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Gas price spike: how UK government failures made a global crisis worse

The government can no longer delay decisions on the future of gas in Britain’s energy system.




The UK government has been in emergency talks with leaders from the energy industry as gas prices (and with them, electricity prices) have soared to more than four times the level they were at the same time in 2020.

Concerns are growing about the security of winter gas supplies, and industries reliant on gas, such as the fertiliser industry, are curtailing production, threatening various supply chains. Consumers are facing significant price increases and energy regulator Ofgem has already had to raise its price cap, and may have to do so again.

Some smaller energy companies have gone out of business and others may follow. Amid all this, the government continues to maintain that the UK benefits from a diversity of sources of supply of natural gas. This is true, but it obscures the nature of the problem facing the country.

The problem is not the UK’s physical supply of gas, about half of which comes from its own production sites with the rest piped in from Europe or shipped in as liquefied natural gas (LNG) from the US, Qatar and Russia. The issue is the price the UK has to pay to continue receiving these supplies.

The pandemic caused gas demand to plummet in spring 2020, resulting in low gas prices, reduced UK production and delayed maintenance work and investment along global supply chains. Then in early 2021, a very cold winter in Asia prompted a dramatic spike in LNG spot prices. A hot summer followed, increasing electricity demand for cooling. Resulting high LNG prices limited deliveries to Europe, but lockdowns were lifting and economies recovering. Energy demand shot up.

A large tanker vessel with red, bulbous tanks for LNG.
LNG exports to Europe have dried up in recent months. Wojciech Wrzesien/Shutterstock

Traditionally, Europe uses the summer, when gas prices are lower due to limited heating demand, to fill reserves for the winter. Following the closure of the Rough storage facility – a depleted gas field in the North Sea – in 2017, the UK has no long-term storage. Wind power generation has remained lower than average during summer 2021 due to calm weather. Together with high carbon prices in the EU (which reduced the level of coal-fired power generation), more gas than usual has been used to generate electricity, leaving less gas to go into storage.

This is where things get complicated. There are now allegations that Russia deliberately withheld supplies of gas to north-west Europe over the summer to ensure the timely approval of the recently completed, but highly controversial, Nordstream 2 pipeline linking Russia to Germany via the Baltic.

Gazprom and the Kremlin deny this, stating that they met all contractual requirements. But evidence does suggest that pipeline deliveries to north-west Europe dropped compared to previous summers.

Part of this can be explained by a lack of investment in new sources of supply in Russia, partly in response to Europe’s continuing ambivalence to Russian gas imports and uncertainty over the future role of gas in the EU’s energy strategy. Unsurprisingly, Gazprom prioritised filling domestic storage and the high gas price means it can make plenty of money with lower exports to Europe.

Higher prices in Asia have attracted gas exports from the US. More recently, the lasting impact of the pandemic on shale production has been complicated by damage from Hurricane Ida. US domestic gas prices are also high and LNG exports have fallen. All of this is likely to be short-term – though the bulk of US LNG export capacity lies within “Hurricane Alley”.

The UK currently has very modest amounts of storage – less than 6% of annual demand. In Germany, France, and Italy, storage covers about 20% of annual demand. So where does all this leave UK gas security?

The government published a study in 2017 which found that the UK’s energy system could weather a prolonged disruption to global LNG supply and supplies of Russian gas and maintain domestic gas demand if “consumers are willing to pay for it”. The researchers did not think it likely that both shocks would happen simultaneously, yet this is just what has happened. Although it is unlikely to last for a long time, it will affect prices in the coming winter.

The security of the UK’s LNG supply is even more precarious because very little, if any, of the LNG delivered to the UK is under firm contracts. In 2019, the UK imported 18.7 billion cubic metres of LNG, accounting for 39% of natural gas imports and one-fifth of total supply.

My ongoing research suggests that most UK LNG imports are sourced on the short-term spot market. And the UK is not considered an attractive market for LNG traders and is often seen as a destination of last resort for excess cargoes when the market is over-supplied.

Coherent strategy needed

So, what could have been done differently? The government decided against supporting the building of new gas storage facilities in 2018, suggesting that if it was supported by the market then industry would build it. Numerous storage projects remain on the shelf.

Even before the government’s net zero by 2050 declaration in 2019, there was great uncertainty about the future role of gas in the UK. Two pathways present themselves: one with a very limited role for natural gas in which large swathes of heating and transport are electrified, and one which phases out natural gas more gradually and replaces it with hydrogen.

