Why Natural Gas Prices In The US Just Jumped 70% (Energy Flux)

Gas prices don't usually surge sixty to seventy percent in a week. But in January twenty twenty six, that's exactly what happened in the US, whilst European gas prices still rose by about twenty percent in a week. There was no pipeline explosion, no sudden embargo, just colder weather than expected, some crowded trading positions, and too many people leaning the same way. Our guest today is Seb Kennedy, founder of EnergyFlux. He spends his days tracking gas fundamentals, weather forecasts, hedge fund positioning, and LNG flows. And he explains why markets that look calm can turn fast.

In this conversation, Seb walks us through what actually caused January's spike, why funds piling into short positions can turn a normal winter into a squeeze, and how Europe's gas market is now tightly linked with the US with LNG quietly tying Louisiana to the Netherlands. We also zoom out. Seb talks about Venezuela, a country flaring vast amounts of gas while struggling with energy shortages. A reminder that scarcity is often political, not geological.

Andy talks about Greenland, a country potentially rich in resources, but decades away from development. It's a warning against mistaking theoretical supply for real security.

Together, they point to the same idea. Energy markets don't break because the molecules aren't there. They break when the infrastructure, the politics, the incentives fail to line up. This episode isn't about panic. It's about why gas markets still snap. I'm Ed Porter. Welcome back to transmission.

Hello, Seb. Welcome back to transmission.

How are doing, Ed? It's great to be back. Thank you.

Well, our pleasure. Our pleasure. And we said when when we had you on a year ago, we said we said, Q said that we'll get you back on as soon as we have another gas event. And here we are, gas event in Europe and US. What's going on?

Well, your timing is impeccable, Ed. Well done for engineering the the price spike both in America and in Europe in gas markets.

Yeah. It's been an absolutely insane couple of weeks in natural gas markets and as you can probably tell from the bags under my eyes, it's kept me up late figuring out what's going on in these crazy markets. So I'm looking forward to getting into all the all the elements driving prices higher.

We we've got this kind of like before we kinda get into the real detail of it, right? I think the personal side is sort of the behind the scenes of Sev Kennedy is a really interesting thing, right? Because you've both got sort of the energy flux work that you're doing. But then you've got people like ringing you, messaging you saying, Seb, like, what the hell's going on?

Yeah. It's it's interesting. So I straddle this kind of position between being, you know, a trained journalist and it's a journalistic platform energy flux, but at the same time, I focused in kinda laser detail on gas. So I've kind of evolved into an analyst and have a lot of my own data sets and data models and so I I straddle both divides. Any given week, I might be calling people up to get them quotes and then I'll have journalists calling me for quotes. So it's quite an interesting place to be.

And yeah, a week like this, then I've been pretty much bombarded by requests from readers and from journalists asking me from my perspective on what's going on in these gas markets. I've given I think about three or four interviews this week for print media, other podcasts, I was at an investment bank talking to their clients and now here I am with you. So it's and in between, that's just kind of managing requests at the same time, I need to be on top of the markets, digesting the data, trying to figure out what's happening, why prices are moving in certain ways, what the weather prints are doing, how the funds are repositioning in response to these wild price gyrations and then scraping the data and then producing a kind of polished product and then you know, publish to readers. So it's pretty full on when the markets go mad.

I love it and let's let's then go into this kind of this crazy week, right? So I do want to ask you what's been happening but just as we kind of build into that, I'm aware that this might be the first time that someone might hear about gas markets. So I I I'm gonna guess you're gonna talk about TTF, you're gonna talk about Henry Hub. So would you like to do a quick glossary and then build into that that question?

Sure. So yeah, the main two gas trading hubs that we're probably gonna talk about are the Dutch title transfer facility, that's the TTF, that's the kind of benchmark trading hub for natural gas prices in Europe.

There are other hubs across Europe more regional, but because TTF is so heavily traded, it becomes the benchmark and other prices are measured as a kind of discount or premium to TTF.

And TTF really has a global influence. So when TTF rises, then it pulls up like the price of LNG that gets traded in Asia. And at the same time, you have in the United States, you have a totally separate trading hub called Henry Hub.

That's in Louisiana and it's a similar thing. A kind of virtual trading hub that's evolved out of a confluence of pipelines and that is an expression of the traded price of gas in the lower forty eight states of America.

I hope that is the correct collective noun for pipelines confluence.

We shall I I I don't have a dictionary in front of me, but we'll we'll we'll check it. Okay. So we've got Henry Hub and we've got TTF and the last week, which has been a bit of a a bit of a change. So what's happened?

