Are Higher Energy Prices Here to Stay?

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From the New York Times, I'm Rachel Abrams, and this is The Daily.

Since the war with Iran began, President Trump has insisted that rising energy prices

would be temporary.

But the strikes last week on important natural gas facilities in Qatar and elsewhere

in the Gulf have made the prospect of a quick recovery seem less and less likely.

Today, my colleague Patricia Cohen explains why the economic impacts may be felt for years.

It's Wednesday, March 25th.

Hi, Patty Cohen.

Hey, Rachel.

You are a first-time guest, I think?

Yes, first-time guest.

Long time listener.

That's what we like to hear.

So, Patty, at the beginning of the war, so much of the conversation about energy prices

focused on the straight of Hormuz, getting oil and gas out of the Persian Gulf.

And because the straight of Hormuz has been closed, oil prices spiked super quickly because

the uncertainty about when the straight would actually open again, that is still a huge

issue.

But it seems like in the last few days, the energy situation has expanded beyond the

straight.

So tell us what's been going on.

So I would say that the attacks that we saw last week on some of the energy infrastructure

really moved the war into another phase.

In terms of both energy supplies and the global economy, instead of talking about the impact

in terms of days and weeks, now we're talking about it in terms of months and years.

And why is that?

What you had is that the production capacity, the ability to supply one of the world's

really important energy supplies, which is liquefied natural gas, those facilities were

bombed.

You're talking about different attacks, right?

You're talking about the Israel attacks on the Iran energy infrastructure and the Iranian

attacks on infrastructure in Qatar, right?

Right.

Israel hit a major Iranian gas complex on Wednesdays.

So the Israelis attacked Iran's infrastructure.

Prompting Iran to strike another major facility in Qatar.

And then Iran retaliated.

The world's biggest liquefied natural gas facility, Qatar's Rassafan, was damaged by an Iranian

missile strike.

And attacked the gas fields in Qatar.

The attacks, quote, fundamentally reshaped the global energy outlook.

And that was a big deal, because Qatar is a big producer of liquefied natural gas.

I mean, so before we were looking at basically a transportation issue, when the straight

was closed, now we're looking at something that's longer lasting, which is the ability

to produce liquefied natural gas or LNG.

Let's refer to it as that.

It's a little bit easier.

Yes.

Yes, for sure.

So what exactly was struck in Qatar?

So what was destroyed were two LNG trains.

And they're not really trains.

What they are are plants that process and convert natural gas into a liquid.

And trains feel a little misleading.

Yeah, I know.

Yeah, it's a facility.

I know.

It's a kind of a weird word, but it's kind of a facility.

And it's a very expensive facility, and it takes a long time to build.

And what happens is that you take gas and you freeze it to 240 or 260 degrees below zero.

And then you compress it.

And so it takes up 600 times less space than gas, because you turn it into a liquid.

And so that's complicated.

And then you have to transport it in the same specialized container so that you can bring

it somewhere else.

It's not as simple as oil it sounds like.

Right.

I mean, oil is a lot easier to store and transport.

And that's what makes this particularly worrisome, because it's hard to store and transport

LNG.

And now you've just taken capacity offline.

So in total, whatever was destroyed in Qatar, what percentage of the global supply of

LNG is this?

So Qatar is the world's largest producer of LNG.

It supplies about 20% of the world's liquefied natural gas.

It's one of the biggest exporters.

So what happened at the beginning of the war, because trans it was halted, basically it

suspended its production, because it just had no place to put it, the storage facilities

are only so big.

So that's obviously a temporary problem.

What happened last week was that because of Iran's attack, nearly 20% of Qatar's ability

to produce LNG was destroyed.

And that will take several years to fix.

Maybe as many as five.

And the reason why we're talking about all of this is that unlike the Strait of Hormuz

that could theoretically be opened or closed relatively easily, we are talking about

damage to infrastructure, oil and gas infrastructure, that is a much longer term

disturbance into the oil market and to the global supply, et cetera.

Exactly.

So let's say the war ends tomorrow.

You can open up the Strait of Hormuz and traffic would start flowing again.

But Qatar is not immediately going to be able to restart.

Start pair and start producing that LNG again.

I'm sure a lot of people have heard of LNG, but just tell us what is it actually used

for?

Basically, it's a source of energy, right?