The government seems to be pursuing a confused mixture of the two. Perhaps it should acknowledge the current vulnerability of national gas supplies and revisit the need for long-term storage, or rethink its support for synthesising hydrogen fuel from natural gas.

The gas crisis has highlighted the lack of a coherent strategy to manage the gas industry as the UK transitions to a net zero economy. The lack of any industry investment in new capacity suggests that there is currently no business case for new long-term storage in the UK, especially as gas demand continues to fall.

Various UK governments have trusted market mechanisms to deliver UK gas security, assuming that sufficient and affordable gas would always be there by default. Now UK consumers are having to pay the cost of such an approach, and this winter promises to be particularly challenging.

is Co-Director of the UK Energy Research Centre (UKERC), which is funded via the UKRI Energy Programme, a Co-Investigator on the NERC-ESRC funded project on the evolving shale gas landscape and a Senior Visiting Research Fellow at the Oxford Institute for Energy Studies.

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Retail And Food Sales: If It’s Not Inflation, And It’s Not, Then What Is It?

OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what all that really means. The rate they’ve gone up hasn’t been due to an overactive Federal Reserve,…



OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what all that really means. The rate they’ve gone up hasn’t been due to an overactive Federal Reserve, so it has to be something else. This is why, though the bulge has been painful, it’s already beginning to normalize. Without a persistent monetary component (in reality, not what’s in the media) the economy will adjust eventually.

It already has. Several times, and that’s part of the problem.

If not money, and it’s not, then what is behind the camel humps? No surprise, Uncle Sam’s ill-timed drops along with reasonable rigidities in the supply chain.

An Economist might call this an accordion effect. One recently did:

The closures and reopenings of different industries, coupled with the surges and lags in consumer purchasing during the pandemic, have caused an “accordion effect,” says Shelby Swain Myers, an economist for American Farm Bureau Federation, with lots of industries playing catch-up even as they see higher consumer demand.

Not just surges and lags, but structural changes that have been forced onto the supply chain from them. With the Census Bureau reporting US retail sales today, no better time than now and no better place than food sales to illustrate the non-economics responsible for the current “inflation” problem.

When governments panicked in early 2020, they shut down without thinking any farther than “two weeks to slow the spread.” This is, after all, any government’s modus operandi; unintended consequences is what they do.

The food supply chain had for decades been increasingly adapted to meeting the needs of two very different methods of distributing food products; X amount of capacity was dedicated to the at-home grocery model, while Y had been set up for the growing penchant for eating out (among the increasingly fewer able to afford it). Essentially, two separate supply chains which don’t easily mix; if at all.

Not only that, food distributors can’t simply switch from one to the other. And even if they could, the costs of doing so, and the anticipated payback when undertaking this, were and are massive considerations. McKinsey calculated these trade-offs in the middle of last year, sobering hurdles for an already stretched situation back then:

Moreover, many food-service producers have already invested in equipment and facilities to produce and package food in large multi-serving formats for complex prepared-, processed-, frozen-, canned-, and packaged-food value chains. It would be highly inefficient to reconfigure those investments to single service sizes.

And if anyone had reconfigured or would because they felt this economic shift might be more permanent:

For food-service producers, the dilemma is around the two- to five-year payback period of new packaging lines. Reinvesting and rebalancing a food-service network for retail is not a straightforward decision. Companies making new investments would be facing a 40 percent or more decline in revenue. And any number of issues could extend the payback period or make investments unrecoverable. Forecasts are uncertain, for example, about the duration of pandemic-related demand shifts, the recovery of the food-service economy, and the timeline of returning to full employment.

So, for some the accordion of shuttered restaurants squeezed food distributors far more toward the grocery and take-home way of doing their food businesses. And it may have seemed like a great bet, or less disastrous, as “two weeks to slow the spread” morphed to other always-shifting government mandates which appeared to make these non-economics of the pandemic a permanent impress.

More grocery, less dining. Forever after.

In one famous example, Heinz Ketchup responded to what some called the Great Ketchup/Catsup? Shortage by rearranging eight, yes, eight production lines to spit out their tomato paste in individual servings rather than bottles. CEO Miguel Patricio told Time Magazine back in June (2021) there hadn’t actually been any shortage of product, just the wrong packaging for it:

It’s not that we don’t have ketchup. We have ketchup, but in different packages. The strain on demand started when people stopped going to restaurants and they were ordering takeout and home delivery. There would be a lot of packets in the takeout orders. So we have bottles; we don’t have enough pouches. There were pouches being sold on eBay.

