Coal, natural gas, and oil prices have increased several times over since the beginning of the year as demand rockets far ahead of the available supply.
Fuel prices are skyrocketing across the world. Coal prices have increased multifold leading to shortages in India and China, and natural gas prices have sent Europe and UK reeling. With winter yet to come, where coal and natural gas prices often increase in the Northern Hemisphere, experts suggest that the worst is yet to come.
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The increase in gas prices is a result of a conflux of events triggered by the COVID-19 pandemic and its after-effects. According to the International Energy Agency (IEA), the sudden economic rebound from the pandemic has drastically upped the demand for natural gases and fuels.
At the same time, the economic recovery in the production side of things has been left lacking. Inventory and stockpiles emptied during economic restrictions have also meant that demand has far outstripped supply.
Lawmakers, experts and officials from Europe and the US have also blamed Russia for exacerbating the situation in order to have more leverage for its Nord Stream 2 deal, the $11-billion project that would bring gas from Russia to Germany and other countries across the Baltic Sea. It is a contentious geopolitical issue, with the US, Ukraine and other central European countries strongly against the deal and the growing Russian influence in Europe.
Nations are scrambling to subsidise increased energy prices for their consumers especially as prices are expected to increase further in winter. But as major economies are threatened by rising fuel prices, the US remains in a unique position where it may be not be affected to the same level.
"The US is much more insulated from this global energy trend than the rest of the world," said Francisco Blanch, head of global commodities, equity derivatives and cross-asset quantitative investment strategies, Bank of America Merrill Lynch.
This is not to say that the US is completely immune from the price increase. Spot prices for coal and natural gas have increased to their highest level since the beginning of the year. Oil has similarly been witnessing upside movement.
The US’ insulation from market movement comes from the fact that while most countries have to rely on external production and imports to meet their demands, the US doesn’t rely on external suppliers for most of its fuel needs.
"(The US) hasn’t had to rely on the rest of the world to provide its supply, and that’s really what Europe’s problem has been," said Robert Thummel, managing director at TortoiseEcofin.
The US was the largest producer of natural gas in 2020 with 914.6 billion cubic meters of production. The country also produced 640 million tonnes of coal, being the third-largest producer of coal. Many might also not know of the fact that the US is the leading producer of oil in the world, ahead of nations like Russia, Saudi Arabia with 19.51 million bpd.
But the real factor for US natural prices may be the upcoming winter in the country. A colder than usual winter may see that natural gas prices finally start matching the levels across the globe, while a normal or warmer than usual winter may only see a slight increase in fuel prices.
(Edited by : Jomy Jos Pullokaran)