So you've got oil, you've got natural gas, you've got coal, you've got solar power, some

places, you've got wind power, some places, you've got nuclear power, some places.

And these are all energy supplies that countries use to different degrees.

Okay, so LNG, a lot of countries switch to it from coal because coal is really dirty.

So that's one of the reasons, particularly in Asia, Korea and Japan, switch from using

coal to liquefied natural gas.

It's also much cleaner than oil, it's about 30% cleaner than oil.

And so countries were diversifying their energy supplies because you didn't want to put

all your eggs in one basket, right?

So you had oil, you had coal, you had natural gas, a lot of countries of course are trying

now to increase renewables their use of solar and wind.

But it's safe to say that for a lot of countries, particularly in some of these countries in

Asia, liquefied natural gas is the main source of energy that people use for their homes.

I wouldn't say it's a main source of energy, but it's an important source of energy.

So Japan, for instance, decreased its dependence on nuclear power and coal and increased its

use of LNG.

So now LNG makes up about 21% of Japan's total energy supply.

But it's used to generate 30% of its electricity.

So that's how you power your cell phone, your laptop, your hair dryer, your oven, your

washing machine.

It's how big factories and industry use to power and run their machines and such.

Korea, LNG makes up about 20% of its total energy supply.

And it generates about 25% of its electricity.

And Korea is an interesting example because that's a country that in the last 25 years

has increased its use of LNG by more than 200%.

So you can understand why all of this is so disruptive to some of these countries.

Exactly.

And on top of that, there's a lot of other byproducts that are really important in industrial

production.

So one of them is NAPTA, which is probably something you've never heard of, but it's really

important in making plastics and other gas products.

Helium is really important for making semiconductors.

And then there's nitrogen-based fertilizers, which are crucial to the world's food supply

and fertilizer prices have soared.

And farmers are really worried, one, can they even afford to buy fertilizer?

And two, will it even be available for them to use?

This is what we hear when we hear people talk about fears about rising food costs.

I feel like fertilizers are the thing that is cited the most right now.

Exactly.

Exactly.

So how has the world felt the impact of this LNG shortage so far?

What does that look like for some of these countries that you mentioned or other countries

that are so reliant on this source of energy?

So remember, we're in the middle of an energy shock.

Already we're dealing with higher prices of oil and that this oil can't get to where

it needs to go.

And so for countries that also use a lot of LNG, it's like a double whammy because now

prices of that are going up.

And so for poor countries, it's really hard because they have trouble affording even the

energy supply that's available.

The fallout from the war is reaching South Asia and millions of lives.

fragile economies particularly are a trouble which is in Pakistan, skyrocketing fuel prices

has been accompanied with power shortages.

We've seen in places like Sri Lanka and Pakistan, schools are being closed, government offices

are being closed.

And Thailand is ordering government workers to save energy by suspending overseas trips

and working from home.

But in Thailand, we're asking people to take the stairs instead of elevators, work weeks

are being shortened to four days.

These are countries who are taking extreme measures because their fuel if the conflict

goes on, they're going to be in a dangerous, dangerous situation.

But rich countries are having an impact as well.

South Korea is imposing a fuel cap for the first time in 30 years as it seeks alternative

sources of energy beyond the street of Harmoos.

In South Korea, they've started this energy savings campaign urging people to take shorter

showers to ride bicycles.

The price of gas in Europe is more than double the level seen before the conflict began.

And you're seeing effects in other rich countries too, like in Europe, which also uses LNG, although

it's not quite as dependent as Asia, prices have gone up a lot.

So what you've seen in a lot of countries are leaders talking about trying to help consumers

afford heating bills so they've cut taxes on some of their energy.

We should remember energy prices in Europe were already more expensive to begin with before

the war in Ukraine.

And that only made it even more expensive.

So if people didn't need to heat particular rooms in their homes or businesses, they might

not.

Exactly.

So I just happened to look at the price of gas in Britain, for instance.

I live in London.

And, oh my god, natural gas prices have increased in Britain by 40 percent.

Wow.

Just since Iran was started.

I want to turn to the United States because the headlines here about how people are going

to be affected are pretty dire.

So talk to us about how Americans are feeling these shortages or might feel these shortages

of LNG.

Well, you know, I think it can be confusing for Americans because we know that the United

States is actually the biggest producer of oil and it also produces a lot of LNG.

