December 21, 2022

Two things making the analysis pages this morning:

1. Price of natural gas in Europe
2. Availability of antibiotics and other drugs

Europe has brought in a measure to cap the price of natural gas in a rushed (understandable but foolish) attempt to stop the extreme prices seen last summer.

Prices hit a record high of more than €300/MWh last summer.

Christian Zinglersen, director of the EU’s joint energy agency Acer, said he would be “reluctant to rely on this gas price cap” to prevent the types of price spikes that roiled Europe’s energy markets in the summer following Russia’s invasion of Ukraine.

EU policymakers fear that further price increases could prompt social unrest and destroy industrial output.

Since Russia cut supplies to the EU, demand for shipped LNG has vastly increased and affected prices. The potential for China to further ease its Covid lockdowns has prompted fears of a more challenging LNG market next year. (FT)

In what seems to be an unrelated story, the supply of antibiotics, antifungals, antiviral, and a whole suite of other drugs has not met demand post lock-downs. The shortages are reported across all Western countries, but it is also affecting all developing counties where their supply was already below need.

MSF’s Jasovský said depleted stocks of antibiotics were “minor symptoms” of a wider “systemic challenge” affecting the whole chain from wholesalers, final dose formulators and original manufacturers. (FT)

The response from Western counties like the UK is to try to regulate "hording" and exporting of these drugs.

The reason for the shortage of needed drugs is a result of the companies that produce the drugs not producing them through the pandemic lockdowns when there was a decline in infections. Then, with the war, inflation, supply chain shocks, and a general malaise from these companies when it comes to people's lives, pharma could not spin up production to meet the renewed demand post lockdown.

At least that is the story you will read in the press.

The reality is somewhat different.

Global production of drugs is artificially limited by intellectual property and just enough/"just in time" production processes designed for the profit maximization of each pill/vial made. Many of these drugs have a short shelf-life and the "over production" of drugs leads to losses for capital. So, these massive companies do not produce above expected demand.

The hardship and deaths faced this year are a direct result of this broken model of pharmaceutical production. The additional downside is that with increased infection and a lowered supply opens up the increased possibility of the expansion of antibiotic resistance. An outcome that most pharma companies cannot be bothered to invest in dealing with either.

There is also a relationship between the war in Ukraine, climate change, and drug supply.

Drug manufacturing requires a complex mix of chemicals and inputs, many of which are produced using natural gas. Natural gas is limited by the political response to the Russian invasion.

Climate change is caused by the continued and rather unmitigated expansion of burning of fossil fuels and cutting down of old forests. Climate change is part of the reason we see an increase in new infections.

Natural gas price caps will cause more natural gas to be burned in Europe (since it is artificially cheaper) and increase inefficient use and undermine the search for alternatives. These will lead to increased emissions and faster climate change.

Along with the pandemic, the supply chains were also interrupted by the sudden end of the neoliberal era's artificially high economic growth rates.

Supply chain are now unable to deal with shocks because of the "just in time" production/distribution that capital developed to drive down cost of production to the lowest level.

So, now governments want to regulate prices of natural gas and horde drugs within their borders to protect against price fluctuations.

The issue is that prices are unable to be controlled this way without some rather obvious knock-on effects. Effects such as underproduction of drugs and undermining their own "markets" in carbon/emission trading.

Just as with drugs being "out of stock", artificially driving down prices of natural gas will result in either a lowering of supply of natural gas or other unintended consequences. In response, governments will then attempt to impose more stringent conditions on export of gas—as they did with drugs—further exacerbating the issue.

The issue is that prices are a result of real costs, real competition, and real demand. If governments (read: people) want things they need to be produced during the large and expanding economic, political, climate, and health crises, we are going to have to address production, not just try to set prices.

The private market is not going to save us, especially if we are going to try to regulate prices of artificially scarce production. The only answer is to expand publicly directed, funded, (and distributed if we are talking drugs) production.