But then…vaccines. Suddenly, after over a year of the above, by April 2021 the doors were flung back open, stir-crazy Americans flew back to their local pubs and establishments (see: below) and within months, according to retail sales, it was almost back to normal again. Meaning pre-COVID.

The accordion had expanded back out but how much of the food services supply chain had been converted to serve the eat-at-home way which many companies had understandably been led to believe was going to be a lasting transformation?

Do they undertake even more costly and wasted investments to go back? Maybe they resist, just shipping what they have even if not fully suited in the way it had been before all this began.

Does Heinz spend the money to reconfigure those same eight production lines so as to revert to producing their ketchup in bottles? Almost certainly, but equally certain they’re going to take their sweet time doing it; milking every last ounce of efficiency – limiting their losses, really – they can out of what may prove to have been a bad decision (again, you can’t really fault Mr. Patricio for being unable to predict pandemic politics).

Rancher Greg Newhall of Windy N Ranch in Washington likewise told NPR that he has the animals, beef, pork, lamb, chicken, goat, but distributors are caught in the accordion (Newhall didn’t use that term):

NEWHALL: People don’t understand how unstable and insecure the supply chain is. That isn’t to say that people are going to starve, but they may be eating alternate meats or peanut butter rather than ground beef.

GARCIA-NAVARRO: Newhall says he hasn’t had any issues raising his animals. It’s the processing and shipping that’s the bottleneck, as the industry’s biggest players pay top dollar to secure their own supply chains.

The usual credentialed Economist NPR asked for comment first tried to blame LABOR SHORTAGE!!! issues, including those the mainstream had associated with the pandemic (closed schools forcing parents to stay home, or workers somehow deathly afraid of working in close proximity with others) before then admitting:

CHRIS BARRETT: And there’s also the readjustment of the manufacturing process. As restaurants are quickly opening back up, the food manufacturers and processors have to retool to begin to supply again the bulk-packaged products that are being used by institutional food service providers.

With US retail sales continuing at an elevated rate, the pressures on the goods sector are going to remain intense.

Because, however, this is not inflation – there’s no monetary reasons behind the price gouge – the economy given enough time will adjust. And it has adjusted in some ways, very painful ways.

Painful in the sense beyond just hyped-up food prices and what we pay for gasoline lately, the services sector has instead born the brunt of this ongoing adjustment. Consumers have bought up goods (in retail sales) at the expense of what they aren’t buying in services (not in retail sales); better pricing for sparsely available goods stuck in supply chains, seeming never-ending recession for service providers.

According to the BEA’s last figures, overall services spending remains substantially lower than when the recession began last year. And it shows in services prices which had been temporarily boosted by Uncle Sam’s helicopter only to quickly, far more speedily and noticeably fall back in line with the prior, pre-existing disinflationary trend following a much smaller second camel hump.

Once the supply and other non-economic issues get sorted out, we would expect the same thing in goods, too. It is already shaping up this way, though bottlenecks and inefficiencies are sure to remain impediments and drags well into next year.

Those include other factors beyond food or domestic logistical nightmares. Port problems, foreign sourcing, etc. The accordion has played the entire global economy, and in one sense it has created the illusion of recovery and inflation out of a situation which in reality is nothing like either.

That’s the literal downside of transitory. We can see what the price bulge(s) had really been, and therefore what it never was.

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McCullough and Liu awarded $3.7M NIH grant to study sex differences in COVID-19 outcomes

A $3.7 million grant to identify patients at risk for developing chronic consequences of COVID-19 infection and discover potential underlying mechanisms leading to neuropsychiatric symptoms (NPS) has been awarded to Louise McCullough, MD, PhD, and Fudong.



A $3.7 million grant to identify patients at risk for developing chronic consequences of COVID-19 infection and discover potential underlying mechanisms leading to neuropsychiatric symptoms (NPS) has been awarded to Louise McCullough, MD, PhD, and Fudong Liu, MD, MSN, by the National Institutes of Health (NIH).

Credit: (Photo by Robert Seale)

A $3.7 million grant to identify patients at risk for developing chronic consequences of COVID-19 infection and discover potential underlying mechanisms leading to neuropsychiatric symptoms (NPS) has been awarded to Louise McCullough, MD, PhD, and Fudong Liu, MD, MSN, by the National Institutes of Health (NIH).

