed out and is true, is it’s a global market. Gas is a global market. And and the incremental supply of gas in the global market is LNG. So everything that goes to Europe is not going to to Asia, which means Asia needs alternatives, which is that either they bid up for more LNG or they burn something else like coal or they add renewables or they cut demand. Is, as you said, is is also a possibility. So yeah, the US is at the center of this and and and obviously if you’re an LNG operator or you’re a project manager like this, this is your time. This is your time to build more capacity. This is your time to get your financing. This is the time to greenlight everything. And and a lot of LNG capacity is being built even before COVID, even before the invasion, the US was going to have a massive surge in LNG production capacity that was going to be ready by the middle of the decade. And that’s and that’s not just true for the US, that’s true for Qatar. And that’s what gets really tricky here is that you have a situation where COVID and now this invasion has made natural gas exports look really enticing and natural gas projects look really enticing. But let’s say things return back to a relative level of normal three years from now. Russia, under some agreement, is selling its gas into the world. You have the potential here is to have a way, way big overbuild on the gas side relative to where demand will be in the second half of this decade, because supply comes in in very, very chunky, large ways. And demand takes a lot more time to build up over time in order to consume that without some policy decision like forced coal retirements in order to build up the gas demand. So while it looks really, really bullish right now, it could be really, really bearish in the second half of this decade in kind of the way we saw in 2018, 2019, when we are 2020 sorry, when we had cargo cancelations and we had we had basically way too much gas supply in the world. So this thing can swing back in an entirely different direction. And it’s something that people should be aware of who who care about these type of things. [00:31:20][163.9]

Jason Bordoff: [00:31:20] And just to make sure I understand that that that to the extent you’re thinking about. Gas production, gas exports, and you’re seeing a golden age ahead. You’re saying that could be short lived, in part because maybe things normalize with Russia, although it might be hard to see Europe going back to feeling comfortable any time soon with depending on Russia for 40% of its gas. But we should bear in mind that to the extent it does not feel comfortable with that, there’s a there’s a premium to pay for that. Right. The alternatives to Russian gas supply are more expensive. So how long will memories last about this atrocity in Ukraine and will people be willing to pay a premium? I would presume so. Talk a little bit about that and then I would presume the other reason why maybe it could be a short lived golden age, so to speak, might be whether all of this acts to accelerate efforts to move away from fossil fuels, generally toward toward renewables or electric electricity for heat or something like that. Maybe that’s not by the end of the decade a little bit longer term. But are those. Am I right that those are two factors that could kind of look quite different in the near and medium term versus the long term? [00:32:25][65.3]

Ira Joseph: [00:32:26] Sure. I mean, my inclination is, is that this will create a more aggressive renewables buildout because a China whose who’s manufacturing most of the equipment that’s being made to deploy all the renewables around the world is going to accelerate. Europe is going to accelerate the way they did. I mean, let’s let’s remember here the origin story of a lot of this is the is the 2006 New Year’s Day cut off of Russian gas into Ukraine, which is what started the renewables buildout in Europe from 2015 to the present. Without that, I can only imagine how high prices would be right now if Europe were that or even more reliant on gas than they already are. What happened basically from that time period is, is that it basically stopped European gas demand growth and even shrunk it in a lot of places. So if it was true, then I think it’s obviously even more true now that a more aggressive renewables buildout will will take place around the world. But the gas bill that will happen as well. So what that suggests to me is that is that we will see more aggressive coal retirements in this projected weak period if that were to happen. So let’s say the EU can make nice with with Russia. There’s some reparations that involve, you know, the revenues that come from the gas gas sales. And then and something happens in terms of where the money is spent on how to build you, rebuild Ukraine, etc., etc.. But more importantly, just that the supply comes into the market that could potentially lead to actually a faster transit transition and a faster period of decarbonization because so much additional gas that probably would not have gone FID made a final investment decision to come into the market in the next half of this decade is going to come into the market. Then you’re going to have the renewables build on top of that. And what that suggests to me is that you you would have potential for a much, much steeper nosedive on coal potentially going forward here if that were to happen, because the gas will be priced at very, very attractive, aggressive terms if that were to come. But obviously, all of this is presuming on whether the Russian gas comes back. If the Russian gas doesn’t come back, it’s an entirely different scenario here. [00:34:38][132.1]

