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# 🎧 Fickle trade war takes its toll on LNG demand
- URL: https://www.energyflux.news/fickle-trade-war-takes-its-toll-on/
- Published: 2025-04-28T07:24:37.000Z
- Updated: 2025-07-20T09:53:09.000Z
- Description: PLUS: Listener Q&A on TTF price outlook, US LNG risks, and Jeff Currie's The New Joule Order
- Author: Seb Kennedy
- Tags: The Energy Flux Podcast, #seb-kennedy, #substack, #substack-type-podcast, #substack-access-everyone, #Import 2025-05-14 12:51, US LNG, Trump, Macroeconomics, Natural gas, LNG, Europe, Trade

🎧 Fickle trade war takes its toll on LNG demand

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**The US-China trade war has rewritten the macroeconomic outlook for 2025, and with it the global demand picture for liquefied natural gas (LNG).**

[Subscribe now](https://www.energyflux.news/subscribe)

Swingeing import tariffs could be lifted just as quickly as they were introduced. However, even a swift resolution at this stage would be unlikely to purge the bearish sentiment now dominating the European natural gas market.

This episode catches up on the many market-moving events of recent weeks, with a focus on disruption to energy trade, relaxation of the EU’s gas storage targets, and bearish factors weighing on the summer gas demand outlook.

In the reader Q&A, I fielded questions relating to [my recent take](https://www.energyflux.news/p/phase-shift) on the shift to a new lower pricing regime, and the risks posed by a cratering price environment to customers [buying US LNG](https://www.energyflux.news/p/the-big-squeeze).

I also share my thoughts on [The New Joule Order](https://www.carlyle.com/global-insights/research/the-new-joule-order?ref=energyflux.news), a thought-provoking essay from esteemed energy commodities analyst Jeff Currie.

The full transcript is included below.

Thanks for listening,

— Seb

P.S. Don’t forget to share your questions, thoughts and reactions for inclusion in the next episode. I prioritise input from paid subscribers 😉

[Leave a comment](#ghost-comments-root)

---

# More from *Energy Flux*:

[The big squeezeDEEP DIVE: US LNG margins are about to be crushed by immense cost & price pressures![](https://storage.ghost.io/c/d3/1f/d31fc047-a554-4540-b828-ca4f401e235d/content/images/image/fetch/f_auto-q_auto:good-fl_progressive:steep/https_3a_2f_2fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984-s3-amazonaws-com_2fpublic_2fimages_2f25128294-e926-479c-990f-e3863a34ca36_200x200.png)Energy FluxSeb Kennedy![](https://storage.ghost.io/c/d3/1f/d31fc047-a554-4540-b828-ca4f401e235d/content/images/image/fetch/f_auto-q_auto:good-fl_progressive:steep/https_3a_2f_2fsubstack-post-media-s3-amazonaws-com_2fpublic_2fimages_2ff0a72eca-bc2e-4bd2-8c71-37f30c128869_1024x608.jpg)](https://www.energyflux.news/p/the-big-squeeze)

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---

# Episode transcript:

(00:00:19):

Hi there, and welcome back to Energy Flux On Air.

(00:00:23):

I'm your host,

(00:00:24):

Seb Kennedy,

(00:00:25):

founding editor of Energy Flux,

(00:00:28):

the energy newsletter analyzing European natural gas and global LNG markets through

(00:00:34):

the lens of Europe's energy transition and global geopolitics.

(00:00:38):

It's been quite a while since my last episode.

(00:00:41):

I've been quite busy with the house move, transatlantic travel, Easter break.

(00:00:45):

So apologies for those of you who have missed energy flux on air.

(00:00:50):

I've been dying to get back into the studio to talk over everything going on in

(00:00:53):

energy markets and the global geopolitical panorama.

(00:00:56):

And I finally found time and I'm hoping to get back onto a more regular recording schedule.

(00:01:02):

To give a measure of how much time has elapsed since the last episode,

(00:01:05):

the price of European gas traded on the Tidal Transfer Facility,

(00:01:10):

that's the TTF,

(00:01:11):

the European benchmark,

(00:01:12):

has dropped from more than 43 euros per megawatt hour on the 19th of March to less

(00:01:18):

than 32 euros at the end of last week.

(00:01:21):

That's a drop of more than a quarter in barely more than a month.

(00:01:25):

Since the last episode,

(00:01:27):

we've had Liberation Day,

(00:01:28):

the start of a bitter Sino-US trade war with both sides seemingly entrenched,

(00:01:34):

a stock market shock,

(00:01:35):

bond markets wavering,

(00:01:37):

dollar devaluation and a rewriting of both the global macroeconomic script and the

(00:01:42):

security guarantees.

(00:01:43):

that underpinned 80 years of global trade since the Second World War.

(00:01:48):

So TTF settled on Friday below €32 per megawatt hour,

(00:01:52):

but that's the first time it's been that low in a year.

(00:01:55):

€32 is approximately $10.80 per MMBTU.

(00:02:01):

And that sell-off has,

(00:02:03):

as usual,

(00:02:04):

correlated quite strongly with a sell-off in hedge fund long positions.

(00:02:09):

The hedge funds that bet on the future price of TTF, as you'll recall, they had an eye-watering

(00:02:16):

net long position of 292 terawatt hours and that was in February when the price on

(00:02:24):

TTF was reaching for 60 euros per megawatt hour we've seen massive liquidations two

(00:02:30):

big sell-off periods in February and in April April of course being triggered by

(00:02:34):

the Liberation Day trade war which I mentioned at the start net position went from

(00:02:38):

292 terawatt hours to just 86 terawatt hours

(00:02:42):

or a 15 billion euros long bet to a 5 billion bet.