Sure. So let's rewind. So go back to sort of last summer and autumn and the best way to understand price formation in gas markets is to look at how investment funds are positioned, these are essentially speculative traders who make bets on where the price is going to go. They might hold long positions or short positions.

If they're long, they're bullish, they think the price is gonna go up in the future. If they're short, then it's the opposite. They're bearish, they think the price is going to go down. And we saw the investment funds going net short last year and they held that net short position going into Christmas.

So they essentially got funds carrying a bet that prices are going to go down going into the heart of winter. And I did tell Energy Flux subscribers and anybody that asked me, you know, what do you think about that? And I was like, well, yeah, I am I am kind of on a macro basis quite bearish on gas. I think the price is going to go down but in the heart of winter in a very short period of time, then there's a massive risk that price, the the market could move against those positions and that's exactly what happened.

So as soon as people came back from Christmas and went back to work and there's a bit more demand in the system, plus you know you had weather forecasts coming in particularly cold and gas storage facilities being depleted quite quickly because demand for heating and electricity and gas fired power is going up, then you saw this almighty correction.

So what started with probably a rational correction in the price pretty soon turned into what's called a short squeeze. And that's when traders who are short realize the the price is going up and they're basically in a loss making position. So they have to sell those, close out those short positions and rebuy long positions at a loss, but it limits their losses.

So you have this scramble to buy long positions in Dutch TTF futures, and when you have, you know, tens or hundreds of funds all buying one commodity for prompt delivery, then that makes the price go up and up and up.

So any hedge fund that was long was able to kind of kind of squeeze out the shorts. And and this is really it's I I kind of describe it as like it the fundamentals are are the spark, but the kind of speculative positioning that's really the rocket fuel and so when you get this combination of colder weather forecasts, rapid depletion of storages and funds being net short in the heart of winter, then you get this almighty scramble for for long positions that drags the price up, and we saw this this incredibly rapid rise in the price of TTF. We saw it rise more than twenty, twenty five percent in one week, and it carried on rising the week after.

And so that was the kind of the initial the initial kind of price spike on TTF. So by kind of coincidence or not, if you like, I mean, gets cold in winter, it's not a massive surprise, but in the United States, they're they're towards the end of the kind of TTF first week of price spiking, then we saw the Henry Hub spike as well. And that was driven by the kind of polar vortex forecasts, which are predicting that the lower forty eight states of the US could be blanketed in sub zero temperatures.

And this does two things: it drives heating demand obviously and power demand. But the other really critical element is that it also poses a risk that gas pipelines and compressors and gas production facilities might be frozen to the point where they don't work anymore. So the ability to produce gas, ship it through compressors and pipelines and get it to LNG, liquefied natural gas export facilities on the Gulf Coast could be impaired. So you might have there's this this this fear, if you like, that the US ability to export LNG is gonna be impacted by the the cold weather.

So those things together caused an almighty spike, sixty percent rise on the Henry Hub traded price in the space of about forty eight hours. And and and so what happened when when that happens is that that kind of has a loop back to Europe because Europe is so reliant on US LNG. If there's any perceived risk to the security of supply from the US then that could manifest in kind of scarcity for gas supply in Europe. So we had TTF going spiking up and then Henry Hubgum spiking up too, and that kind of propelled TTF to go even higher at the start of this week.

And so you have like both of these kind of globally important natural gas trading hubs spiking at the same time, which just kind of completely redraws the economics of, you know, the the value of gas, the price of gas. But it's worth clarifying that these price movements are all concentrated at the very front of what's called the forward curve because both Henry Hub and TTF, you can trade gas for delivery, you know, tomorrow, next week, next month, next year.

And so there are different contracts for delivery.

And so all of these price spikes were happening in like the prompt contracts, so the the kind of The really near term? The really near term. If you look at like a chart showing the price over time, like the delivered price for, you know, February, March, April, etcetera, then you got, yeah, like February and March spiking super high, and then the drop off is absolutely immense. And the further you go out on the curve and the the less pronounced the price rises were.

Well, think this is a really nice segue. Right? So we have this spike in TTF and on Henry Hub at the moment. And I I I would also like to ask you a little bit about just the context of that because we are used to very large gas price spikes in the last five years. So I just like to sort of just put some context around just how large this spike is in comparison to the last spike we saw.

Let's do that first and then I'll come on to my next question.

Historically, this is not unprecedented. You're right. During twenty twenty two following Russia's invasion, full invasion of Ukraine and the curtailment of of gas supply to Europe, then we saw spikes that were an order of magnitude greater than this, absolutely, because the shock was just so immense to the system. So some commentators have rightly or wrongly looked at the recent price movement and said, well, you know, by historical standards, it's not it's not massive.