McCullough, professor and the Roy M. and Phyllis Gough Huffington Distinguished Chair in the Department of Neurology with McGovern Medical School at The University of Texas Health Science Center at Houston (UTHealth Houston), and Liu, an associate professor in the Department of Neurology, will study whether sex-specific immune responses to SARS-CoV-2, the virus that causes COVID-19, lead to chronic neurologic symptoms in individuals. These include NPS symptoms such as depression and sleep impairment.

“This grant will allow us to understand the mechanisms that contribute to long-term consequences of COVID-19 infection, and how they differ in men and women,” said McCullough, who sees patients at UTHealth Neurosciences. “Obtaining this award, in addition to the philanthropic support from the Huffington Foundation that helped us develop this biobank, has allowed us to develop a very unique resource. This will be invaluable as we develop new strategies to address the long-term consequence of COVID infection.”

The research team includes H. Alex Choi, MD, with the Department of Neurology and Vivian L. Smith Department of Neurosurgery at McGovern Medical School; Jude Savarraj, PhD, with the neurosurgery department; and Hilda Ahnstedt, PhD, with the neurology department.

The longitudinal, prospective study will assess the impact of acute and chronic inflammation on markers of brain injury and long-term NPS for up to two years after COVID-19 infection. To accomplish this, the team will leverage a biorepository that has enrolled more than 800 hospitalized COVID-19 subjects from three different hospitals. Follow-up will occur with enrolled patients in the COVID-19 Center of Excellence clinic at UTHealth Houston.

Sex differences in outcomes from COVID-19 are already increasingly evident, McCullough said. Men have worse outcomes with acute COVID-19 infection, with higher hospitalization rates and mortality – an effect seen globally. However, according to McCullough’s preliminary data, women may be disproportionally affected by the chronic effects of infection, including higher rates of chronic symptoms.

Both clinical and experimental studies in McCullough’s and Liu’s groups have also shown that sex differences in immune responses underlie differences in acute disease course. Men have a more robust innate immune response to acute COVID-19 infection, with increased circulating neutrophils and monocytes and higher serum levels of inflammatory cytokines and markers of brain injury. Meanwhile, women have more circulating T and B cells in response to acute infection compared to men, hallmarks of an antigen-specific immune response.

“Given that male and female COVID-19 patients mount different immune responses, and also have different outcomes, it is very promising to develop sex-specific therapeutic strategies that may be more effective for these patients,” Liu said. “Our NIH-funded COVID-19 research project aims to help develop these strategies.”

To date, more than 15 million Americans have been infected with the virus that causes COVID-19. While the vast majority survive the acute illness, many are at risk for experiencing long-term, acute neurologic symptoms afterward, such as encephalitis, stroke and seizure.

Yet more and more, even survivors without acute neurologic symptoms are reporting NPS from their illness. Interestingly, the incidence and factors that influence the development of long-term NPS are unknown.

What is known is that infection triggers a systemic pro-inflammatory response termed a “cytokine storm,” or an uncontrolled release of pro-inflammatory molecules. But the consequences of uncontrolled systemic inflammation on the brain and the link to long-term NPS after COVID-19 is also unknown.

The research team believes this work is critical to solving the puzzle and enhancing the health of millions of COVID-19 survivors.

“Men and women have very different immune responses to infection, and this is one of the first studies to examine the immune response and how it changes over time in the COVID-19 disease,” McCullough said. “If we can identify early biomarkers that predict later cognitive outcomes, we may be able to intervene to prevent long-term consequences of COVID-19.”

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The Phillips Curve: What Does It Tell Us About Inflation?

  The Phillips Curve has come back into the spot light. U.S. inflation level is running high this year, with several major consumer price barometers soaring faster than they have in years. Every major official measurement of inflation has surged in 2021,.





The Phillips Curve has come back into the spot light.

U.S. inflation level is running high this year, with several major consumer price barometers soaring faster than they have in years.

Every major official measurement of inflation has surged in 2021, particularly the consumer price index (CPI).

According to recent data released by the Labor Department, the cost of living has swelled 5.4% in the past year to mark the biggest increase since January 1991.

Food, furniture and rent costs are ballooning as a shortage of goods stemming from supply chain troubles and a limited supply of housing combined to trigger inflation.

Economists seem to have an answer on their hands: As the job market continues to recover from the Covid-19 pandemic, inflation is also picking up.