(00:02:48):

So essentially the hedge funds have sold off 10 billion euros worth of length in

(00:02:54):

TTF futures since February.

(00:02:57):

But I don't think the sell-off has finished.

(00:03:00):

And the reason I say that is because if you go back 12 months to when TTF was last

(00:03:06):

trading at around about the 32 euro per megawatt hour mark,

(00:03:11):

then at that point,

(00:03:13):

hedge funds had a net bullish position of,

(00:03:17):

on average,

(00:03:17):

62 terawatt hours throughout April 2024.

(00:03:20):

And we're currently 86 terawatt hours.

(00:03:24):

So if anything,

(00:03:26):

you could say that while the momentum is towards further sell-off,

(00:03:30):

to the extent that the historical correlation between price levels and net position

(00:03:35):

is an indicator of where equilibrium lies,

(00:03:38):

then you could argue that

(00:03:39):

further sell-offs are required to get down to sort of 62-ish terawatt hours.

(00:03:44):

And depending on how bearish this summer turns out to be in terms of physical demand,

(00:03:49):

policy changes,

(00:03:50):

geopolitical developments,

(00:03:52):

then it's entirely feasible to imagine there being,

(00:03:56):

I mean,

(00:03:56):

you know,

(00:03:57):

the hedge funds,

(00:03:57):

they do go net short.

(00:04:00):

um when the market flips extremely bearish so it's not out of the question that the

(00:04:04):

entire net position could be sold off and hedge funds could start shorting ttf on a

(00:04:09):

net basis anyway so since the last episode there's also been some interesting

(00:04:12):

developments on the policy front so the european parliament's energy committee has

(00:04:16):

voted to lower the eu's gas storage targets to 83 by the first of november and to

(00:04:24):

scrap the intermediary targets

(00:04:26):

So you'll recall the EU has this target.

(00:04:28):

Everybody had to reach a certain percentage fill level every two months throughout

(00:04:33):

the filling season.

(00:04:34):

But that's probably not going to matter.

(00:04:36):

There have been several policy suggestions and proposals and it's all open to negotiation still.

(00:04:42):

But the direction of travel is very firmly towards a place where it looks like the

(00:04:47):

gas storage targets essentially are meaningless.

(00:04:50):

And they're just a guide because...

(00:04:53):

you know after all is said and done after everybody's negotiated and the

(00:04:57):

derogations have been issued and the exceptions have been carved out what really

(00:05:01):

matters is is there a penalty for non-compliance for falling short of your gas

(00:05:07):

storage fill level and there never really was one and there were measures that

(00:05:10):

could be taken but there was never actually a financial penalty to be levied upon

(00:05:14):

the gas storage operators and i did say last year you need to watch their behavior

(00:05:18):

the gas storage operators to what extent are they going to comply

(00:05:22):

um and potentially not necessarily bankrupt themselves but you know lose a lot of

(00:05:26):

money just in the name of compliance with an arbitrary target for refilling these

(00:05:31):

massive underground gas storage facilities and evidently uh i think when there's no

(00:05:37):

penalty then it's an easy decision to take you know why would you lose money

(00:05:41):

storing expensive gas to sell it at a loss in the future and pay all the storage

(00:05:45):

costs associated with that just to comply with a target which

(00:05:49):

is only arbitrary and doesn't carry a penalty for non-compliance so i think that

(00:05:53):

one was quite easy to predict and it seems like it's going to be that way this year

(00:05:57):

not to say that europe doesn't need to buy gas this summer absolutely does need to

(00:06:01):

buy gas needs to get some gas into storage for next winter but

(00:06:05):

The physical panorama in the market is looking relatively loose.

(00:06:08):

We've got some new LNG projects coming on stream this summer.

(00:06:12):

The pan-EU scramble to procure gas will not occur in a way that drives up prices,

(00:06:19):

and there will be probably more measured procurements,

(00:06:22):

and I think

(00:06:23):

paying very close attention to the price spreads,

(00:06:26):

calendar spreads,

(00:06:27):

to make sure that the gas storage operators aren't taking on an undue amount of

(00:06:31):

price risk by storing gas at prices they can't then recover their costs from.

(00:06:37):

So the TTF term structure is now pretty flat.

(00:06:41):

The negative spreads that were blighting the markets over the kind of tight winter

(00:06:47):

months when the bull run was in full swing,

(00:06:49):

those essentially corrected themselves.

(00:06:52):

So we did have a situation where gas was cheaper in the future than in the present

(00:06:58):

month or the front month.

(00:06:59):

And obviously that was a big disincentive for storing because you wouldn't store

(00:07:03):

something that's going to get less valuable over time and incur costs for doing so.

(00:07:07):

but still the the signal the market signal for storing gas is very weak you need to

(00:07:15):

have a sufficient spread between the price of gas at the time of procurement and

(00:07:22):

the winter months when you're hedging in your sales to obviously cover your costs

(00:07:28):

your storage costs your cost of capital and hopefully you know to make a margin if

(00:07:32):

you're a

(00:07:33):

If you're a commercial player, not all gas storage operators are.

(00:07:36):

Some are mandated to operate in a strategic way,

(00:07:39):

but some are commercial operators and they do need to make some money.