Jason Bordoff: [00:34:38] But I hear you saying, I mean, a scenario you’re talking about is significant buildout of additional natural gas capable infrastructure now and then, maybe reduced demand to some extent with renewables, maybe Russian supply comes back in a way that people feel comfortable with. And actually that could contribute to an acceleration of the energy transition, because what that would do is really provide an alternative to coal that could cause coal retirements faster. [00:35:05][27.0]

Ira Joseph: [00:35:06] Exactly. And also on top of that, like what what will China’s reaction to be? I mean, we haven’t gotten that far yet in discussing this, but what is China’s reaction going to be this? China, as I like to always say, is an energy producer and they are one of the largest energy producers in the world. They just produce panels and turbines and they do it every year. And all of those panels and turbines go somewhere in the world. And everywhere they go in the world, they eat into the growth of the use of coal and the growth of gas. And that’s not going to stop, obviously, after this all comes down. But what will Chinese policy be going forward? Well, will they increase their their solar solar panel production capacity from 200 gigawatts, two year to 400 gigawatts a year? I mean, these are huge numbers. They’re producing the amount of panels capacity this year that are bigger than any European country every single year. And those are being deployed into the market. So if they were to aggressively, aggressively move that up, assuming all the supply chain issues work out and the costs go back down to something more reasonable than they are now for everything, I think that’s a really critical part of the equation that we don’t know yet, is that what is the Chinese response to the fact that Russia invaded Ukraine? And they’re not obviously, we don’t know that. We don’t know that’s that is not a known thing right now. [00:36:19][73.6]

Jason Bordoff: [00:36:20] Let me come back to the United States. You talked about why the U.S. was an important contributor and just put an. Context, sort of what kind of growth of U.S. export capacity you see. Just to put these numbers in context, I think you said around 10 to 12 Bcf a day of export capability today. U.S. consumption, I think is around 90 or 95 Bcf a day. [00:36:41][21.3]

Ira Joseph: [00:36:42] Annual. [00:36:42][0.0]

Jason Bordoff: [00:36:43] Annually. So just to give people context. And so in terms of the projects that are in the pipeline, maybe if there are any additional ones you think are going to get over the finish line because of this impetus from this conflict, what where do you see U.S. LNG export capacity? How big will it be in, you know, three or four or five years? [00:37:01][18.1]

Ira Joseph: [00:37:02] Well, I mean, three, four or five years, probably not much bigger than it is now. But in their fifth year, then it really starts to go up. So Golden Pass, which is a joint venture between the Qataris and Exxon, is really the biggest supplier. But you have all the venture global volumes and many, many other projects. I, I don’t want to get into the issue of handicapping one project against another here because that’s not really my role in all this. But let’s just say, you know, we’re going to go from, you know, current production capacity of, let’s say, 12 billion cubic feet a day. Now, I could see that doubling certainly by the end of the decade easily and in a really in a really aggressive case, getting to even getting to 30 if if certain financing can be done for certain other projects as well. These are not insignificant numbers or volumes that we’re talking about here, you know, and they become a big part of the picture of the US gas market, which is I think an important point that you’re alluding to here. Right now the U.S. LNG is accounting for like 15% of the U.S. gas market, which is the gas that’s being fed to the LNG that’s being exported. Then you have another 6 billion cubic feet a day being exported to Mexico, but also at the same time what we’re having in the short term, which is I think what we’re going to get here to in the next part of the discussion is all of a sudden we have $8 gas prices in the U.S. and all of the reasons behind that, there’s a myriad of reasons and excuses and things that that people are talking about are why are we at $8? Are we ever going to go back down? What’s it going to be in the future? But it creates this paradox between, yes, if LNG exports look great right now. Because the world, you know, prices are very, very, very high. But the other presumption is that lower for longer, gas prices are going to exist in the U.S. because there’s a huge amount of supply elasticity in the market. Now, is this $8 challenging that assumption or is this just sort of a temporary issue? And then we’re back down into the 2 to $3 world in the future that really makes these LNG export projects really look attractive. [00:39:01][119.6]

Jason Bordoff: [00:39:02] Yeah, well, that is what I wanted to turn to next. So I want you to answer that question. You comment, you commented a moment ago, European and Asian natural gas prices are around $30 per million BTU. The U.S. was used to two or $3 prices and they are up to eight. Now, that’s not as high as Europe, but that’s pretty high relative to what we’re used to. It’s the highest prices since, I think 28 around around there. Why are natural gas prices so high in the United States right now? [00:39:29][26.7]