But if you go like prior to twenty twenty two or twenty twenty one, should say, that's when the the prices started going really really quite high. You know, you go for like in the like the nineteen nineties, the two thousands, and the twenty tens, then we we didn't see anything like what's happening now. So what you could say is that, yeah, this is not historically unprecedented, but if we hadn't have had that gas shock in twenty twenty two, we wouldn't be saying that this is somehow normal. It's not normal.

And by long run standards, it's not normal. The rate of change is it's it's it's immense. And I I think if that's your yardstick, if your fuel yardstick is like three hundred euros per megawatt hour for gas, then you're never gonna be surprised again by anything. But you know, it still matters when the price doubles overnight, it still matters.

Yeah. I think there's in this, you're trying to sort of warn people about like the normalcy bias, they're kinda going, oh well, you know, this is this will all be fine, know, gas gas will just return back to sort of traditional long run marginal cost. We don't have to worry about anything. But as you say, like, if you take out the context of twenty one, twenty two and you actually say, how quickly is this moving compared to conditions outside of that particular period?

This is quite shocking and and don't don't let the sort of fact that twenty one twenty two happened allow you to kind of sweep the story under the under the rug and sort of say, oh, it's it's nothing to be worried about. Okay. Super interesting. Let's then go into slightly longer dated side.

So we've talked about the US and we've talked about Europe. So the obvious thing to then talk about is LNG, so liquefied natural gas that connects the two. There is a quote unquote glut of gas coming from the US. How how do you see that playing out?

So the the glut is real. It is essentially here. I think a lot of people are kind of acknowledging that, you know, the glut is it is kind of weighing on supply demand balances globally.

But we're very much at the thin end of the wedge.

So if you look at the anticipated ramp up in liquefaction capacity over the rest of this decade when we're only starting to see the very beginnings of that, I think we're gonna see capacity increase by about seven to ten percent this year. But by the end of this decade, then we could see globally the total amount of liquefaction and export capacity increasing by about fifty percent. Now a lot of that depends on whether these projects actually are built and, you know, there are the attrition rates can be fairly high, but once a project reaches final investment decision and, you know, the the finance is in place, all the contracts are in place, then it does take an almighty upset for that project not to be built.

So there are other projects on top of the fifty percent who don't have the financing in place, who are still trying to achieve FID, final investment decision, haven't done that. I would say they are extremely high risk projects. Like you wouldn't bake them into your forecasts for LNG supply, but I'd say that, you know, the fifty percent figure, yeah, it might it might reduce over the coming years as, like, LNG projects, they might get delayed, they take a long time to ramp up, they might have technical problems along the way. Some of them also run over budget and they have these massive cost blowouts which tend to bankrupt the EPC contractors building them, that's quite common in LNG so that could happen too.

But it doesn't detract from the fact that we do have a very big luck coming and it's going to happen.

So you kind of got these these two hats or these two worlds that you're seeing, one world is this very sort of near term cold weather driven spike, which is also linked to sort of some of the speculative capital capital in the space. Then you've also got the slightly medium to longer term where we see this kind of ramping up of capacity from the US to get gas into get gas into Europe, which should sort of squeeze some of those prices sort of bearish sentiment mid to long term.

Yeah. So a really interesting phenomenon happened last year because the way that LNG is priced is a function of two things. You've got the cost of production and then the sales price at the other end. So Henry Hub is a cost factor in LNG. Know, if you buy gas indexed to Henry Hub, let's say it was like three dollars per MMBtu, and then you have the cost of liquefaction which can be anywhere from between like one dollar fifty to I've seen estimates of like three, four or even above now. That's your cost and then you got to pay for the big cryogenic vessel that ships over the Atlantic and then it regasifies it in one of the many terminals in Europe.

You add all those costs together, then your margin is the difference between that and the sales price on TTF. Now what happened last year, we actually saw Henry Hub rising and TTF was really quite bearish and it kind of it it went down quite low to the extent that the long run marginal cost of production, so that's like the full cost if you include everything, including the cost of liquefaction, actually was the cost of was above the sales price. So US LNG became technically unprofitable in Europe. Now it didn't mean that supplies stopped, know, because anybody that's buying LNG, they treat a lot of those costs as a sunk cost.

If you buy if you sign up for twenty years of US LNG, then that liquefaction cost is a sunk cost. You don't take that into consideration. You still lift the cargoes. You still sell them into Europe.