(00:07:42):

But either way, none of them want to lose money.

(00:07:43):

A negative spread would have implied a loss on storage, which is why there was this...

(00:07:49):

Debates in Europe about,

(00:07:50):

well,

(00:07:50):

do we subsidise the cost of refilling our gas storage facilities?

(00:07:54):

I don't think that's going to happen now.

(00:07:55):

It doesn't seem necessary.

(00:07:57):

And there is a much more relaxed approach to how the gas storage capacity in Europe

(00:08:02):

should be managed.

(00:08:03):

That's only a good thing,

(00:08:04):

because it seems that politicians are taking a much more realistic view to...

(00:08:09):

how the gas market will pan out over the next sort of 12 to 18 months.

(00:08:14):

When,

(00:08:14):

of course,

(00:08:15):

if you've been reading energy flux,

(00:08:16):

you'll be aware that my view is very strongly that we're heading towards a new

(00:08:21):

pricing regime because of the way that the global liquefied natural gas market is

(00:08:27):

developing with the onset of new supply,

(00:08:31):

which is coming into the market at a rate that exceeds the rate of demand growth.

(00:08:36):

So if the supply growth outstrips demand growth,

(00:08:38):

then you have a loose market where there is a kind of nominal surplus.

(00:08:45):

And that will just mean that prices have to go lower in order for the market to

(00:08:49):

find its equilibrium and then for that supply to be soaked up.

(00:08:54):

And you will see that happen.

(00:08:55):

You will see price sensitive demand come back into the markets in markets like Bangladesh,

(00:09:00):

Pakistan.

(00:09:00):

Pakistan, maybe Vietnam, where you'll see energy imports increase as the price goes lower.

(00:09:06):

But right now we're seeing,

(00:09:08):

in terms of the physical balances,

(00:09:10):

EU energy imports hit a record in the first quarter of 2025.

(00:09:13):

They dropped off in April.

(00:09:15):

as demand fell away.

(00:09:17):

Asian demand is also very soft.

(00:09:19):

We've seen Chinese imports flagging quite a bit.

(00:09:21):

Weekly imports of LNG have come in at the lower end of the five-year range since

(00:09:26):

late 2024 and throughout 2025,

(00:09:28):

according to data from data provider Kepler.

(00:09:31):

And Kepler,

(00:09:32):

in fact,

(00:09:32):

their analysts ran some interesting figures recently around the way that the softer

(00:09:38):

macroeconomic outlook was impacting gas markets or likely to impact gas markets.

(00:09:43):

And while this isn't their central scenario,

(00:09:45):

they did say,

(00:09:46):

let's have a look at the worst case macro scenario in combination with the

(00:09:49):

potential for a cool summer.

(00:09:51):

So rather than there being lots and lots of heat waves where you have lots of

(00:09:56):

cooling demand for running air conditioning,

(00:09:58):

driving power prices crazy and people shipping in LNG vessels to fire those gas

(00:10:03):

turbines to run the AC units.

(00:10:06):

If you get a cool summer where that doesn't happen, plus you get like the worst possible...

(00:10:11):

macroeconomic outlook from a trade war,

(00:10:14):

then essentially you are looking at 7.5 million tonnes of LNG demand disappearing

(00:10:20):

from the market.

(00:10:22):

7.5 MT,

(00:10:23):

that's an equivalent of about one month of EU LNG demand,

(00:10:27):

like an entire month of LNG imports for the whole of the EU just gone.

(00:10:32):

That kind of bearish view was backed up by the Oxford Institute for Energy Studies,

(00:10:36):

which says that a year-on-year decline in EU gas demand is a very real possibility

(00:10:42):

for this year.

(00:10:43):

So in summary, I'd say the market's looking very bearish.

(00:10:46):

The bearish setup is undeniable.

(00:10:48):

And it seems like there won't even be a sort of policy-induced scramble to inject

(00:10:53):

gas into storage facilities in Europe to support LNG demand this summer.

(00:10:56):

So it'll be interesting to see...

(00:10:58):

quite where the equilibrium lies,

(00:11:00):

how low the prices go this summer,

(00:11:02):

because obviously there will be some procurements.

(00:11:04):

But at the same time, the industrial sector is very much on its knees still.

(00:11:08):

There's no signs of an industrial recovery on the horizon.

(00:11:13):

And the power sector,

(00:11:14):

we're already seeing very,

(00:11:16):

very steep negative pricing in the power sector in day-ahead markets.

(00:11:19):

We saw all across continental Europe today.

(00:11:21):

This is Sunday, the 27th of April, I'm recording.

(00:11:24):

And many parts of North, Central and Western Europe were registering negative prices.

(00:11:30):

So you're not going to see any gas-fired generation dispatching when power prices

(00:11:35):

are minus 10,

(00:11:35):

20,

(00:11:36):

100 euros per megawatt hour.

(00:11:41):

Now, moving on to reader questions.

(00:11:44):

So James in Adelaide, he's written in to say,

(00:11:56):

I'm not sure I would call $11 gas, quote unquote, glut economics.

(00:12:02):

And that's a phrase that I used in a recent piece in Energy Flux,

(00:12:06):

saying that the correction and sell-off,

(00:12:09):

taking gas down to the equivalent of $11 per mbtu was sort of a signal of a glut coming.

(00:12:15):

James carries on, he says, I guess the question is, where do we settle as a floor?

