by Michael B. Smith

13-08-08 In late 2006, China for the first time in its history became a net coal importer. This changed the dynamics of the world's energy market. Korea and Japan, previously importers of Chinese coal, were sent scrambling for alternative sources of energy. What they found in the winter of 2007 was LNG for $ 18-$ 20/Btu. China too was a willing buyer.
The coal scramble was also felt in Europe. Australian coal was bottlenecked and/or kept in the Asian region. Power outages in South African coal mines made the situation worse for Europeans as they lost out on significant supply. What followed was a ramp in coal prices as coal was shipped off the east coast of the US to willing buyers in Europe.

Fast forward to today and enter Russia. Russia's invasion of Georgia is a dangerous precedent. Russia controls over 25 % of Europe's natural gas and in the winter of 2006 used it as a weapon against Eastern Europe.
Russia's true intent today may very well be to take further control of the world's energy market. Does one really believe that the Russian government cares anything about 70,000 ethnic Russians living in the mountains of Georgia?

If China's coal deficit is greater today than it was just one year ago and the geopolitical situation is worse, one could conclude that liquefied natural gas (LNG) in the winter of 2008-2009 will fetch a minimum of last year's $ 18-$ 20/Btu. Last year was the year natural gas became a global market. This year it will be reinforced. The market for natural gas has changed and so should one's perspective.
As one watches the price of natural gas collapse in the US, is it possible the price remains near $ 8.00 this winter as Asians and Europeans pay more than two times that price?