But it was a little sign of what I think is going to happen more and more towards the end of this decade, which is that the cost base of LNG goes up and the price comes down because the more you the more gas you take out of America and you dump onto global markets, then the more you rise the price so you rise well, you rise the price in America which increased your costs and you're essentially cannibalizing your own revenue by by depressing the price in Europe and in Asia. So that kind of that margin compression is something I've been banging the drum about in Energy Flux quite a lot. Yeah. And if you look at the forwards markets, they're already pricing in more events where like the long run marginal cost goes above the the sale price.

This this matters, right? Because if I'm a LNG head and I go and put this onto a bank's investment committee and say, can you can you back my LNG project? Go, hold on. The the economics of this doesn't doesn't actually work.

Well, it's it's interesting you said that that's that's not actually how it works.

Okay. Because the like I said, you essentially the the LNG projects, they push all of that risk onto their buyers. Right? So the buyers they sign up five ten fifteen twenty year long term sales and purchase agreements.

And what does that mean? It means that whether you lift that cargo or not, let's say you sign up for a hundred cargoes a year, whether you lift a hundred or fifty or zero cargoes, you pay the liquefaction fee on every single one. So the LNG plant has and that's the only way that the LNG plant can get financed because the bank says, what's the risk that your revenue streams are not as high as you're making them out to be? We're not going to leverage capital into a big infrastructure project on the basis of market risk.

So who's gonna carry that risk? The bank never takes market risk. They'll always say, can you protect yourself? So that's why we have these sales contracts structured in a way that pushes the risk onto the buyers.

So you have the LNG off takers who are often utilities, trading houses, big oil companies that are kinda like portfolio players. They'll they'll sign up for, like, massive long long run off take contracts with US LNG suppliers, and then they are taking the risk that they'll be able to sell their LNG profitably into end use markets.

So with that information, just to rephrase that around like the off taker, the person signing that fifteen year off take agreement might look at the the potential price of that and they might look at the forecast around TTF and they make it well, look, I don't I don't need that. I I don't need that LNG contract. Actually, maybe I could serve from another place. Maybe I could be more reliant on TTF.

Well, so if let's say you're an industrial consumer in Europe and you're looking at you need to supply you need to, like, firm up your supply of gas so that you could make fertilizer or you can make other chemicals or your utility. You want to generate electricity with it. Then if you're looking at, like, the, yeah, the the the kind of the outlook for the next ten years, where's your gas gonna come from? Then it's a very hard sell to say, yeah, I need to, you know, lock myself into this kind of punishing offtake contract that could move against me when I can just kinda go to the spot market and just buy gas that's already available.

Yeah. Well, let's let's stay on that. Right? So two things in this. One less controversial, one much more controversial.

The the question that always gets into the press in GB is well, what about the North Sea? Why why not just go and get more gas out of the North Sea? So why why aren't groups just saying, okay, I don't like LNG, I'm just gonna go to the North Sea and get some more gas?

Yeah. Well, sadly there's not a lot left in the North Sea and that might be a controversial statement, but I think that most people would acknowledge this. It it it's like even if we were to drill out every single well that's left and like maybe we should, maybe we shouldn't, I don't know. Even if we were to do that, then you're not gonna move the needle on GB gas balances much.

We're talking about, like, single digit percentages. So, you know, the the UK relies on gas imports from Norway and from LNG for, you know, maybe two thirds of its overall gas demand. So it's like, yeah, it'll be wonderful, wouldn't it, if GB could just turn around and like cancel all of its imports and we're like, we're self sufficient in gas again. Well, hey, reality check is not nineteen ninety six.

We, you know, we we squandered that resource. It's not really there anymore. And while there are some remaining resources there, the fiscal regime doesn't support lifting them. I think the lifting costs in the North Sea have tripled in the last fifteen years. It's a there's a very high fiscal liability for anybody that's looking to to drill new wells, and the decline rates on these these existing wells are are enormous, and the infrastructure is underutilized in the North Sea. In fact, there's a danger that we're gonna have to start shutting down transmission pipelines because there's just not enough volume coming in from those fields to to support the maintenance of those. So GB is in quite a precarious state in terms of gas security.

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Well, let's go to a much bigger gas field. Let's talk about Russia very briefly. Do you think there's a a world in which Russian gas could flow not through LNG but through pipelines back into Europe? And what would that do to prices?

We could do a whole episode on Russian gas and the geopolitics around Ukraine and will Russian gas come back or not, you you can't rule it out. Yeah. A a peace settlement in Ukraine could very well include an element of of Russian gas coming back. Perhaps it could be could be sold politically as, okay, we're gonna we're gonna like agree a really, really cheap price to minimize the Kremlin's revenue to not reward them for for their actions in Ukraine and, like, hive off a huge amount of of that those funds for the reconstruction of Ukraine.