(00:12:19):

in the coming years and for how long and he says anecdotally by the way I was in

(00:12:23):

Europe a fortnight ago and most corporates as in utilities and LNG producers were

(00:12:27):

saying that between 50 and 70 billion cubic meters per annum of Russian gas is

(00:12:32):

going to come back including a certain French super major naming no names who said

(00:12:37):

that 80 BCM could return but they're still buying US LNG

(00:12:41):

In which case,

(00:12:42):

do we bump along a sort of $6 MMBTU floor for several years because of a US

(00:12:47):

capacity overbuild?

(00:12:48):

And who wears the most pain?

(00:12:50):

Likely the portfolio players buying USLNG that haven't sold to an end customer yet.

(00:12:56):

And maybe the utilities and the emerging markets are the winners.

(00:12:59):

Interested in your take.

(00:13:01):

Well,

(00:13:02):

hey,

(00:13:02):

James,

(00:13:02):

that's like just excellent questions and really interesting perspective on the kind

(00:13:07):

of mood music coming from the European corporates.

(00:13:10):

And I mean,

(00:13:11):

I just say that when I started covering gas in 2016,

(00:13:13):

then yeah,

(00:13:14):

like $11 from BTU was a winter spike and definitely not a correction or a phase shift.

(00:13:20):

which is what I've been calling the current state of the market,

(00:13:24):

shifting from one price phase to another.

(00:13:26):

So I take your point about glut economics.

(00:13:29):

And I'd say that a $6 floor sounds feasible.

(00:13:32):

I mean, at this price, some US LNG shut-ins seem inevitable.

(00:13:37):

And I'll talk about those in a minute.

(00:13:38):

And you can imagine also the off-takers,

(00:13:40):

the customers of the US LNG plants,

(00:13:42):

that they're going to get burnt if TTF is trading at $6 because they're going to be

(00:13:47):

losing money on

(00:13:48):

every single cargo that they lift at that price because the cost of lifting,

(00:13:52):

liquefaction and shipping across the Atlantic,

(00:13:55):

regasification is going to come in at much more than $6 per MMBTU.

(00:14:00):

I'd say, yeah, the portfolio players are most exposed.

(00:14:02):

Those are the likes of Shell and Total Energies who have big offtake commitments,

(00:14:07):

who have to then find an end user to sell the LNG onto.

(00:14:12):

And they always have a very rosy view of demand.

(00:14:14):

They're extremely long on LNG production, LNG supply.

(00:14:18):

carry all this long risk on their books because they know that demand will rise and

(00:14:23):

they'll be able to offload those cargoes in a profitable way.

(00:14:26):

And also make lots of money around trading and portfolio optimisation and basically

(00:14:30):

arbitraging away all of the inefficiencies in the global LNG market,

(00:14:34):

of which there are many,

(00:14:35):

I might add,

(00:14:36):

particularly because we have a trade war going on now.

(00:14:38):

But I think that their view is probably a little bit too rosy the way that things

(00:14:43):

are panning out.

(00:14:44):

So,

(00:14:44):

yeah,

(00:14:44):

the portfolio players,

(00:14:45):

they're very exposed,

(00:14:46):

but so are end users,

(00:14:47):

as in like the utilities and the industrials.

(00:14:50):

So the likes of BASF,

(00:14:51):

the big German chemical company,

(00:14:53):

they're on the hook for quite a large volume of US LNG from Chenier.

(00:14:59):

And that sales and purchase agreement comes into effect this year or next year.

(00:15:04):

I can't quite remember.

(00:15:05):

But the point is that if these industrials,

(00:15:07):

they can't physically use the gas,

(00:15:09):

like if they don't have enough demand for their products,

(00:15:11):

whatever they may be,

(00:15:12):

and they have to resell these cargoes at a loss on the TTF or cancel the cargoes

(00:15:17):

and purchase.

(00:15:18):

pay the take or pay fee to the US LNG exporters, they're going to be losing a lot of money.

(00:15:23):

So you've got to ask yourself whether they're going to be in hot water as well.

(00:15:26):

Again,

(00:15:27):

it depends on industrial demand,

(00:15:29):

demand for products which are manufactured in Europe,

(00:15:32):

energy intensive products.

(00:15:33):

And you've got to say that the outlook...

(00:15:35):

is is pretty bearish on that front too i mean we're going to have a glut of chinese

(00:15:39):

products just hitting the market because they've got nowhere to go literally there

(00:15:44):

are cargo ships that are stuck in ports in china all loaded with all manner of

(00:15:49):

products and they've got nowhere to go because they can't go to the us because

(00:15:53):

there's 140 something percent tariff on chinese goods in america

(00:15:57):

and no one's going to pay those tariffs on those goods.

(00:15:59):

So where's all this Chinese stuff going to go?

(00:16:02):

You're going to have just a massive wave of cheap Chinese produce hitting European ports,

(00:16:06):

being imported all over the place,

(00:16:08):

Africa,

(00:16:09):

across the rest of Asia,

(00:16:11):

South America.

(00:16:12):

And so it's very hard for European industrials to compete against that kind of

(00:16:18):

tidal wave of cheap produce.

(00:16:20):

So it's not looking good for industrial demand,

(00:16:22):

and so all the people who have signed up for LNG,

(00:16:24):

they could be in for a nasty surprise.

(00:16:27):

But on the question of USLNG,

(00:16:29):

I'm glad you brought that up,

(00:16:30):

James,

(00:16:30):

because I have actually,

(00:16:32):

since you wrote that question,

(00:16:34):

published a quite interesting deep dive on the economics of USLNG.

