Gas Project Delays: LNG Prices & Electricity Bills

When a gas project is delayed, LNG prices and electricity bills typically rise in the short to medium term, though the exact impact depends on the size of the project, the state of global supply, and how reliant a region is on gas-fired power. A delay removes expected future supply from the market, which tightens the balance between supply and demand and pushes up the wholesale price of gas. Because gas-fired power plants often set the marginal price in many electricity markets, higher gas costs translate directly into higher wholesale electricity prices, and ultimately into higher bills for households and businesses.

Formula

The calculator estimates the percentage increase in the wholesale gas price caused by a project delay, using a simplified model where the delay reduces available supply and the market reacts proportionally. The formula is:

Price increase (%) = (Delay duration in months / 12) × (Project capacity in GW / 10) × 100

Where:

• Delay duration – the number of months the project is pushed back (input in months).
• Project capacity – the nameplate capacity of the delayed project in gigawatts (GW). This is a proxy for how much supply is removed from the market.
• 10 GW – a reference capacity used to normalize the impact; it represents a large, typical LNG train or a major gas field.

The second output estimates the extra annual cost of gas for a region, assuming that a 1 GW delay for 12 months reduces supply by about 10% of that capacity, and that the region pays the gas price shown. The formula is:

Extra annual cost ($M) = (Project capacity × 1000 × delay months / 12) × gas price × 0.1

Where the factor 1000 converts GW to MW, and 0.1 represents the fraction of capacity that is effectively lost to the market.

Worked Example

Using the default values from the calculator: a 2 GW project delayed by 12 months, with a starting gas price of $4/MMBtu and regional electricity demand of 100 TWh/year.

1. Price increase: (12 / 12) × (2 / 10) × 100 = 1 × 0.2 × 100 = 20%.
2. Extra annual gas cost: (2 × 1000 × 12 / 12) × 4 × 0.1 = 2000 × 4 × 0.1 = $800 million.

The calculator shows a 20.0% price increase and an extra cost of $800M, matching the manual calculation.

Why Delays Matter: The Basics of Gas Markets

Natural gas is traded globally, but it is not a single, uniform commodity. There are three main regional markets: North America, Europe, and Asia. Each has its own pricing mechanism – Henry Hub in the US, Title Transfer Facility (TTF) in Europe, and Japan Korea Marker (JKM) in Asia. LNG (liquefied natural gas) is the link that allows gas to move between these markets. When a new LNG export project is delayed, it means that a certain volume of gas that was expected to reach the global market will not arrive on time. That missing supply has a ripple effect: buyers who planned to rely on that gas must compete for existing cargoes, driving up prices in the spot market. Even if the delay is in one region, the interconnected nature of LNG means that price spikes can spread globally.

For example, if a major Australian LNG project is delayed, Asian buyers may need to source more cargoes from the US or the Middle East, which reduces supply available to Europe, and so on. The magnitude of the price effect depends on how much spare capacity exists elsewhere. If the market is well-supplied, a delay may have a muted impact. If the market is already tight – such as during a cold winter or when other projects are also delayed – the price impact can be severe.

How Gas Prices Translate to Electricity Bills

Electricity is generated from a mix of sources: coal, gas, nuclear, hydro, wind, and solar. In many deregulated markets, the wholesale electricity price is set by the marginal cost of the last unit of electricity needed to meet demand. Gas-fired plants often are that marginal unit, especially during peak demand periods when other sources are already running at full capacity. When gas prices rise, the cost of generating electricity from gas rises, and because gas plants often set the market price, the wholesale electricity price rises for everyone – even for consumers who get their power from nuclear or renewables. This is known as merit-order pricing.

The pass-through to household bills is not immediate or one-to-one. Retail electricity tariffs often include fixed charges, network costs, and taxes, which dilute the wholesale price component. However, in competitive retail markets, suppliers adjust their tariffs periodically to reflect wholesale costs. Over a period of months, a sustained increase in gas prices will show up in higher variable rates. For example, a 20% increase in wholesale gas prices might lead to a 5–10% increase in household electricity bills, depending on the share of gas in the generation mix and the regulatory framework.

Real-World Examples of Delays and Price Impacts

History shows several instances where project delays coincided with price spikes, though it is difficult to isolate the exact contribution of a single delay. One notable case is the Gorgon LNG project in Australia, which faced multiple delays and cost overruns in the 2010s. During that period, Asian LNG prices were volatile, and some analysts attributed part of the tightness to the late start of Gorgon and other Australian projects. Another example is the Freeport LNG export plant in Texas, which shut down for several months in 2022 after a fire. That outage removed about 2 billion cubic feet per day of US export capacity, contributing to a global gas shortage and helping to push European and Asian prices to record highs. While not a construction delay, the outage had the same effect as a delay: less supply than expected.

