Recently, some US politicians have been calling for expanded production of natural gas because “a shortage is causing high prices”. They link this to the problems Europe is facing with the shutoff of Russian natural gas pipelines. In fact, there is no shortage of natural gas. While it is true that there is very limited availability of natural gas in Europe and high prices there, those high prices are local to Europe and do not mean the world is short of natural gas.

I don’t want to minimize the problems that Europe faces. They are very serious. In past years, Russia has supplied 40% of Europe’s gas, and this winter will be tough.

But these problems are temporary. There are over 30 ships with full cargos of liquified natural gas (LNG) waiting in the Mediterranean to unload. That gas, by itself, could get Europe most of the way through the winter. And why don’t the ships unload their cargos? Because all of Europe’s storage capacity for natural gas is totally full.

If there’s all that LNG available, what’s the problem? For Europe, the problem is primarily lack of infrastructure, not lack of supply. The facilities to “regassify” the LNG and store it, and the pipelines to get it to the locations that need it, aren’t up to the task. This is particularly true in Germany, which has allowed itself to become so heavily dependent on pipelines from Russia that it has failed to develop the infrastructure needed for alternatives.

The Europeans are scrambling to rectify the situation. Although many of the necessary facilities won’t be ready in time for this year’s winter heating season, by next winter they will presumably be able to take advantage of all that new LNG infrastructure. But European actions are already having a significant impact. By increasing LNG imports to the extent they can, shifting industrial uses to other fuels, and delaying scheduled closures of nuclear and coal-fired generating plants, the Europeans have already eliminated three quarters of their dependence on Russian gas.

They are also working feverishly to add solar, wind, and batteries, so they will gradually use less and less natural gas. For now, they may have to lower thermostats a few degrees, but they’ll make it through the winter. How bad it will be depends on the weather, and on whether Chinese demand for LNG jumps dramatically with the lifting of Covid sanctions, limiting the supply that’s available for Europe. The current situation is summarized here.

There are signs that the LNG glut will continue for the foreseeable future, given the steady increases in US exports. But if a shortage does develop, Europe could again be looking at a winter energy crisis a year from now.

What about the rest of the world? At the moment, the world-wide natural gas market is actually oversupplied. The fracking revolution and the huge growth of US exports has produced more natural gas than the market needs, especially with the shutdown of some Chinese markets due to Covid. While it is true that Russia has cut production, that is mainly Europe’s problem. Russia supplies less than 4% of the world’s natural gas, so even if it stopped producing gas entirely (which it has not—Russian gas is being sold to India and China) it would not have a major impact on markets. This is discussed in an excellent, if technical, podcast here.

As for the US, it has plenty of natural gas. Even with record amounts of gas going to exports, the US has plenty for domestic use. The level of US reserves of natural gas coming into the winter season is very similar to what it has been in previous years. And in September, the amount of natural gas being squirreled away in domestic storage set new records.

But if there is abundant natural gas, why is the US price high? Yes, the price of natural gas is high this year, but it isn’t because there’s a shortage. A key reason is that Public Utility Commissions across the country are allowing utilities to bill their customers extra this year, to make up for the extra costs the utilities incurred during the price spike caused by winter storm Uri in February of 2021.

In fact, the wholesale price at the Henry Hub in Louisiana (the national benchmark for natural gas) is currently only slightly higher than the average of the past decade. The retail price, paid by consumers, is much higher than previous years, however, because of the utility markups. The US supply of natural gas continues to expand, due primarily to the large amounts of gas that emerge, along with oil, from fracked oil wells in the southwest.

The implication would seem to be that, unless world demand grows dramatically, the US price of natural gas will be dropping in 2023. Time will tell.

Europe’s energy future. For now, the lack of natural gas infrastructure in Europe requires conserving gas and using alternative fuels. In the short term, that means using more coal, keeping nuclear generation running instead of retiring it, and of course lots of renewable build-out and efficiency measures. The coal will go away once the crisis is over, and Europe will end up using far less natural gas and far more renewable energy than in the past. Few countries will be willing to buy Russian gas. That’s the only silver lining to this European natural gas crisis.