Contrary to popular belief, recent electricity price hikes are not yet driven by AI demand. Instead, they reflect a system that had already become less reliable due to the retirement of dispatchable coal power and increased dependence on intermittent renewables. The grid was already tight before the current demand wave hit.

Global natural gas markets are currently disconnected. Extreme cold in Europe is driving prices up nearly 30% and draining historically low storage. Simultaneously, moderate weather in the U.S. and warmer conditions in Asia are keeping prices there subdued, showcasing how localized weather can override global supply trends.

As a direct response to soaring natural gas prices, countries may pivot back to coal for energy security. The IEA anticipates an uptick in coal use, not just in China and India, but potentially in the US and Europe, as a pragmatic, if environmentally damaging, short-term solution.

Drawing parallels to the 1970s oil shocks which spurred nuclear power and fuel efficiency, the IEA head predicts the current crisis will not only boost renewables but also drive a strong comeback for nuclear and, counterintuitively, a resurgence of coal in Asia due to high gas prices.

The rise of destination-flexible U.S. LNG is fundamentally altering global gas markets. By acting as the marginal supplier and an effective 'global storage hub,' the U.S. reduces Europe's strategic need for high storage levels, leading to structurally lower prices and a new market equilibrium.

China is insulated from the worst effects of an oil shock due to its state-controlled supply chain. It can activate coal gasification facilities when crude prices exceed $100 and toggle its power grid between gas, surplus coal, and solar, minimizing the impact on economic growth.

Severe winter weather in the United States has a direct and significant impact on European energy markets. The cold snap forced a 50% reduction in US LNG feed gas flows, constricting supply to Europe and helping keep prices elevated near €40 amid its own high demand.

The global LNG system operates near full capacity. When a major supplier (representing 17% of the market) goes offline, there are no significant alternative suppliers. The only mechanism for the market to rebalance is through high prices forcing demand destruction in importing nations.

Despite international gas prices soaring 60% due to conflict, US Henry Hub prices remain flat. This is because the global coal market is healthier than during the 2022 energy shock, weakening the transmission channel that previously linked the two gas benchmarks through coal-to-gas switching.