In fact, Europe buys a lot of its LNG for the United States.

But what you have to remember is that the price of energy is set on a global market.

And so when that's going up, that's going to affect everything.

But there's something more that I think is important to remember.

And that is not only the direct effects of price increases, but there's also going to

be other indirect effects, knock on effects down the road that are very important.

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Patty, you mentioned that there are some indirect effects of all of this energy disruption.

Tell us what some of those are.

All right, so let me start with one which is the idea of safety and trust.

So the increase in the price of energy and LNG

is not just affected by what was destroyed, that very physical damage.

But it's also set a precedent.

The Persian Gulf has been this magnet for investment,

for people to move to.

It's been seen as a really safe place to both live and work in and invest in.

And now there's a rumbling underneath.

Is it really as safe as we thought?

What you're describing, this instability, this risk, this lack of safety,

all of this is basically the worst nightmare for these Gulf states, right?

Because they have been spending years trying to attract foreign investment.

Exactly.

And so another knock on effect.

Remember, we're talking about energy prices increasing,

which increases prices of everything.

Because it's not just the cost of growing in avocado.

It's not just the cost of producing a pair of sneakers.

You got to transport that, that's becoming much more expensive.

What does that mean?

That means inflation or the possibility of inflation and prices,

not just of energy rising, but prices of everything across the board rising.

And one response to increasing inflation is that central banks

might be more likely to raise interest rates.

And that causes a whole other set of economic problems.

Right. How much it costs to borrow money, for example.

Exactly.

Let's talk about AI, right?

What does artificial intelligence have to do with any of this?

Yeah, what does it have to do with any of this?

So think about it.

So number one, what we know is that data centers,

which they're building, use an enormous amount of energy.

Okay.

So now the cost of energy is going up.

But secondly, they also require huge amounts of loans to build.

They're really expensive.

Just building these data centers.

Just building up the energy centers.

Exactly. And so if interest rates go up,

that means that the cost of borrowing money to build them goes up.

And what's some Wall Street analysts have told me is that building these AI data centers,

that's something that's very sensitive to interest rates increases.

And at least for Americans, remember, AI,

these data centers have been driving the US economy.

Right. They've been propping up the stock market.

They've been propping up the stock market.

Exactly.

Are we kind of talking around the R word recession?

No.

And I think it's important to take a moment and say,

you know, we're talking about the future.

And we are in an incredibly volatile period.

Things are so unpredictable.

And it's really hard to know what's going to happen next.

I should also add, it's bad for business.

Because when consumers are worried about what's happening,

they don't want to spend as much.

And remember, the US economy is really driven by consumer spending 70% of it.

Secondly, it also means that businesses are reluctant to invest

because they don't know what's happening in the future.

So there's a crisis of confidence a little bit.

But what I will say is, if energy prices stay high,

if oil, let's say, goes up to $180 a barrel or higher,

then it's going to be very difficult to avoid a recession.

So I don't think we're there yet.

But, you know, we're in this world of uncertainty.

There's a lot we don't know.

How much longer is this war going to last?

Are there going to be more attacks on energy infrastructure?

What if there aren't, Petty?

What if the war literally ends tomorrow?

No more strikes on energy infrastructure.

I know you told us at the top of this conversation

that people are saying just based on what's already happened.

It will take months, if not years, to rebuild

some of the facilities.

But given all of that, if there were no more strikes,

how long would it take for things to go back to normal?

Right.

Well, you know, I guess one question is,

what is normal?

But let's, let's start about price-price.

Pre-Iran war prices.

So, so yesterday, the head of the international energy agency

said that he thought it would take at least six months,

even if the war were to end tomorrow,

just to get production up to where it was.

Why is that?

That's because a lot of the production

stopped when the war started.

So, even though the facilities were intact,

they turned it off.

And that's going to keep prices high for a while.

And then there is all these other uncertainties

that are going into energy prices,

and how long is that going to last?

Given all of that, are there other levers to pull

to use the LNG shortage?

Are there other solves here?

Well, I mean, the U.S. has already released

more supplies from its petroleum reserves,

and the international energy agency has done that as well

to ease supply.

One other thing that has happened

is that President Trump has lifted the sanctions on Russia,

which a lot of countries in Europe are against

and is very disturbing, obviously,

to President Zelensky and of Ukraine.

