A deepening geopolitical crisis in the Middle East has fractured the global energy market, creating a stark geographic divide: West Texas producers are currently paying to dispose of natural gas while Europe and Asia face desperate shortages and soaring costs.
The Texas Glut
At the Waha trading hub in the Permian Basin, spot prices plummeted to a record weekly average last week, hitting a low of -$9.75 per million British thermal units (MMBtu). Traders warn prices could slide to -$10 as seasonal pipeline maintenance further restricts takeaway capacity.
This localized surplus is a byproduct of the Permian’s dual-stream drilling. While an extensive pipeline network moves crude oil to market, natural gas infrastructure has failed to keep pace. Despite losing money on gas, drillers are maintaining production because West Texas Intermediate (WTI) crude has surged 47% to nearly $100 a barrel following the onset of the U.S.-Israel war with Iran. Consequently, flaring events—the burning of excess gas—have hit a five-year high.
A World in Shortage
The environment is drastically different outside the U.S. border. Tehran’s retaliatory closure of the Strait of Hormuz has choked off 20% of the world’s liquified natural gas (LNG) flow. Furthermore, an Iranian attack on Qatar’s Ras Laffan Industrial City damaged critical production trains, sidelining 17% of Qatar’s LNG exports with repairs estimated to take five years.
The supply shock has sent global prices into a tailspin:
- Europe: Benchmark futures jumped 35% to 70 euros per megawatt hour ($20 per MMBtu), doubling pre-war levels as nations struggle to restock inventories for winter.
- Asia: Analysts predict spot prices could exceed $40 per MMBtu if the Strait remains closed for six months.
The Return to Coal
The scarcity is forcing a regression in global climate goals. In Asia, the situation has become so dire that governments are implementing energy rationing, including four-day workweeks. Thailand has ordered coal-fired power plants to operate at maximum capacity, while Bangladesh, South Korea, and Taiwan are similarly pivoting back to coal to sustain their power grids and semiconductor manufacturing sectors.
“Asia is in full price competition,” says Henning Gloystein, managing director for energy at Eurasia Group. “Any country that can switch from gas to coal is doing so.”