That could be one way to sell it. I wouldn't rule that out. What would be really interesting though is that, you know, this any peace settlement in Ukraine is going to be at least overseen if not brokered by the Trump administration. So are they going to allow something like that and, you know, allow Europe to buy gas below market price from the Kremlin, which would lower the price of TTF and then that would absolutely crush the margins on US LNG?

And I've been wondering for some time and I've been saying this in energy flux, is the Trump administration gonna throw the US LNG industry under a bus to get a peace deal through in Ukraine?

It could happen. I mean, he's he's a pretty fickle operator. And while he does use US LNG as a kind of tool of geopolitical coercion in his foreign policy, I mean, I think if it's suddenly not convenient to him for that to be a healthy industry anyway, he'll just let it go. And and and now just just to kind of think that through a bit more, I mean, these Henry Hub price spikes, a lot of it is is driven by them kind of growing export capacity. Whenever you see LNG exports reducing in the US because there's like a plant goes offline, then the traded price of gas goes down, there's a very close link between, you know, export capacity and high prices.

If like the MAGA crowd, if they kind of get a sense that, well, US LNG is now, you know, making me pay more for my power and my gas in home, all to kind of, you know, bail out these kind of energy poor frenemies in the other side of the Atlantic who we don't care about.

That's not America first, is it? Yeah. And I've been saying this for a long time too, like this kind of LNG export bonanza is not compatible with America first. It's not compatible with MAGA. So if Trump feels or the Trump administration feels like this LNG export bonanza is actually hurting them politically at home and they they could they could easily kind of cut the cord and impose some sort of curtailment or cap on exports or just let the market do its thing. Let the prices go to a point where lifting US LNG is no longer economic and that could fix the kind of whole Europe thing or let them just buy Russian gas again and, you know, for the Trump administration just wash their hands of the whole affair.

Looks like a bit of a sort of three d chess move. Right? So under political pressure at home, could you fight inflation by bringing down gas prices through a decision like that? I I you you you can't rule anything out in the US.

But certainly that sounds like a way that this could play out. We will watch this year and see for sure. We've kind of moved on to Trump and it feels like we are a few we're now probably a month after Venezuela, but it's still sort of fresh in the mind. We should we should talk about that.

So we should talk about what's happened in Venezuela. I'll pass over to you to kind of with the brief synopsis of of of how that's played out, but also what that means.

Yeah. So I actually lived in Venezuela for a few years in the mid two thousands at the height of the reign of Hugo Chavez and Chavismo, and so it's been quite personally impacting to watch what's happened there.

You know, so obviously there was the kind of the military removal of sitting president Nicolas Maduro, the kind of decapitation of the regime, but then reports are indicating that there was a kind of backroom deal done with his vice president Del C. Rodriguez who has subsequently become the temporary president, who is now kind of walking this incredibly, just impossible tightrope where she is doing the US bidding, but also trying to maintain this position as the kind of the flag bearer of the kind of anti imperialist Chavez movement. And I think her position is completely untenable. It is the

definition of unstable governance structure because the minute that the regime is pushed or assuming it's pushed to hold elections, then they're gonna be voted out probably. I just and and when that happens, then you're gonna see a lot of cascading effects. So in Venezuela, the government, it's essentially has these kind of groups of militarized bandits who patrol the capital city Caracas whenever protests rise and they suppress violently any opposition movements, and they're all their political benefactors are the Chavez regime. If they feel like their political benefactors are essentially placed at risk, they're gonna lose their access to funding, to like narco trafficking, economic revenue or just just their direct funding, then they will defend those because when if an opposition government comes in, then then then they're not gonna have the same kind of support they had.

So so the the potential for for there to be extreme instability in Benelux right is very high. For now, there's this kind of eerie calm and like my remaining friends and in laws in Caracas describe life as going on as normal but it's a kind of very fragile normality.

And in that world of instability, you've then got this kind of idealistic, there will be big companies that will move in that will bring lots of efficiency and capital to the export of oil from Venezuela which will then grease the wheels of wider industry perhaps bring inflation down.

Doesn't seem to be happening.

No. I I wouldn't describe it as a total fantasy, but I would say that the scale of investment that you'll see will be far far below the hundred billion dollars that Trump has been touting around the place. There are some is low hanging fruit. You will see probably some recovery at some point in in production.

But let's just let's just kind of take stock of what's happening, right? There's a US blockade on Venezuelan oil exports, and they're essentially channeling all of the the kind of backlog of production to go to refineries in Louisiana. And commodity traders are coming in to kinda help with that, to to help kind of, you know, join one up with the other.