Today, we are going to discuss a very important concept known as the Phillips curve, which highlights the inverse relationship between unemployment and inflation.

We will tell you more about this curve, why it plays a crucial role in mainstream economics and why it draws a great deal of criticism.

The Phillips curve

The Phillips curve is a curve that shows the inverse relationship between unemployment, as a percentage, and the rate of inflation.

This curve was pioneered by William Phillips first in his paperThe Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957,” in 1958.



The curve has been essential in developing the mathematical models used by the U.S. Federal Reserve and other central banks as they analyze macro-economic policy.

What William Phillips derived from his study

William Phillips was a New Zealand economist whose résumé included stints as a secret radio operator in a Japanese prisoner-of-war camp, as well as hunting crocodiles and working at a gold mine in Australia.

In his 1958 paper, Phillips showed that during the period between 1861 to 1957 the United Kingdom unemployment rate and wage inflation were negatively correlated.

He reasoned that when rate of unemployment is high, employers rarely hike wages, if they do so at all, because workers are easy to find.

However, when unemployment is low, employers raise wages faster because they have trouble luring workers. Inflation in wages soon leads to an increase in the prices of goods and services.

Two years later, U.S. economists Robert Solow and Paul Samuelson seized on Phillips’s paper, highlighting in a 1960 paper that his findings applied to America too.

The duo named the downward-sloping line, which can be drawn in a chart where the wage inflation and unemployment rate are plotted against each other the “Phillips Curve.” This curve holds for price inflation as well because wages and prices tend to move together.

Why it’s important to understand the relationship between unemployment and inflation

Understanding whether a relationship exists between unemployment and inflation is important when it comes to monetary policymaking. Federal Reserve policymakers have a dual mandate to promote price stability and maximum sustainable employment.

Think of maximum sustainable employment as the highest employment level that can be sustained by an economy while keeping inflation stable.

Price stability, on the other hand, can be thought of as stable and low inflation, where inflation refers to a situation where an economy is experiencing a general, sustained upward increase in the prices of goods and services.

The Federal Open Market Committee (FOMC) – the Fed’s main monetary policymaking body – believes see an inflation rate of 2% as being consistent with price stability, which is why the central bank keeps its inflation target at 2%.

When making monetary policy decisions, FOMC officials have to keep both sides of the mandate in mind.

Critics of the Phillips curve

The Phillips curve helps explain the relationship between inflation and economic activity. Fed policymakers face a trade-off at every moment.

They can stimulate employment and economic growth, at the expense of higher inflation. Or they can set up tools to fight inflation at the expense of slowed economic activity.

However, the idea of the Phillips curve has been called into question by several notable economists. In the 1960s, renowned economists Milton Friedman and Edmund Phelps suggested that expectations of inflation could shift the curve.

Friedman and Phelps argued that the inverse relationship between inflation and unemployment was not a long-run phenomenon.

They said that in the long run, the curve could move up or down under the influence of changing expectations of inflation.

According to Friedman, once people become accustomed to high inflation, consumer prices and wages keep going up, even when the rate of unemployment is low.

Friedman hypothesized a shifting Phillips curve, and his findings came to pass when the U.S. government spending for the Vietnam War spurred inflationary pressures.

The Phillips curve also shifted again in the mid-1970s, this time in response to a huge hike in world oil prices caused by the Organization of the Petroleum Exporting Countries (OPEC).

In his view, unemployment cannot be held far above below or far above its natural level at any constant inflation rate in the long run.

However, as the aggregate demand rates increases and decrease over time, economic activity doesn’t move smoothly up and down along the long-run Phillips curve.

It makes a chain of clockwise loops with periods of spiking inflation and low unemployment balanced by periods of slowing inflation and higher unemployment, instead.

Bottom Line

Monetary policies to increase in employment, spur economic growth, and sustained development heavily rely on the findings of the Phillips curve.

Despite this, most economists have found the implications of this curve to be true only in the short term.

The curve does not justify the situations of stagflation, when the unemployment rate and inflation are both exceedingly high.

Today, many economists hold the view that a trade-off between unemployment and inflation exists, in the sense that these variables are pushed in opposite directions by the actions taken by central banks.

They also believe a minimum level of unemployment must be there so that the economy can be sustained without inflation spiking to extreme levels.

However, due to various reasons, that level rises and falls irregularly and is not easy to determine.

The post The Phillips Curve: What Does It Tell Us About Inflation? appeared first on Warrior Trading.

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