Europe is heading into winter with a thin natural gas cushion, expensive diesel, disrupted supplies from the Gulf, and a new question hanging over American diesel exports. Price and availability are converging. That is the story you need to understand. One cold winter exposes the energy crises governments are hell bent to cover up. A household can have gas in the pipe and still be unable to afford the heat. A truck can find diesel at the pump and still be unable to run a profitable route. And if supplies tighten further, the price crisis can become a physical shortage. That is the escalation I want you to see.
It start with natural gas. European storage is around seventy percent full, well below its normal level for late September. The first warning signs are everywhere. The European energy commissioner has urged countries to conserve gas and electricity, while saying there is currently no threat to security of supply. So that begs the question why are they asking people to conserve? That is the official position today. My question is what happens after long months of cold weather causes supplies to run critically low or even run out. Europe partially replaced some of its lost Russian pipeline gas with other pipeline supplies and much more expensive liquefied natural gas. LNG arrives by ship and competes for buyers across the globe. When a major supplier cannot deliver contracted cargoes, somebody else must supply them—and the replacement can cost more and worse case not available. Italy’s Edison says Qatar Energy has extended cancellations of LNG deliveries into December. Some of those cargoes have been replaced but not all.. Qatar is not sending anywhere close to its usual cargoes: a small amount of Qatar-linked LNG vessels have recently moved through Hormuz. But the loss of dependable Qatari supply leaves buyers fighting for substitutes. Diesel is next. Diesel powers industry, freight, farms, equipment, and a substantial share of Europe’s cars. The price at British pumps has just reached a record. Higher diesel costs travel and transport with every delivery of food, medicine, and manufactured goods. Middle Eastern refinery damage and disrupted Russian refining have squeezed global supplies. Gulf refiners have not all stopped producing, and Hormuz is not sealed to every vessel. But supplies and shipments are greatly reduced. Its no accident that their are no reliable numbers enviable. Even so a tanker making it through today is no guarantee that the next cargo arrives on time, at the old freight rate, or at the old insurance cost. Or arrives at all. And then Washington enters the picture. President Trump raised the possibility of restricting American diesel exports to ease pressure at home. And he could at any time.. remember America first. The White House later denied that a ninety-day ban was being prepared, and the energy secretary questioned whether a ban would even work. So there is no enacted export ban to report so far. In a sign of concern Europe’s energy commissioner has urged the United States to keep diesel flowing. That tells you how much a credible threat can matter when the market is already tight. Again I remind you with Trump its America first and America also has price and supply issues. Hormuz is a choke point for Gulf energy. Qatar’s lost LNG deliveries push gas buyers scrambling for replacement cargoes. Refinery disruption constrains diesel. A possible American export restriction threatens one of the remaining sources of some supplies. Meanwhile, Europe starts winter with less stored gas than usual. Each pressure point can amplify the next. Here is my disaster worse case. Suppose winter turns hard and the disruptions persist which is my bet.. Storage draws down quickly. LNG bidders raise prices against one another. Families shut off rooms to save on heat. Factories cut shifts or stop lines. Diesel becomes so expensive that some routes no longer pay; if deliveries also fail, trucks sit still. Governments scramble to protect essential users. And where power systems are strained, the lights could go out. You do not need every one of those failures for people to suffer and we already have the biggest energy crises ever. . The price crisis arrives first. The pensioner rationing heat and the factory laying off a shift are living through an energy crisis even while fuel remains technically available. A physical shortage would take the same crisis to another level. I am not asking you to take a blackout as a forecast carved in stone. Weather can be mild. Ships can return. Replacement cargoes can arrive. Negotiations could reopen dependable routes. But the relevant question is not whether Europe survives an ordinary winter. It is how much margin remains if winter is severe and supply stays unreliable. So follow four measures with me: gas storage drawdowns, LNG cargo arrivals, diesel inventories and deliveries, and the actual flow of ships through Hormuz. Listen carefully when governments say supply is secure today. Then ask whether it will remain secure at a price homes and industry can pay. And in what quantities. Gas for heat and power. Diesel for the road and the factory. Qatar’s missing cargoes. A threatened American export embargo. A damaged, uncertain Gulf supply chain. Remember we are seeing the biggest supply cuts ever. And global inventories are at hand to mouth levels. Their are no excess inventories. No margin for error and Government strategic supplies are running out.
Nick Guarino