(00:16:38):

And I created a new data model to take a look at the economics of USLNG.

(00:16:44):

So I talked about that just now, like the cost of delivering USLNG into different markets.

(00:16:48):

like Europe and Asia when you when you break it all down then like the the cost

(00:16:52):

base is pretty high even though like shale gas in the US is is really cheap and

(00:16:57):

often like free or even negatively priced at the wellhead and you still got to like

(00:17:01):

transport it to the Gulf Coast you've got to cover the costs of a liquefaction

(00:17:05):

facility you've got to pay the cost of shipping fuel bunker fuel and then you've

(00:17:09):

got to pay the cost of regasification at the other end once you add all those costs

(00:17:13):

up and you deduct them from the sales price that's your margin and they call it the

(00:17:17):

net back

(00:17:18):

but it's just the kind of the profit level, the gross profit.

(00:17:20):

And the netback on USLNG, selling USLNG into Europe, has fallen really quite dramatically.

(00:17:27):

I mean,

(00:17:27):

this is no news to anybody that follows this stuff,

(00:17:30):

but they've fallen 90% since the peak just in the aftermath of the Ukraine invasion

(00:17:36):

in 2022.

(00:17:36):

Back then, a single cargo of USLNG...

(00:17:41):

was fetching a netback of around about $200 million.

(00:17:46):

And you think there were hundreds of these ships all crossing the Atlantic like an

(00:17:51):

armada and each one was carrying hundreds of millions of dollars worth of gas

(00:17:55):

because the Europeans were bidding up the price.

(00:17:57):

Well, you know, it's really crashed since then.

(00:17:59):

You know, you're looking at about $20 million.

(00:18:03):

per cargo currently and that's falling fast so we can calculate what the margins

(00:18:09):

are today but also in the future by looking at the futures market so you can look

(00:18:13):

at the future price of henry hub the future price of ttf the future price of jkm

(00:18:18):

which is the spot price in asia we can also look at the future price of shipping

(00:18:23):

which is actually very cheap at the moment but even so the margins are just on a

(00:18:27):

kind of very steep downward trajectory they're going to

(00:18:30):

crash between now and 2028 so the margin on uslng will actually be zero or negative

(00:18:38):

by 2028 in europe and by 2030 they'll be negative in asia as well and that's only

(00:18:45):

based on current futures pricing that doesn't take into account how prices could

(00:18:50):

still change between now and then

(00:18:52):

And I just can't see any really major bullish drivers on the horizon between now

(00:18:57):

and 2028 that could offset that kind of secular decline in margins in sales prices

(00:19:04):

for gas for all the reasons I've been talking about so far in this podcast.

(00:19:08):

So, yeah, it's looking pretty bad for US LNG producers.

(00:19:12):

And obviously, when margins...

(00:19:13):

flip negative, then they stay negative for quite a long time.

(00:19:17):

Then there's the very real possibility that plants will be shut in.

(00:19:20):

And I see the US as essentially becoming the swing producer for liquefied natural

(00:19:26):

gas in the second half of this decade.

(00:19:29):

So that means that they will essentially fire up plants and then shut them down again,

(00:19:34):

depending on the kind of physical state of the market.

(00:19:37):

And,

(00:19:37):

you know,

(00:19:38):

if supply curtailments are required to balance the market,

(00:19:41):

then they'll be among the first to shut in.

(00:19:44):

Because of the way that their contracts are structured,

(00:19:46):

because of their relatively high cost base and the flexibility that they afford in

(00:19:50):

their commercial contracts with customers,

(00:19:53):

You're going to see the very real possibility of US LNG shut-ins,

(00:19:57):

kind of like what happened during COVID when there were these lockdowns and energy

(00:20:01):

demand across the board was quite quickly and tightly squeezed.

(00:20:06):

And as a result, you saw a big sell-off in commodities.

(00:20:09):

All commodity prices fell and oil, of course, famously settled at negative.

(00:20:13):

Well,

(00:20:13):

the price of American oil,

(00:20:15):

the West Texas Intermediate,

(00:20:17):

settled at negative pricing in 2020 and gas prices went very,

(00:20:21):

very low too.

(00:20:22):

We saw lots and lots of LNG cargoes cancelled and plants shut in until prices recovered.

(00:20:28):

So I do see that happening again.

(00:20:30):

in the next sort of two, three years.

(00:20:32):

So yeah, just a kind of final note on that.

(00:20:34):

So futures markets,

(00:20:35):

those negative margins,

(00:20:37):

they're based on TTF hitting a low of $8,

(00:20:41):

the equivalent of $8 per MMBTU in summer 2029.

(00:20:46):

So even if TTF only falls by another, what is it?

(00:20:49):

If it's about just over $10 now and you're going down to eighth,

(00:20:53):

then you're only looking at like,

(00:20:54):

what's that?

(00:20:54):

One fifth, around about one fifth reduction in the current pricing between now and 2029.

(00:21:00):

And you're already going to hit negative US LNG margins.

(00:21:04):

I mean,

(00:21:04):

I see the possibility for TTF prices to fall by one fifth this year,

(00:21:09):

let alone between now and the year 2029,

(00:21:12):

when we have an absolute wall of new LNG supply hitting the market relative to very

(00:21:18):

kind of flat demand growth.

