Gas puzzlers

Yet another crucial global market has gone from glut to shortage at breakneck speed. Last September in Europe it cost €119 ($139) to buy enough gas to heat the average home for a year and the continent’s gas­storage facilities were brimming. Today it costs €738 and stocks are scarce. Even America, which has an abundance of shale gas, has seen prices more than double—albeit from a much lower level—and could see further increases if its winter is a cold one.  The shortage has many causes (see Finance section). A cold European spring and a hot Asian summer boosted energy demand. Rebounding industrial production has lifted the global appetite for liquefied natural gas (lng). Russia has been piping less gas into European stockpiles. Hawks suspect it of trying to spook the market and ensure its new Nord Stream 2 pipeline is approved. But it has also faced disruptions, including a fire at a processing plant in Siberia.  Gas has been plugging gaps in power production from other sources. The wind did not blow much in Europe this summer, while droughts interfered with hydropower output. The rising price of the permits needed to emit carbon in the eu has made coal expensive. So there is little alternative to burning gas for electricity as well as for heating homes. Whereas the world economy’s other bottlenecks—for container ships and microchips—have unleashed a capital­expenditure boom, investment in fossil fuels is in long­term decline. American shale can help only so much, because gas markets are imperfectly linked via lng. High prices, when they strike, will serve mainly to ration limited supply. But it takes big price movements to curb demand. If the coming months are chilly, Europe’s energy may have to become extremely expensive to persuade firms and households to use less. Sorting this out requires accurately diagnosing what has gone wrong. Governments have not made enough allowance for the intermittency of renewable energy. The world has too little nuclear power—a low­carbon energy source that is always on. Interventions and subsidies for gas will only make things worse. Expensive energy angers voters and hurts the poor. But subsidising energy in a squeeze, as Italy is doing, or capping prices, as Britain does, will exacerbate shortages and make politicians’ commitment to greenery look empty. Governments should use the welfare system to support household incomes if they must, while helping energy markets work efficiently. The long­term challenge is to smooth out volatility as the switch to renewables continues. Eventually cheap battery storage might solve the intermittency problem; right now, more gas storage would help too. In the meantime tweaks to the market could improve things. In Britain many small energy suppliers which offer, say, one­year fixed­priced contracts to consumers, but buy energy at floating rates will soon fail (see Britain section). Getting firms selling at fixed rates to hedge against wholesale price increases should encourage more physical storage of gas. Another idea is to invest more in connecting grids (a link between those of Britain and France recently failed) and in lng infrastructure, so that arbitrage trades can even out disparities in the global supply of energy.  Dirty sources of energy should be expensive. But without reliable alternatives, price increases boost inflation, lower living standards and make environmentalism unpopular (see Bagehot). If governments do not manage the energy transition more carefully, then today’s crisis will be the first of many that threaten the vital move to a stable climate.