Why this economy recovery is better than in 2008

Why this economy recovery is better than in 2008

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Global gas price surge threatens to dent the economic recovery

Global gas price surge threatens to dent the economic recovery

Supply shortages could lead to blackouts, while unaffordable electricity prices might crimp household income and spark social unrest in developing countries

By Stephen Stapczynski, Vanessa Dezem and Catherine Bosley / Bloomberg

Natural gas prices are undergoing a historic surge, and it is bad news for everyone from ceramic makers in China to customers of patisseries in Paris.

The cost of the fuel is already at record seasonal highs in most major markets and looks likely to rise further, threatening to dent the recovery from the COVID-19 pandemic.

The coming winter might give the world a painful lesson in just how pervasive and vital gas has become for the economy. Unaffordable prices could crimp households’ spending and erode their wages through inflation, giving central bankers some difficult policy choices.

Tugboats direct a liquefied natural gas tanker toward a thermal power station in Futtsu, Japan, on Nov. 13, 2017. Photo: Reuters

Worse still, actual supply shortages could idle swathes of industry, or even trigger blackouts in developing countries, potentially causing social unrest.

“Energy lies at the base of an economy,” said Bruce Robertson, an analyst at the Institute for Energy Economics and Financial Analysis. “High energy prices reverberate through the supply chain” and could dent the nascent recovery, he said.

Energy costs are rising around the world as the recovery in demand from the worst of the COVID-19 lockdowns collides with supply constraints. Oil has already undergone a long rally that started late last year and ended at multiyear highs above US$75 a barrel in July.

Gas began to rise in earnest at the start of summer in the northern hemisphere, when it became increasingly clear that there was not enough supply in Europe to allow the usual refilling of storage sites depleted in winter. The continent’s largest supplier, Russia, has been limiting pipeline exports due for a number of reasons including high domestic demand, output disruptions and an agreement to transit less of the fuel through Ukraine.

“We’ve been running behind the storage delay all summer,” said Alfred Stern, chief executive officer of Austrian oil and gas producer OMV AG. Consumers in Europe are now at the mercy of the weather and the trajectory of prices “will now depend on how cold this winter is.”

In Europe, the price of gas has since surpassed oil, but the problem is not contained within the region.

While the Russian supply constraints do not directly affect consumers in Asia, they must still compete with Europe for seaborne shipments of liquefied natural gas (LNG), forcing them to pay higher prices to secure deliveries.

“High gas prices today are a problem for Europe,” Francesco Starace, the chief executive officer of Italian utility Enel SpA, said in an interview on Bloomberg TV on Friday. “They might be a problem for Asia too.”

The LNG market is what connects Europe, Asia and the US, and high prices there feed through to the domestic US market by stimulating greater exports of the super-chilled fuel. Natural gas futures in New York have risen 80 percent this year to highest since 2018, although they are still far lower than in the other major global markets.

“The European market and the American market are in a similar place heading into the heating season,” said Nina Fahy, a natural gas analyst at Energy Aspects Ltd in New York. “We could potentially have storage adequacy concerns if we have colder-than-normal weather, given how high LNG exports are expected to be.”

DAMAGED INDUSTRIES

Around the world, the economic consequences of the natural gas rally are becoming evident.

Tereos SCA, the biggest sugar producer in France, said last month that the price of the fuel is affecting sugar processing in Europe, increasing production costs “tremendously,” according to a copy of an e-mail sent to clients and seen by Bloomberg News.

High energy prices are creating “inflationary pressure on every other cost” that will end up being passed on to customers, said Pascal Leroy, senior vice president of core ingredients at Roquette Freres SAS, a food processing company based in northern France.

In China, the world’s largest gas importer, ceramic factories have been forced to reduce output due to high prices in Guangdong and Jiangxi provinces, according to local reports.

Surging utility bills have “sabotaged” the business of Mughal Steels in Pakistan, chief operating officer Shakeel Ahmad said.

“We consume the gas first and get a high bill later,” he said. “How can I go back to a client saying that I need to add extra cost to the steel that I sold you?”

JPMorgan Chase & Co said this week that its index of global manufacturing managers fell to a six-month low last month, although it still indicated expansion.

Some poor countries, like Bangladesh, cannot afford to procure enough energy supplies to keep their economies buzzing. Some irrigation systems in the country might only run at night because of potential power rationing, people surveyed by Bloomberg said.

Current LNG prices in Asia are “absolutely not normal,” said Leonid Mikhelson, chief executive officer of Russian LNG producer Novatek PJSC.

“There may well be refusals” from customers that can’t afford it, he said.