Ira Joseph: [00:39:29] Well, there’s a there’s a lot of reasons that that that they are what is the right one is very, very difficult to put one’s finger on right now. But we’ll go with the most logical ones that that that are that are really being bantered about right now. One is is is supply chain issues that the rig count is going up in the key producing basins, but it’s going up slower than I think a lot of people anticipated because of personnel shortages, of resource shortages like fracking and issues like that. And that is causing supply and US production, which is kind of been hovering around 90 to 93 billion cubic feet a day now for the past few months. And I think I think there was assumption that it would go up a little bit faster. The other big issue is what is sort of the Wall Street issue, which is capital discipline, and that is getting bantered around a lot in equity markets that because shale had such a long run up for so long at such low prices and so many companies lost so much money that this was sort of the opportunity to show more capital discipline and and that perhaps, you know, the money that was being thrown at the upstream U.S. oil and gas industry before isn’t going to be there in the future. And it’s going to be a little bit more selective about how it’s going to spend money and the kind of returns it respects, a return it expects on its capital going forward. So those are sort of the two sort of top issues and top reasons why I think, you know, prices are up right now, as I said, because the U.S. is that LNG export capacity limitations and exporting more to Mexico isn’t really a major issue. The idea that TBTF prices in Europe and Japan, prices in Asia are bringing up Henry Hub prices. I don’t really necessarily see that. I think from an inflation issue. I think if you’re just long inflation, you think that everything should be inflated and including in that is Henry Hub. I think that’s a lot of the reason here too is that Henry Hub prices look pretty good and look pretty, you know, pretty good value relative to almost all other commodities out there. And then I think sort of the market woke up to this idea in the past few weeks, particularly the noncommercial market that’s trading paper Henry Hub and said, all right, we need you to get longer because in this because that Henry Hub in U.S. natural gas is somewhat of a bit of an outlier within the broader commodity market right now. And I think that has a lot to do with where how we ended up at this sort of 78 number right now. Because it to tie it to overseas market right now it’s it’s it’s it’s not really fair to do that. Henry Hub Prices are $8, but LNG prices on the U.S. Gulf Coast are closer to $24 right now. So three times the price and it doesn’t cost. I’m not doing the math there. $16 per million BTU to ten Henry Hub Gas. Liquefy it and stick it on the ship. There’s definitely infrastructure constraints at play here. [00:42:22][172.5]

Jason Bordoff: [00:42:22] So if I understand what you’re saying, unlike oil, where a significant increase in demand somewhere else in the world, it’s a global market. It would affect the price here. That’s right. A significant increase in demand for gas, say, from Europe, LNG for Europe, much higher prices for LNG in Europe. Those don’t translate, in your view, to higher natural gas prices in the U.S. because I presume because the capacity of how much we can export is fixed. And we were kind of operating at close to capacity even before this all happened. So there’s only so much you can extra you can put out into the global market. Is that is that the reason for what you just described? [00:43:01][39.2]

Ira Joseph: [00:43:02] Right. There’s definitely infrastructure constraints in the supply chain of gas, LNG around the world. And the two big ones we need to look at right now are the infrastructure constraint between U.S. natural gas and LNG exports from the U.S. and the other is LNG imports by Europe and REGASIFICATION capacity to import the LNG. So you have now $8 gas, US gas, but you have $24 gas on the water in the Gulf of Mexico. As soon as you stick it on the ship and call it LNG, then you get it to Europe and it’s. $26 when it’s floating off the coast of whatever lahav or wherever we want to talk about here. And then it’s $4 lower. Actually, I’m sorry. Did I get that right? Yeah. $4 lower for $4 higher. I’m sorry. Once it becomes gas again, once it becomes this TBTF thing that we’re talking about here and and those spreads are really being caused by these infrastructure constraints that you don’t necessarily have an oil because oil is a lot less expensive, more fungible. It’s easier to move around it. It has a lot more flexibility. And it is gas and its infrastructure tends to be a lot, much more a lot more rigid than other commodities. [00:44:12][69.8]

Jason Bordoff: [00:44:12] Okay. So it’s not global markets, in your view? The other argument could be inventories are a little a little lower than they normally would be. Things have been a bit colder as we head into spring than people expected. So prices just have to rise high enough to give people an incentive to fill up their inventories to get ready for next winter. Right. Does that explain seven or $8 natural gas or not? [00:44:37][24.2]