So so yeah, that that's happening. I mean, and some of the big oil companies have said, yeah, we'll invest some more. I think there was a is it Shell and Repsol said that they might come in and increase production from the there's a gas field that operates offshore called Perdola. They said they might come in and increase production from that.

So there are some some some investment might happen, but it's it's like the idea that you're gonna have, you know, tens or hundreds of billions of shareholder capital placed at risk in a country that has, you know, periodically expropriated the assets of Western oil companies. And and it's the the same regime that did it is still in power. It's not like there's suddenly some business friendly administration that's there now. You know, it's the the risks are absolutely immense.

And like the ExxonMobil CEO, he got chastised for saying that Venezuela is uninvestable and I couldn't describe it in any better terms myself.

Excellent. And what was what was quite interesting in that, right? So we when you saw the press around Venezuela, a lot of it was around sort of heavy crude and being an sort of an oil major. You just described gas as well. Obviously, that's much more where where you sort of provide your commentary on a regular basis.

Should we be talking about a gas story out of Venezuela?

Well, I have been talking about the gas story. It's it's a very sad story.

So Venezuela is one of the biggest gas flares in the world. They flare off immense amounts of gas, associated gas at the wellhead because the gas comes up with the oil if they can't reinject it into the well and if they can't gather it and put it through a pipeline and use it for something, then it just gets flared off. It's just a liability at the wellhead. The amount of gas flaring is quite hard to comprehend.

I mean, you can see some of the gas flows from space. If you were to capture all of the gas and pipe it over to neighboring Colombia, then Colombia would stop importing liquefied natural gas overnight. But Venezuela is, you know, it's it's it's every day. It's it's just burning off this huge natural resource, but there's no way to get it out of the country. People have been trying for decades to make export projects happen, and they've always run into the same problems which are, you know, diplomatic tensions with neighbors and sanctions.

So you've this enormous natural resource being flared off. You've got the country next door, Colombia, which is importing LNG, which is more expensive.

And you've got Trinidad and Tobago on the other side which has is massively gas dependent economy. They're actually shutting down one of the liquefaction trains on their LNG export projects because they can't get enough gas in to backfill the project to export LNG. They would love to get their hands on Venezuelan gas to liquefy and ship to Europe or to the United States because they they supply the New England kind of Boston area and they can't do that. There's a really simple project to call the Dragon project.

Shell has been trying to get the Dragon project a little offshore, well it's not a little, it's quite a big offshore gas field with a very simple seven kilometer tieback to a platform called the Hibiscus platform that already exists with pipelines all ready to go feed into into Trinidad. And they just cannot get any progress on that because they they can't get the Venezuelan government and Trinidadian government to see eye to eye. And also they've got sanctions in place. They can't get paid for that gas.

Pedevesa, the national oil oil and gas company of Venezuela, you know, you can't you can't deal with that company because because sanctions, you can't get paid by them.

So it's it's really just it's it's just this kind of tragic situation where you've got massive waste, massive undeveloped resource, massive need.

And these this gas, it could be used for like rebuild the Venezuelan economy. If they could kind of monetize the gas waste there flaring off every single day, then that could create jobs, create investment, create sustainable economic opportunities for the people of Venezuela because the country is in an absolutely dire situation and they're there just they're flaring off I think it's like a billion dollars worth of gas every single year. Know, that's money that the country could urgently need for to rebuild all of its collapsed infrastructure.

And it's it's both a sort of political quagmire story but it's also a technological one as well in terms of if you think about oil extraction over the sort of last few decades, gas flaring was a sort of traditional way of dealing with that problem. And so there must be or the feels to me to be that there is a element of technological process as well within Venezuela that would need to happen to capture that gas. Is is that sort of fair to say?

Well it is but to an extent like they do have the infrastructure there to deal with it like they they do have I mean certainly for the to to kind of gather the gas and then compress it and reinject it into the oil wells and like the compressors are there but they all the compressors are completely dilapidated. Siemens, which is a big supplier of of these this technology, they actually couldn't get the spare parts into Venezuela because of sanctions. So, you know, this kit needs to be maintained. Sanctions are replaced.

They can't maintain the compressors. The compressors get shot, and and so they just like just flare all up up up the gas stack because there's no way to get the gas back into the wells. But there's another really interesting element of this which I explored in a recent deep dive in in Venezuela. I didn't know this but some of the more conventional oil fields in Venezuela, they're they're they're kind of depleting and so what Pedevesa, the oil, the national oil company has been doing is getting the gas, what gas they can, reinjecting it into the wells, but they're getting to the point where, you know, you're it's it's like it's that you make more money from monetizing the gas than you get by pushing it into the well to produce the oil.