Because this is, of course,

funding Russia's war effort if Ukraine.

Exactly.

So, Russian oil had been selling at a discounted price,

probably about $60 a barrel before,

and now it's about $90 a barrel.

And also, this sounds crazy,

but the U.S. has lifted sanctions on Iran's exports of oil,

right? This is basically a multi-billion dollar war

with Iran to buy oil from Iran.

Exactly.

I mean, the one thing, obviously,

that would go a long way in terms of helping this problem

as well as others is the development

of alternative energy sources,

particularly renewable energy sources.

That's a huge investment up front,

but actually the cost,

once you do that investment of solar and wind

is really much lower.

And so, I think that you will see that.

There will be more development,

maybe not in the United States,

because it's such a political issue here,

but other places, development of solar, wind,

and I do think nuclear power.

And just to be clear, what you're saying is that

those renewable sources of energy would help

because it would decrease the dependence

on natural gas, LNG, and oil.

So anything that you do to increase the supply of energy

is going to help both in terms of diversification of supply,

as well as bringing down the cost.

But the world is an interconnected place,

and it's just going to remain that way.

In other words, you can diversify your energy supply,

you could try to come up with your own energy,

independent, and strategies,

but at the end of the day, we are living in a global economy

and that will not insulate you completely from future.

I mean, look at this is just like we were talking

about the United States.

It's one of the biggest producers of energy in the world,

but it's still subject to global prices.

Patty Trump had threatened to attack Iran's energy infrastructure

and so far he's put a pause on those threats,

but if we did see that,

the folks that you talked to every day,

the industry experts, the analysts,

what are they telling you that they are concerned about

in that scenario?

I think one of the surprises of this war

has been how effective Iran's responses have been.

I mean, it's so much weaker relative to the United States

in Israel, and yet it's been able to exert enormous leverage

over the global economy.

It does speak to the changing nature of warfare.

One guy on a speedboat with a bomb

in the state of Hormuz could screw up

all international shipping.

Exactly.

I mean, we've just talked about this one attack

that happened last week and how that could have an impact

a few years down the road.

What happens if there's more damage to cutters gas fields

and to other processing facilities in the region,

not only in Qatar, but in Saudi Arabia and other places?

So that's a big worry.

And we talked a lot on the show

about how the Iranian regime, perhaps out of desperation,

is willing to do anything it can to stay in power.

So it doesn't seem like what you're talking about

is super far-fetched in terms of escalation.

Right, I mean, there does seem to be a seeming miscalculation

on the part of the administration.

The Trump administration.

Yeah, and I think what's been overlooked

in terms of decision making is that the people in control

of Iran now see this as an existential threat.

And so it is their survival

and therefore they are willing to do anything it takes.

And I think the other thing that people

didn't really think about was just how far

the ripple effects could go.

I mean, you have three countries, the US and Israel,

at war with Iran and Iran responding.

And meanwhile, you're feeling the effects

halfway around the world.

I mean, every country, every spot around the globe

is feeling the impact of this.

I mean, we're only in the fourth week of the war

and already the head of the International Energy Agency

has called this the greatest global energy security

threat in history.

I mean, we just don't know exactly how things are going

to play out.

And so it's a scary time.

So it's a scary time.

Petticohn, thank you so much.

Thank you, Rachel.

We'll be right back.

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The Trump administration has sent Iran a 15 point plan

for ending the war, reflecting a desire to find an off-ramp

to a conflict that has deeply rattled the global economy.

President Trump said on Tuesday

that negotiations to end the war had begun

and that the Iranians would like to quote make a deal.

Iran has maintained publicly that no negotiations

have been underway.

At the same time, the Pentagon has ordered about 2,000

airborne soldiers to deploy to the region.

It's unclear where exactly the paratroopers would go,

but officials said they'd be within striking distance

of Iran.

And a preliminary investigation into the deadly runway

collision at LaGuardia Airport on Sunday

suggests both technical and staffing errors were to blame.

The fire truck that collided with an air candidate jet

didn't have a transponder, which made it difficult

for the airport's warning systems to track its location.

And investigators say the two air controllers on duty

had more responsibilities than they might have had

with more staffing.

Today's episode was produced by Mochis Aiti, Diana Wynn,

and Nurekina Betski.

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That's it for the daily.

I'm Rachel Abrams.

See you tomorrow.

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