US manufacturers have yet to see a big hit from the rising cost of gas, because many energy-intensive industries like steel and petrochemicals have also seen the price at which they sell their products surge, Fahy said.

ECONOMIC RIPPLES

A crisis that is largely playing out in heavy industry in Europe and Asia today could soon spread to the political and macroeconomic arenas.

If households and businesses see their utility bills rising, they might seek to push up wages or the price of the goods they sell, compounding the inflationary pressure already resulting from strained supply chains.

The headline rate of inflation in the euro area has already surged to a decade-high of 3 percent.

European Central Bank officials insist that this post-pandemic spike should prove temporary, but a lasting pickup would complicate their ability to keep supporting the economy through ultra-easy monetary policy.

“The likelihood that the producers pass on the costs is very high,” said Carsten Brzeski, an economist at ING Groep NV in Frankfurt. That means inflation might “not be that transitory.”

A lasting period of rising prices for the cost of essential goods can have social consequences.

“In many emerging market economies, even slight increases in retail fuel or energy prices can lead to economic hardship and public unrest,” Eurasia Group analysts said in a note dated on Tuesday.

In Pakistan, the government has come under fire for purchasing the nation’s priciest LNG shipments since they began importing the fuel in 2015.

The cost of energy could become a “hot potato” in the upcoming German election, Saxo Bank A/S head of commodity strategy Ole Hansen said.

“Public opinion is not yet focused on” rising energy prices, said Julien Hoarau, head of Paris-based consultant Engie EnergyScan. “But at some point, public opinion will react and will start questioning: ‘What is going on here?’”

Changing expectations are the key to economic recovery

Tracey Bryan

Learn and Earn

LAS CRUCES - Sept. 4 brings the end of the last of the Federal government’s additional unemployment benefits that have been part of past COVID relief packages. In Doña Ana County, that means 6,000 people will be losing those additional benefits, comprising roughly 9% of the state’s total 67,000 people still unemployed.

According to national data recently updated by Harvard University’s Opportunity Insights, those who are most affected and most at risk for not getting re-employed are those making less than $27,000 a year, as there are 22% less of those jobs. Alternatively, there was a 3% increase in jobs making between $27,000 and $60,000, and a 10% increase for those making more than $60,000.

Unfortunately, the data from the New Mexico Department of Workforce Solutions doesn’t tell us what the past wages were for our 6,000 people. However, we do know 3,700 of them were previously in occupations that trend toward lower-wage ranges: personal care and service, office and administration, sales, food preparation and service, construction, and transportation and material moving. We know jobs lost were primarily in four industries: Healthcare and Social Assistance, Construction, Accommodation and Food Service, and Retail Trade.

Numerous polls and studies are also finding that COVID led to a point of career inflection for those who lost their jobs due to COVID. Reasons range from a desire to pursue new careers based on new skills acquired during the pandemic to a desire to new work-from-options, as well as those who chose to return to full-time parenting.

For our neighbors who desire to navigate their way to new careers, knowing more the wages available in a targeted career, and are they family-sustaining wages, is incredibly important. MIT recently released the Living Wage Calculator, which shows what income level qualifies as a living wage in cities across the country. In Las Cruces, for a single adult earner, the living wage ranges between $28,100-$93,000, depending upon if there are no children to as many as three children living in the home. For dual-earner households, the living wage ranges from $23,000-$46,800 per person, depending upon the number of children. Wages in all of these ranges are available here in Doña Ana County, by the way.

The real strength of those who previously held careers is that they already have established skill sets (including soft skills) that are transferrable and valued in other industries.

For example, customer service skills like those gained in a hospitality environment are a top need in the Healthcare Industry. Construction skills are in high demand in our Aerospace, Commercial Space, and Defense Industries. Being good with computers is important for both the International Trade and Agriculture sectors, as well as Digital Media. And strong communication skills are greatly valued across the board.

So for us as a community, we, too, are at an inflection point. Employers hungry for new talent are rethinking their pre-COVID candidate qualifications. In other words, do candidates have the necessary skills, with or without a degree? Is it finally time to take a giant leap forward toward skills-based hiring to tap previous undiscovered pools of local talent?

Do job seekers know how to talk about their skill sets to convey what they know and can do to new employers in new industries? Are job seekers limiting their opportunities based on a job title versus the actual skills they perform to be successful in that role? Do they know there is a TON of money and programs available to help them gain any new skills they may need?

To help our job seekers, and even our employers, navigate through this inflection point, we continue to update the resources and information available at NewMexicoTrueTalent.org. It really is the single best resource to help our 6,000 family members, friends, and neighbors find their way to the employers who greatly value them and desperately need them.

Tracey Bryan is president/CEO of the Bridge of Southern New Mexico.

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