So you have what's called a gas cap and this is a the like the amount of gas in the in the oil well that kind of producing pressure to produce the oil.

And if they were to to to essentially release the gas cap, let's call it, do blow down of the reservoir, you would release an absolutely immense amount of gas. I mean, we're talking about another sort of ten percent of Venezuela's entire gas reserves could be increased by releasing the gas cap. But then what do you do with it? There's nowhere to send it because you can't send it to Trinidad, you can't send it to Colombia, what would be the point? You'd be flaring it off again.

Okay. And and to like final final point on this sort of exceptionalism in in intervention around for example Trump.

Do you see that creating much more uncertainty in gas markets over the course of this year? Like we have gone from Venezuela to Greenland, Greenland appears to now be sort of back down on the list. It's some questions around like sort of why that was happening in the first place but but more broadly do you see this as an example of the type of thing that might happen more in twenty twenty six?

Yes.

I mean the the Greenland let me just think about this.

Greenland.

Don't call it Iceland.

Iceland, yeah. Yeah. So I think that so many diplomatic norms are being broken by the Trump administration. Everything is being weaponized and you look at this huge reliance in Europe on US LNG.

I mean, yeah, okay, so the Iceland thing has been fixed, right? But what's to say that, you know, in a week's time somebody might say something that annoys him and he decides to kind of bring it all up again. You know, this kind of willingness, this casual talk about military intervention to to to to achieve political ends. It just injects massive geopolitical risk into LNG, which let's remember Europe turned to because it didn't want to rely on the geopolitically unstable suppliers of natural gas from Russia. So Europe is in this totally unenviable situation where it's relying on gas from two coercive suppliers and and and and it's it's just they're kind of unable to to find a place where it can achieve a better balance of energy security and price.

Well, me let me then pivot this story to talk about Pakistan because I think in in that sort of like time of hardship perhaps or as you describe it sort of uncertainty between suppliers, which is I think a very fair way of putting it. We've seen countries like Pakistan choose to move away from LNG. So a story that I I know you know, what's been happening in Pakistan in last year?

So there's been an immense uptake of rooftop solar in Pakistan. Access to cheap solar panels has driven this kind of death spiral phenomenon on the grid because the the grid is under invested, it's decrepit, the supply is unreliable, people turn to like self generation to to meet their needs and so that means they pay less to the grid for the power it supplies which means there's less investment in the grid and it's kind of this vicious circle if you like. What that's done is it's reduced the amount of gas that Pakistan needs for power generation and you've seen gas coming like over over pressurization of the gas pipes in in Pakistan because they've got nowhere to use this gas.

And Pakistan is a big importer of LNG.

They had to essentially renegotiate or or seek a new deal on their long term LNG supply contracts.

The contracts you were talking about earlier? Yeah.

But not with the US.

I don't think they buy much if any US LNG, not on long term contracts anyway. They have long term contracts with Qatar, which is the second biggest LNG supplier in the world. And they have one with Eni, E and I, which is the Italian oil and gas major, which is a trade, kind of buys and trades LNG.

And what's really kind of difficult for Pakistan is that the Qatari LNG contracts, they are really punitive because if you you're not allowed to resell a cargo. US LNG, the the what it's got going for its attractiveness is that you can resell those cargoes anywhere and you can take the profit as a buyer. That's why people sign these contracts. They hope they can kind of keep the upside from diverting the cargo to wherever it makes most money.

You buy Qatari LNG, it docks at a certain terminal or certainly within the country and if you start selling it to Japan and making money, Qatar's like, you can't do that. You know, we get to keep the profit and Pakistan's like, we've got nowhere to put these this gas. We can't take the gas. What are we gonna do?

So Qatar said, yeah, that's fine. Well, okay, you can resell a certain number of them and you can delay a certain number of them. But if there's any profit on those sales, then we get to keep the profit. And if there's any loss, like if you redirect a Qatari cargo from Pakistan to Japan and and you're selling it for less, then you take the loss.

So Pakistan's in a real bind and that's why these long term LNG contracts can be really quite punishing.

It's both like an exceptional good news story, right, in terms of solar and battery in Pakistan allows you to be far less dependent on gas. Right? And so to the European story, like what can we do to bring our gas demand down by certain amounts? Yes.

Like you can see that sort of playing through. But as you say, it can leave you sort of contractually bound because you both need to sign those contracts for LNG to give yourself some security and like politicians tend to go out the door pretty quickly when the lights go out. So you need the LNG, but also you're seeing this kind of wave of distributed homeowners who have budget and you have this very sort of simple to install solar and battery solutions that you can start to put on homes. So it's a fascinating piece.

