Is the era of cheap natural gas over?

Global energy crisis pits demand, climate

WASHINGTON — Charif Souki is feeling pretty pleased with himself these days.

Eighteen months ago, the ex-CEO of Cheniere Energy, now executive chairman of Houstonbased Tellurian LNG, had to lay off half his staff amid grim projections for global gas demand.

But with supply shortages now causing price spikes in Europe and Asia, Souki says he has Wall Street investors banging at his door and plans to begin construction on the Driftwood LNG project outside Lake Charles, La., by March — though no final decision has been made.

“A year ago, everyone is saying he’s never going to build anything,” Souki said of critics on Wall Street, in a recent interview. “You bring it to them now and they’re salivating.”

For more than a decade, the price of natural gas was so cheap that in some parts of the world it made more financial sense to burn the gas at the wellhead than build pipelines to bring it to customers. But now the world is facing an extended period of supply shortages that stand to drive up natural gas prices for years to come, experts say.

“Demand is outpacing supply,” said Michael Stoppard, chief strategist for global gas at the

“When you’re talking about not having gas for lighting or cooking, all of a sudden your priorities change.”

Charif Souki, executive chairman of Houston-based Tellurian LNG

consulting firm IHS Markit. “The current high price cannot be sustained for a long time, but there are underlying fundamentals that have turned around the market for the next few years.”

With the global economy rebounding from the COVID-19 pandemic, the demand for energy in all forms is strong. But unlike crude oil, the natural gas supply chain cannot easily be adjusted to where it’s most needed. Transporting gas requires pipelines and specialized cooling plants to transform it into a liquid, projects that cost billions of dollars and take years to permit and build.

Not so long ago, the world was awash in natural gas from fields in Qatar, Australia and the United States. But, with a push toward renewable energy, oil and gas companies steadily pulled back from developing new fields, even as gas demand increased with a growing global population requiring greater amounts of energy.

Between 2014 and 2019, capital spending by the global oil and gas industry declined more than 40 percent to less than $500 billion from nearly $800 billion, according to the International Energy

Agency, which advises industrialized nations on energy supply. At a conference this summer, one of JP Morgan’s top analysts warned of a $600 billion shortfall in oil and gas development through the end of the decade.

At the same time natural gas demand is expected to increase 3.6 percent this year, with the forecast for 2024 showing gas consumption 7 percent above pre-COVID levels. Earlier this month,OPEC Secretary-General Mohammed Barkindo said the world should brace for more energy shortages unless investment in oil and gas projects is increased.

“The energy crisis in Europe and many parts of the world is a wake-up call,” he said, according to the Wall Street Journal

“We need to buckle up more investment in capital to revive the production cycle.”

But doing so would mean more greenhouse gas emissions when scientists are warning that , humanity is on track to increase earth’s temperature to the point that coastlines are inundated byflooding and weather becomes more dangerous and extreme.

Fatih Birol, executive director of the International Energy Agency, has pushed back against OPEC’s warnings, blaming the supply shortage on unusually cold winters and hot summers this past year, along with unexpected outages in processing plants caused in part by delayed maintenance due to the pandemic.

“Recent increases in global natural gas prices are the result of multiple factors, and it is inaccurate and misleading to lay the responsibility at the door of the clean-energy transition,” he said last month.

As policymakers debate the cause of the supply crunch, the question facing gas producers is how long it will last. Two LNG projects are under construction on the Gulf Coast, and the national oil company Qatar Petroleum said it will build one of the world’s largest LNG projects to expand the nation’s LNG exports by more than 40 percent. But production from that project is not scheduled to begin until the end of 2025.

And while Tellurian prepares to move ahead on its Driftwood LNG project, many U.S. LNG developers are waiting to see if buyers in Asia, Europe and South America will commit to buying gas that won’t be available for at least another five years, said Charlie Riedl, executive director for the Washington-based trade group Center for Liquefied Natural Gas.

“Before there was no incentive for a long-term agreement because there was plenty of cargo out there to buy on the spot market for next to nothing,” he said. “Now all of a sudden you see the market tighten and there’s a desire. The question is, are those long-term contracts likely to start reappearing?”

For now, energy consumers abroad must make do as best they can. Coal consumption is increasing as power plants that cannot get gas at a reasonable price switch to coal. And without a decline in gas prices in Asia and Europe, analysts say , customers will soon switch to fuel oil, too.

That shift to more carbon intensive fuels is going to be front and center next month when world leaders gather in Glasgow, Scotland, for the COP26 climate conference.

Managing increasing energy demand against the need for lower emissions is a problem world leaders will grapple with for many years to come. The challenge facing clean energy advocates will be convincing political leaders not to back off commitments to reach netzero carbon emissions by dramatically reducing the use of fossil fuels — including natural gas — in favor of renewables such as wind and solar energy.

“Wait until people in Europe start getting their electricity bills,” said Souki, the Tellurian executive chairman. “When you’re talking about not having gas for lighting or cooking, all of a sudden your priorities change.”