Ira Joseph: [00:44:37] Right. And also, it does in part. And you could also argue and I would argue this, too, is that that that demand for gas, for the LNG export is now fixed. It’s not going away. In 2020, it was very flexible. There were cargo cancelations. It was like the marginal cubic foot of demand of gas in the U.S.. Now it is like, number one, if you can make 60, 70, $80 million of cargo, that demand is not going away and it’s not going away any time soon. So the U.S. market has to balance in other areas so it can balance in residential, it can balance an industry and it can balance in power. Now, industry is still looking pretty good at $8 per million BTU because if everywhere else in the world people are burning gas and industry at 3030 $5 per million BTU so even at eight, you’re looking great. In the U.S. if you have a gas intensive industry, you’re operating, especially if it’s exporting to the rest of the world. If you’re in power, it’s a different story. And this is obviously where it gets trickier and where you’re going to see probably more coal burning if you can, because there’s still 240 gigawatts of coal capacity, they can still more or less be used in this country. You still have renewables that are making the market much. If you look at ERCOT and PJM, the the sort of day to day availability of power supply because of renewables is changing much more radically in the summer now than it has before. So there’s that issue as well. But if you look at us, if you look at U.S. gas storage, yes, it’s low, but it’s not like critically dangerous. Oh, my God. What are we going to do? Low. It’s just low versus normal. But but this fixed demand for LNG, for gas demand in the LNG sector is definitely the one area where if you wanted to make the argument that the global market is affecting the US market because now 15% or maybe even more of US gas demand is is being priced at this fixed demand for gas demand overseas. So do you understand what I’m saying there? I know that was a bit convoluted. [00:46:33][115.7]

Jason Bordoff: [00:46:33] But it does sound like you think a big part of the reason why gas prices are so high in the U.S. now is not the fundamentals of the market, but our trading activity. Market speculation. The people who are trading natural gas as a commodity, is that right? [00:46:49][16.0]

Ira Joseph: [00:46:50] No, I definitely wouldn’t say it’s speculation. I don’t I don’t I don’t deal in the world of speculation. I deal in the world of the idea that the fun of one of the fundamentals of the market is that there’s a lot of inflation now on a macro level. And I think I think the paper market is buying into the inflation story that that that gas is underpriced and undervalued at these levels. And there’s a potential that the upstream is not going to respond in the months and quarters ahead to the potential demand for natural gas at these levels. And I think that’s really where the core of the 7 to $8 story is, is not what’s being produced now, not what the balances are now, but what the balance is could be next winter. If we do not get if we do not move from this 90 to 93 Bcf a day to 96, 97, 98, I think that’s where the major really concern is in the market. [00:47:42][51.9]

Jason Bordoff: [00:47:42] And how come? What does all this mean for the U.S. economy, the concerns here about inflation, consumers, you know, if gasoline prices tripled, we would all be talking about that a lot more than we are about natural gas prices doing. Why is that? [00:47:57][14.9]

Ira Joseph: [00:47:57] Well, I mean, I think it’s what you said. I mean, you know, it’s it’s a giant billboard for inflation. When you look at gasoline prices, it’s literally the only price we see in our lives every single day. And it’s like shoved in our face, even though even us here in New York City, you know, it’s sort of shoved in our face every day. We know at the price of gasoline, nobody knows what the price of natural gas is. Normal people, not like us who tell, knows what the price of natural gas is every day, and nobody knows what the price of electricity is every day until they get their bill. And then a lot of people are on automated bills anyway, so they don’t even see it in that regard because they’re auto paying a lot of their gas and power prices and. Electricity bills around the country. But that being said, it’s definitely going to cut into consumption and it’s going to have people rationalize. I mean, what I what what I’ve typically seen in situations like this, when gas is spiked or power has spiked, is that people just don’t leave. They turn off their lights during the day. They they you know, they they turn their thermostats down next winter, you know. You know, maybe they’re maybe they’re heating it, I don’t know, 68 degrees and they turn it down to 65 degrees at the margin. That can make huge differences in demand when people do that. And that and that is that is the response I do think that we’re going to see. Like I said, economically, even at $8 per million BTU industrial gas demand should be pretty good. I mean, when you look at, you know, compared to the rest of the world, that’s still a pretty, pretty good price. It’s still going to cause inflation because if you’re if gas is the most is the biggest part of your cost curve for whatever you’re producing, petrochemicals or otherwise, it’s going to inflate the price of everything like fertilizer and everything that is commonly talked about, you know, that that we see on the TV and things like that. [00:49:36][98.6]