I imagine other countries who are growing and looking at these options are starting to go, hold on. Do I do I want to sign up to this fifteen year deal? Actually, maybe I need to be looking at solar and batteries and what that might be doing to sort of shift my demand, so I need to work out how many how many sort of LNG deliveries I should be sort of optimizing for.

So what what we're seeing in in Pakistan is that they're considering upping the the import tax on solar panels to make them not quite so cheap and easy to install. They're also looking at reducing the amount of revenue you can get from from selling your solar power onto the grid. So if you are contractually bound in the way that Pakistan is, then you might not kind of jump full throttle into the kind of let's do the solar battery thing because you know, it's like the the consumer benefits but the government is carrying a massive fiscal burden because in don't forget that in, like, a lot of emerging economies, it's not like private utilities with stock traded on the stock exchange who are signing up for these contracts.

It's the state oil and gas company and they report to the government and they're and it's all kinda goes directly into the fiscal balance of the government. So the government might look at this and say, yeah, well, we can, like, have a massive consumer revolution, but does that mean that I can't afford to pay for you know hospitals and schools and things because our fiscal budget's been blown by this LNG contract we can't afford. So that's a kind of it's a it's a kind of push pull thing, isn't it?

This is just it's just so much more complicated than I think people see on on sort of first glance. Right? Fascinating. I'm gonna move us on to a final few questions. So to look into twenty twenty six, what would you say some of the big themes are that you would expect to see?

Yeah. Yeah. I'd say so I think that the the big three things that I'm gonna be watching in twenty twenty six, we've we've covered them today.

So like delays in LNG ramp ups, that's gonna be the big critical factor determining how the kind of the shape of the glut if you like. Like I said, LNG projects often go over budget and they have these cost blowouts, then they they chew up the EPC contractor and then that bankrupts the whole supply chain. If that sort of thing happens a lot because like labor labor prices go up, material prices go up, then then, yeah, you could see that that ramp up not happening as quickly as we thought. So LNG plant delays, number one. Number two, Henry Hub price spikes. The whole dynamic around the kind of political acceptability of US LNG in the United States might not become acute this year, but certainly over the next sort of twenty four months or so, you can start to see it become more more intense.

And the Russia Ukraine peace deal, you know, how's that is there gonna be one? How does gas play into that? That's gonna I think that's gonna come to a head towards the end of this year.

Yeah. So those are three great trends we've covered in the conversation. I've got two more questions. One is the plug and I'll do it for you.

It's energy flux and it's great if you if you want to get the inside scoop on what is happening in gas markets, check it out. There's various formats of it. SEB is in lots of places all at once. So you will be able to to to get access to it, just just type it in and you'll find it.

Let's move on to the contrarian view. So is there a view that you hold that a lot of the industry doesn't agree with you?

Yeah. Yeah. There is. Just on the plug, go to w w w dot energyflux dot news, sign up for the newsletter, and you'll find me there. I'm also on social, so you'll find me there too. I do have a contrarian view.

So the view is import dependence is a strength, not a weakness.

So that sounds completely bonkers, right?

It does, yeah.

Yeah. Okay.

Now it's contrarian so it should sound a bit bonkers.

Yeah. Okay. So think of it this way. Yeah. I've spent the whole of this podcast talking about how Europe is in an unenviable position where it's reliance on these coercive suppliers. Right? But if the market tips in the way that I think it will into one of extreme oversupply, it becomes a buyer's market.

Right? So if you're a seller, you need demand. You need to find somebody willing to buy your product. And and I think Europe needs to to kind of weaponize its demand essentially because supply is being weaponized everywhere you look.

Europe needs to look at its demand as an asset rather than a weakness. It needs to weaponize that in and there are movements around the the the kind of possible suspension of the US EU trade deal which envisaged huge purchases of US LNG. I think Europe needs to do more of that. It needs to kind of treat its demand as a kind of strategic assets that it can deploy to seek to maximize its own kind of political strength on the world stage, if you like, and to and to to really benefit consumers.

So so by kind of having having flexible demand that it can be deployed strategically, but also obviously, like doubling down on the whole energy transition piece, the kind of gas reduction, all the electrification, investing grids, all of that stuff is only going to increase Europe's kind of overall strength and positioning. And as the market tips into oversupply, then it does change the balance of power between buyers and sellers. And so if Europe and the UK included can kind of find a way to to really leverage that power, then it could really improve the outlook for consumers for the next sort of five, ten years.

I love it. Superb controlling view Seb as ever thank you very much. Next gas crisis that happens we'll have you back on.

I'll see you next week then.