In Europe, the reliance on Russian pipeline gas and the subsequent supply cuts in 2022–2023 highlighted how quickly gas prices can spike when supply is disrupted. The TTF price rose from around €20/MWh in early 2021 to over €300/MWh in August 2022, a 15-fold increase. While not caused by a project delay, it demonstrates the sensitivity of the market to supply shortfalls. A delay of a major LNG project in a tight market can easily produce double-digit percentage price increases.

Common Misconceptions

A common misconception is that a delay in one project only affects that project’s customers. In reality, because gas is traded globally, a delay in Australia can affect prices in Europe and the US. Another misconception is that renewable energy insulates consumers from gas price spikes. While renewables reduce the overall demand for gas, they do not eliminate the marginal pricing effect. As long as gas plants are needed to meet peak demand, their fuel costs will influence the wholesale price. A third misconception is that delays always cause price increases. If the market is oversupplied – for example, if several other projects come online earlier than expected – a delay may have little effect. The key variable is the balance between supply and demand at the time of the delay.

Another point often misunderstood is the difference between capacity and production. A project’s nameplate capacity (in GW or million tonnes per annum) is the maximum output, not the actual output. Delays may reduce the expected ramp-up rate, but the actual impact on supply depends on how quickly the project can start producing once operational.

How to Protect Against Price Volatility

For consumers, there is little direct action to take against gas price spikes, but there are some strategies that can help:

• Fixed-rate energy contracts: Locking in a fixed electricity rate for 12–24 months can shield you from short-term price increases, but you may miss out on price drops.
• Energy efficiency: Reducing your electricity and gas usage lowers your exposure to price increases.
• Demand response programs: Some utilities offer incentives for reducing usage during peak times, which can help lower your bill.
• Investing in renewables: If you have the means, installing solar panels or a heat pump can reduce your reliance on grid electricity and gas.

For businesses, hedging gas and electricity purchases through forward contracts can provide price certainty. Large energy users often work with energy consultants to manage their exposure to volatile wholesale markets.

Alternatives to Gas-Fired Power

Reducing the impact of gas price spikes on electricity bills ultimately requires diversifying the generation mix. Alternatives include:

• Nuclear power: Provides steady, low-carbon baseload power, but has high upfront costs and long construction times.
• Renewables (wind, solar, hydro): Have zero fuel costs, so they are immune to gas price fluctuations. However, they are intermittent and require storage or backup.
• Energy storage (batteries, pumped hydro): Can store excess renewable energy and release it during peak times, reducing the need for gas peaker plants.
• Coal: In some regions, coal is a cheaper alternative to gas, but it has higher carbon emissions.

In the short term, increasing gas storage capacity and building interconnectors between regions can help mitigate price spikes. In the long term, a more flexible and diversified grid is the best defense against fuel price volatility.

Frequently Asked Questions

How long does a gas project delay affect prices?

The effect lasts as long as the supply shortfall persists. Once the project comes online and begins producing, the market gradually rebalances. However, if the delay causes buyers to sign long-term contracts with other suppliers, the original project may find it harder to sell its gas, and the price impact may linger for years.

Why do electricity bills rise even if my electricity comes from renewables?

Because the wholesale electricity price is set by the marginal cost of the last plant needed to meet demand, which is often a gas plant. When gas prices rise, that marginal cost rises, pulling up the wholesale price for all electricity, regardless of the source.

Can a gas project delay ever lower prices?

In rare cases, if the delay reduces the risk of oversupply, it could prevent prices from crashing. For example, if many projects are coming online at once, a delay might help balance the market and keep prices from falling too low, which could discourage future investment. But for consumers, a delay almost always means higher prices in the short term.

What is the difference between LNG prices and gas prices?

LNG is natural gas that has been cooled to -162°C to become a liquid, making it easier to transport by ship. LNG prices include the cost of liquefaction, shipping, and regasification, so they are typically higher than pipeline gas prices. However, LNG prices are more globalized, as they can be shipped anywhere, while pipeline gas is tied to specific regions.

How can I check if my electricity bill is affected by gas prices?

Look for the wholesale energy cost component on your bill, which is often listed separately. You can also compare your current rate to historical rates. If your bill has increased and you know that gas prices have risen, it is likely due to the pass-through of wholesale costs.

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in t | Project capacity (GW) | GW | 2 | 0
in d | Delay duration (months) | months | 12 | 0
in g | Gas price at start ($/MMBtu) | $/MMBtu | 4 | 0
in e | Electricity demand (TWh/year) | TWh/yr | 100 | 0
out impact | Price increase (%) | % | (d / 12) * (t / 10) * 100 | 1
out extra_cost | Extra annual gas cost ($M) | $M | t * 1000 * d / 12 * g * 0.1 | 0