Future Outlook and Global Energy Security

Hey, I'm Robert Vinlo and I'm New York Times Games and I'm here talking to people about Wordle and the Wordle Archive. You all play Wordle? Yeah. I have something exciting to show you. Oh okay. It's the Wordle Archive. Oh if I miss it, I can like go back. A hundred percent. Oh that's it. So now you can play every wordle that has ever existed. There's like a thousand puzzles. Oh my god, I love it. Amazing. New York Times game subscribers can now access the entire Wordle archive. Find out more at nytimes.comslash g ames. 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 lik ely. Today, my colleague Patricia Cohen explains why the economic impacts may be felt for years . It's Wednesday, March 25 th. Hi, Patty Cohen. Hey Rachel. You are a first-time guest, I think? Yes, first-time guest, longtime 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 Strait of Hormuz, getting oil and gas out of the Persian Gulf. And because the Strait of Hormuz has been closed, oil prices spiked super quickly, because the uncertainty about when the strait 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? Because 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 infrastruc Israel hit a major Iranian gas complex on Wednesday. So the Israelis attacked Iran's infrastructure. Prompting Iran to strike another major facility in Qatar too. And then Iran retaliated. The world's biggest liquefied natural gas facility, Qatar's Raslafan, was damaged by an Iranian missile strike. And attacked the gas fields in Qatar. The attacks quote fundamentally reshaped the global LNG outlook. And that was a big deal because Cutter is a big producer of liquefied natural g as. I mean so before we were looking at basically a transportation issue when the strait 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 easier. Yes, for sure. So what exactly was struck in Cutter? 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. Trains feels a little misleading. This is a facility. Yeah, it's a facility. I know. It's a 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 six hundred 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 is not as simple as oil, it sounds like 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. Aaron Powell So in total, whatever was destroyed in Cutter, what percentage of the global supply of LNG is this? So Cutter 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 transit 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. But 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. Aaron Powell And the reason why we're talking about all of this is that unlike the Strait of Hormuz, it could theoretically be opened or closed relatively easily, we're 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 Cutter is not immediately gonna be able to rest repair 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? Aaron Powell 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 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 thirty percent 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. 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 s safe to say for a lot of countries, particularly 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 twenty-one percent of Japan's total energy supply. But it's used to generate thirty percent of its electricity. So that's, you know, how you power your cell phone, your laptop, your hairdryer, your oven, your washing machine. It's how big factories and industry used 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 percent. So you can understand why all 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 naphtha, 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? Aaron Powell This is what we hear when we hear people talk about fears about rising food costs. I feel like fertilizer is the thing that is cited the most, right? Exactly. Exactly. So how has the world felt the impact of this LNG shortage so far? Like 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 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. In Thailand are 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 they fear 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 Hormuz. In South Korea, they've started this energy savings campaign urging people to take shorter showers, to ride bicycles. 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%. Wow. Just since the Iran War 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 St ates. But what you have to remember is that the price of energy is set on a global market. Right. 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 . In theory, I knew that this kind of thing can happen in any family . Anyone's first cousin could be plotting murder. This is UCE 4735 and today is Upstanding citizens are always turning out to be secret criminals. And I wouldn't even call my cousin Alan an upstanding citiz You know, my clients are cartel level guys, they're all badasses. They're they they But it's one thing to know there is a more permanent way to do it. Yeah. More more different permanent. And another thing to understand. Alan, murder, me. It ended up being so much worse than I thought I knew. The price is eminently reasonable. Okay, for what it worse than. What the hell was Alan thinking? Like let's just say that I'm a little bit pissed off. Yeah, yeah, no, I get it. Yeah . From Serial Productions and the New York Times, I'm M. Gesson, and this is the idi ot. Out March 26th, wherever you get your podc asts. Patty, you mentioned that there are some indirect effects of all of this energy disruption. Tell us what some of those are. 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. You know, 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 live 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 an avocado. It's not just the cost of producing a pair of sneakers. You gotta 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. Trevor Burrus, Jr. How much it costs to borrow money, for example. Trevor Burrus Exactly. So let's talk about AI, right? What does artificial intelligence have to do with any of this? 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. Forget about the data. Exactly. And so if interest rates go up, that means that the cost of borrowing money to build them goes up. And what 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 U.S. 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 gonna 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 U.S. 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 gonna last? Are there gonna be more attacks on energy What if there aren't, Patty? 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, w I guess one question is what is normal? But let's let's Status quo cur 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 gonna keep prices high for a while. And then there's all these other uncertainties that are going into energy prices. How long is that gonna last? Aaron Powell Given all of that, are there other levers to pull to ease the LNG shortage? Are there other solves here? Well, I mean, the US 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 Ukraine. Because this is, of course, funding Russia's war effort with Ukraine. Exactly. So Russian oil had been selling at a discounted price, probably about sixty dollars a barrel before. And now it's about ninety dollars a barrel. And also, this sounds crazy, but the U.S. has lifted sanctions on Iran's exports of oil. Right. Trevor Burrus This is basically a multi-billion dollar war with Iran to buy oil from Iran. Aaron Powell 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. Trevor Burrus 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 gonna remain that way. Aaron Powell Right. In other words, you can diversify your energy supply, you could try to come up with your own energy independence 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 uh th 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. Right. 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 talk 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 and 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 Strait 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 Cutter's gas fields and to other processing facilities in the region, not only in Cutter, but in Saudi Arabia and other places? So that's a big worry. Aaron Powell 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. Trevor Burrus Right. I mean, there does seem to be a seeming miscalculation on the part of the administration. Trevor Burrus, Jr. 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. Mm-hmm. 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 wor ld . 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 hist ory. I mean we just don't know exactly how things are gonna play out . And so it's a scary time . Patty Cohen, thank you so much. Thank you, Rachel . Here's what else you need to know today. 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