Jason Bordoff: [00:49:37] Talk a little bit about how you see the role of gas in a clean energy transition. You commented earlier you thought this crisis could accelerate a shift toward renewables, zero carbon energy, like maybe electrification of heating. You also talked about a lot of new investment in natural gas infrastructure in the U.S. and in Europe. And we just had a major U.N. climate report telling us that the amount of already existing and planned hydrocarbon infrastructure already exceeds the goals that many have for net zero by 2050. How do you think about the role of natural gas in a process of transition to net zero? [00:50:17][40.8]

Ira Joseph: [00:50:18] Well, I may be the last person to believe this in the world, but I still believe as gas, as the transition fuel. I’ve written like several papers where I talk about how the the bridge is sort of getting shorter or narrowing, but it’s still there. I mean, I see it. I see the biggest, you know. Help for the net zero plan out there is the most aggressively policy measures that can be taken to substitute coal with gas everywhere in the world and particularly in Asia. That that to me gets us faster to where we need to go than anything. If you were to force coal retirements and force gas Houston to replace coal use in China, India, Indonesia, Malaysia, Philippines, places like that, that that accelerates by cutting at least the amount of carbon footprint in half that’s coming from fossil fuels. And then obviously, renewables helps pick up the slack on the back of that as well. That’s what I see. The primary goal of gas. As I’ve said before and we’ve talked about before. Gas is not in competition with renewables. Gas is in competition with battery storage. And that’s that that’s sort of where the market is going for it, except in the case of this coal substitution issue in Asia, where it is a short term or let’s say another, if we’re talking 2050, here it is. The it is the bridge, the 30 year bridge to to the net zero answers that we’re looking for in the future, or that those of who’s looking for a net zero by 2050, 2050 can meet. [00:51:45][87.2]

Jason Bordoff: [00:51:45] Yeah, it’s interesting. I think it’s, it’s I hear what you’re saying and the, the scenario in which that plays out because we have a more accelerated clean energy transition and the role gas can play in that. And that isn’t necessarily the same thing as what an actual pathway to get to net zero by 2050 looks like, which again is not the path we’re on today. We’re nowhere close to being on that path. So unfortunately those may be goals that we meet and maybe more than anything else, natural gas, really the scenario for natural gas and a one and a half degree world versus a two degree world. Looks, looks it looks pretty different, at least for the next couple of decades. [00:52:20][34.4]

Ira Joseph: [00:52:20] I mean, I’ve always advocated both for LNG producers and for governments that they should literally buy out long term coal contracts and replace them with LNG or gas contracts. Like to me, if you want to like a really rapid fire way of changing policy, you know, going forward and decarbonizing and obviously not getting to zero but decarbonizing coal, gas relative to call that is the fastest, most aggressive way you can do it. [00:52:45][24.4]

Jason Bordoff: [00:52:45] Ira Joseph, you’ve been incredibly generous with your time. Thanks for explaining this to all of us. As I said, when we talk about energy crises, we think back to the oil crises of the 1970s. We often talk more about oil than we do with natural gas. This time is a bit different because Europe is so heavily dependent on Russia for its gas and has few other alternatives. But but but really helpful to get your your, your take your expertize kind of explaining how all of this works to us in a pretty dynamic and rapidly changing global global gas market. Thanks for being with us on Columbia Energy Exchange. [00:53:17][32.4]

Ira Joseph: [00:53:18] You’re welcome. Thanks, Jason. And thanks for the center and all the great work you do. You you put out a lot of great work every day for those of us who read it and and keep doing a great job. And thank you for having me on the show. And it was really great talking to you. It’s been a while and I’m glad we were able to catch up. [00:53:34][16.0]

Jason Bordoff: [00:53:39] Thank you again, Ira. Thanks to all of you, our listeners, for joining us on this episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University. The show is hosted by me, Jason Bordoff, and by Bill Loveless. The show is produced by Stephen Lacy, Jamie Kiser and Alexandria Herr from Postscript Media. Additional support from Torre Lavelle, Kirstin Smith, Daniel Propp, Natalie Volk and Kyu Lee. Sean Marquand engineered the show. For more information about the podcast or the Center on Global Energy Policy, please visit us online at Energy Policy, Columbia dot edu or follow us on social media at Columbia U energy. And please, if you feel inclined, give us a rating on Apple Podcasts. It really helps us out. Thanks again for listening. We’ll see you next week. [00:53:39][0.0]


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