(00:21:19):

so i just don't really see a way for us lng margins to stay in positive territory

(00:21:24):

and that's going to make it very difficult for new projects that want to get off

(00:21:27):

the drawing board that want to sell lng to customers and then you know get these

(00:21:32):

binding purchase agreements to take to the banks to get finance to build their

(00:21:36):

projects i just don't see that happening i just don't see how you can sell lng into

(00:21:41):

a market that's kind of cratering towards negative margins that it just doesn't add

(00:21:44):

up to me but

(00:21:45):

Maybe I'm wrong.

(00:21:45):

Maybe they'll pull a rabbit out of the hat somehow.

(00:21:47):

We'll see.

(00:21:49):

Oh, yeah.

(00:21:49):

And just one more thing I thought was worth pointing out that if TTF does hit $6

(00:21:55):

per MBTU equivalent,

(00:21:55):

then in 2028,

(00:21:56):

that would imply...

(00:22:03):

a loss of 8.2 million dollars per cargo so if you were to to you know produce an

(00:22:09):

lng cargo at the future price of a henry hub in 2028 whatever that is and like lock

(00:22:15):

in the cost of shipping now and and then you had to sell at six dollars per mbtu

(00:22:19):

then you'd be losing eight more than eight million dollars on that trade so so i

(00:22:24):

think that's entirely feasible

(00:22:26):

Now, next question.

(00:22:27):

Carled in, I think he's in New York.

(00:22:29):

He says, Hi Seb, thank you for all the interesting content and insights.

(00:22:33):

I wanted to share with you this report from Jeff Curry and see if you can share

(00:22:38):

your feedback on it in your next podcast.

(00:22:40):

Carled's referring to a report called The New Jewel Order by Jeff Curry,

(00:22:46):

who's the Chief Strategy Officer of Energy Pathways at Carlyle,

(00:22:49):

which is an investment house.

(00:22:51):

and curry was of course formerly their global head of commodities research at

(00:22:55):

goldman sachs where he helped to build their commodities business over nearly a

(00:22:58):

three-decade career and very well regarded high-steemed gentleman jeff curry and i

(00:23:02):

always pay attention to the things he says and writes the new jewel order i'll put

(00:23:06):

a link in the show notes and it really does make for compelling reading because it

(00:23:10):

was published a few weeks ago now and everything that's happened since kind of does

(00:23:15):

corroborate the world view that he he describes

(00:23:18):

It's a really sweeping view of the post-Second World War energy geopolitical panorama.

(00:23:23):

He talks about how the Bretton Woods Accord underpinned global trade and US energy

(00:23:28):

import dependence created an incentive for the US to protect shipping lanes and how

(00:23:34):

all of that is coming crashing down around us.

(00:23:37):

Not solely because of Donald Trump and the kind of cack-handed way that he's trying

(00:23:41):

to correct America's enormous trade deficit,

(00:23:44):

but certainly his actions are accelerating this sort of slow burn trend.

(00:23:49):

They're bringing it right to the forefront of what's driving global markets and

(00:23:54):

global geopolitics.

(00:23:55):

And it was kind of something that was happening on a very,

(00:23:57):

very much slower basis until now,

(00:24:00):

but now it's kind of impossible to ignore.

(00:24:02):

The Bretton Woods Accord,

(00:24:04):

of course,

(00:24:04):

established the US dollar as the global reserve currency,

(00:24:08):

facilitated international trade and investment,

(00:24:10):

and this gave the United States both a strong dollar and the means of financing the

(00:24:14):

enormous debts that come with maintaining its military.

(00:24:17):

It also,

(00:24:18):

of course,

(00:24:18):

gave rose to the petrodollar,

(00:24:20):

which is just the name given to dollars received by crude oil exporting countries,

(00:24:26):

and the way that those countries kind of reinvest those dollars in things like U.S.

(00:24:31):

treasuries, U.S.

(00:24:31):

debt.

(00:24:32):

So U.S.

(00:24:33):

energy independence has changed all that, because this whole structure worked because the U.S.

(00:24:38):

was just a massive consumer market with massive energy needs,

(00:24:42):

massive trade import needs,

(00:24:44):

and so they had this incentive to protect the sea lanes.

(00:24:47):

to make sure they got the products and the commodities that they needed to keep

(00:24:49):

their industrial economy running.

(00:24:51):

But of course, that's all changing now.

(00:24:53):

The US has energy independence to an extent.

(00:24:56):

I mean,

(00:24:56):

it still requires energy trade,

(00:24:58):

but on a kind of net basis,

(00:24:59):

then it does export more energy,

(00:25:01):

as in oil and gas principally,

(00:25:04):

than it imports.

(00:25:05):

And LNG, of course, is a massive part of that.

(00:25:07):

So the shale revolution made the nation a net petroleum exporter,

(00:25:11):

and that's decreased US interest in protecting sea lanes,

(00:25:15):

writes Jeff Curry in this report.

(00:25:17):

And because he says the United States is now energy independent,

(00:25:21):

it's not safe for other countries to be energy dependent.

(00:25:24):

And I thought that's such an interesting way to put it,

(00:25:26):

because if you think about it,

(00:25:27):

being energy dependent...

(00:25:30):

In a world where,

(00:25:32):

you know,

(00:25:32):

the kind of the trade lines that ensure that tankers of oil and gas turn up not

(00:25:37):

being protected anymore,

(00:25:38):

then,

(00:25:39):

you know,

(00:25:39):

your energy security is at risk.

(00:25:41):

And I think Europe is a really, really good example of that.

(00:25:43):

You know, Europe is heavily, heavily dependent on energy imports.

(00:25:49):

54% of all European energy consumption is imported from overseas.

(00:25:54):

And if you're seeing a trade war,

(00:25:55):

you're seeing things like gunboats in the Red Sea,

(00:25:59):

and you're seeing the Suez Canal being unnavigable due to security constraints,

(00:26:04):

and other potential conflicts like pinch points like the Malacca Strait in Asia,

(00:26:09):

or even a military invasion of Taiwan...

(00:26:12):

Or,

(00:26:12):

you know,

(00:26:13):

in the Strait of Hormuz,

(00:26:14):

of course,

(00:26:15):

that could severely disrupt and spike energy prices.

(00:26:20):

So for importing countries, those are major, major risks to your economic security.

(00:26:25):

And that's kind of what Jeff Curry's talking about.

(00:26:27):

And I think on that point, then, he makes some really interesting and valuable observations.

(00:26:32):

It goes on to write about how the green premium is being replaced by a security premium.

(00:26:38):

So zero interest rate environment made renewable energy bets cheap because you

(00:26:42):

could essentially bet on future revenues by making losses now because the cost of

(00:26:46):

doing so was essentially zero or negative.

(00:26:48):

And the return to higher rates with a kind of slightly more inflationary

(00:26:51):

environment requires more targeted capital allocation.

(00:26:55):

so rather than kind of betting on you know wonderful new offshore wind growth

(00:26:59):

markets in exotic parts of the world you might kind of retrench around well okay

(00:27:03):

what's the the kind of the local supply that we need right now to keep our

(00:27:07):

economies running and those are the most valuable investments to make

(00:27:11):

renewables and nuclear are local energy sources and they're not traded over long

(00:27:14):

distances so therefore they're in higher demand argues curry and he says that

(00:27:19):

fossil fuels are under threat from the trade war and he says that peak oil has

(00:27:24):

manifest but in the sense that it's actually peak oil trade so we're not going to

(00:27:29):

see oil traded in the way that we do currently ever again frankly

(00:27:34):

And he cites China's falling oil imports as a kind of evidence for that.

(00:27:39):

And that was really the product of strategic planning for energy security decades ago.

(00:27:44):

And we've seen how China's embrace of electric vehicles is really motivated by this

(00:27:50):

desire to liberate itself from the trappings of having to do business with OPEC leaders.

(00:27:56):

And obviously, if you can electrify your economy,

(00:28:00):

and you have just the world's most enormous coal reserves,

(00:28:04):

massive wind and solar build-out,

(00:28:07):

kind of world-beating nuclear development program,

(00:28:10):

then obviously,

(00:28:11):

you know,

(00:28:11):

the role of oil in your economy is going to be reduced significantly,

(00:28:15):

and you're protected from things like a trade war.

(00:28:17):

So if oil becomes more expensive,

(00:28:19):

less reliable,

(00:28:20):

less accessible,

(00:28:20):

you know,

(00:28:21):

you've got backup options.

(00:28:22):

And I think that's how the Chinese have approached this thing.

(00:28:25):

They always take the long view, and they're in a much...

(00:28:27):

sort of stronger position than somewhere like europe for example which has always

(00:28:31):

been very much kind of a kind of open trade approach and relying on on kind of the

(00:28:39):

supply lines that have kept the global economy running and just assuming that you

(00:28:43):

know the energy the products will always turn up will always be able to trade well

(00:28:47):

hey, look what's happening.

(00:28:48):

That's not the case anymore.

(00:28:50):

And if you don't take corrective measures very quickly,

(00:28:53):

then you're going to find that essentially living standards are going to take a

(00:28:56):

very strong hit.

(00:28:57):

In fact, they are taking a very heavy hit in this current macroeconomic environment.

(00:29:02):

um so so i'd say like like jeff curry's view is is very interesting very

(00:29:07):

thought-provoking i agree with a great deal of it not all of it i must say i mean

(00:29:10):

you know wind solar and nuclear they are not immune from a trade war you know let's

(00:29:14):

be clear that a lot of the um the critical minerals and the

(00:29:18):

the components that are required to build these energy sources,

(00:29:22):

they are very much controlled by the Chinese too.

(00:29:25):

And if there's a trade war and those supply lines get disrupted,

(00:29:28):

the growth of renewables particularly are under threat.

(00:29:33):

China essentially owns the supply lines and the refining and processing capacity

(00:29:37):

for these new and cleaner energy sources.

(00:29:40):

And so I'd say that the security paradigm, it's not entirely supportive of this kind of

(00:29:46):

security premium that supports renewables unless of course it's complemented by

(00:29:51):

balancing technology and infrastructure so you know that means we need to get

(00:29:56):

things like batteries and more transmission infrastructure to to be able to to

(00:30:01):

ensure that these supplies are robust as well and because you know they need to be

(00:30:05):

they need to be secure and they need to be 24 7 availability and um and obviously

(00:30:10):

the demand side needs to needs to be able to flex with sort of digitalization and

(00:30:15):

technology

(00:30:15):

and AI and big data and all these things,

(00:30:19):

which I've just described,

(00:30:20):

all these technologies that are extremely exciting and doing wonderful things and

(00:30:24):

have great potential,

(00:30:25):

they're all exposed as well.

(00:30:26):

You know, like where are you going to get your semiconductors from?

(00:30:29):

Where are you going to get your copper from?

(00:30:31):

It's like it's out there,

(00:30:33):

like they can be made,

(00:30:34):

but the trade war does change the way that you look at these things.

(00:30:38):

So yeah, there's a real kind of question mark.

(00:30:43):

around the extent to which disruption might affect the outlook for those investment

(00:30:47):

prospects or not,

(00:30:49):

of course,

(00:30:49):

because this whole situation is essentially,

(00:30:53):

it's a kind of,

(00:30:54):

what's the word?

(00:30:55):

It's something that's been kind of pushed to the front of the global priority on

(00:31:01):

the whim of a man who wants to make his mark on the world.

(00:31:05):

And I think that he's going to be

(00:31:06):

He's going to have to kind of acknowledge reality sooner or later.

(00:31:10):

You know, I mean, I'm going to speak frankly here.

(00:31:12):

The guy was elected on a tidal wave of bullshit.

(00:31:15):

I mean,

(00:31:15):

I've never seen so many lies told by a single human being in a single electoral campaign.

(00:31:20):

And that's really saying something.

(00:31:21):

And, you know, it's like you can't have your cake and eat it.

(00:31:24):

I don't think that there's really a kind of sound strategy behind this trade war.

(00:31:30):

It's very much a lot of bluster, a lot of noise.

(00:31:32):

And the minute that American shelves in American supermarkets go empty and,

(00:31:37):

you know,

(00:31:37):

the kind of the MAGA faithful are having to pay...

(00:31:40):

twenty dollars for a loaf of bread or whatever it might turn out to be or they

(00:31:43):

simply can't get hold of all the things they need to live their lives then you you

(00:31:48):

know what's going to happen there's going to be enormous pressure for this man

(00:31:52):

donald trump of course i'm talking about to take a step back and say well actually

(00:31:56):

you know what we can't just bully china and all our other trade partners into

(00:32:00):

submission we have to actually do deals with them which take into account the fact

(00:32:06):

that we need them

(00:32:07):

You know, he doesn't hold all the cards.

(00:32:09):

America simply can't exercise that kind of belligerence without consequences for

(00:32:15):

American citizens.

(00:32:17):

So I think you're going to see Trump kind of go groveling back to Beijing and essentially

(00:32:23):

Or,

(00:32:23):

you know,

(00:32:24):

lower the tariffs and like try to extract some kind of symbolic concession,

(00:32:31):

which could be something completely meaningless,

(00:32:33):

which he'll seize on as being the greatest deal that's ever been done in the

(00:32:39):

history of the world.

(00:32:40):

Because,

(00:32:41):

you know,

(00:32:41):

he's the art of the deal and everything he says and everything he does is just

(00:32:44):

amazing and blah,

(00:32:45):

blah,

(00:32:45):

blah.

(00:32:46):

It's entirely possible that we'll just see his media allies trying to tell the

(00:32:51):

world that,

(00:32:52):

you know,

(00:32:54):

the black is white and that,

(00:32:55):

you know,

(00:32:55):

we've done a deal and that we can kind of climb down and save face.

(00:32:59):

At least that's how I see this unraveling.

(00:33:03):

And so that's the outlook as it stands.

(00:33:05):

I mean,

(00:33:06):

I do reserve my judgment in the sense that if this happens,

(00:33:10):

if there's a big kind of climb down on the trade war,

(00:33:13):

then I could very well readjust my entire outlook in terms of like how this year

(00:33:18):

could pan out.

(00:33:20):

If there's a truce and tariffs are kind of significantly wound back and the stock

(00:33:26):

market rallies and all those ships manage to dock back at American ports again and

(00:33:32):

you see the stock market rallying,

(00:33:34):

bonds stabilising,

(00:33:35):

industrial production kind of whirring back into America.

(00:33:39):

operation again across um you know in china's industrial seaboard and you see

(00:33:44):

consumption resuming then of course your natural gas is going to benefit from that

(00:33:49):

prices are going to elevate because you're going to see more more gas being drawn

(00:33:52):

into those industrial plants and you're going to see more consumption generally

(00:33:55):

more power and so that could that could materially change the outlook for this

(00:33:59):

summer and so you could see like some some price support coming in

(00:34:02):

I don't think we're likely to see now another crazy bull run like the kind that we

(00:34:07):

saw last year when TTF went sort of spiralling upwards from about $20 at the start

(00:34:15):

of 2024.

(00:34:15):

And it ended the year kind of nosing towards $60 on the basis of a big nothing pie.

(00:34:21):

And it's now goled off spectacularly since then.

(00:34:25):

So I don't think we're going to see that happen again,

(00:34:27):

but we could see things still quite interesting if the kind of global outlook

(00:34:33):

doesn't quite pan out in the kind of incredibly bearish way that I'm seeing it

(00:34:37):

right now anyway.

(00:34:38):

I will see.

(00:34:40):

okay that's a i think that's probably enough for one episode you've probably heard

(00:34:43):

enough from me but just a reminder that if you want to get your question asked on

(00:34:47):

the podcast then don't forget to go and sign up for a subscription over at energy

(00:34:52):

flux so go to www.energyflux.news and sign up for for free email updates if you

(00:34:59):

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(00:35:02):

want to get behind the paywall

(00:35:04):

If you want to see all the number crunching,

(00:35:06):

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(00:35:08):

all the data modeling that I'm getting up to,

(00:35:10):

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(00:35:19):

then take out a paid subscription,

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go check it out,

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(00:35:22):

and your question could be the next one to be asked on the next episode.

(00:35:26):

So thank you for listening.

(00:35:28):

Have a great week, and I'll see you soon.