American households that run on natural gas can expect high bills this winter.
The price hike depends on many factors, including whether the war in Ukraine takes a new turn and whether the winter is unusually mild or cold. Energy Information Agency Winter forecast You expect billings to be higher than last year, though not quite as high as peak summer.
The war in Ukraine and Europe’s embargo on Russian gas have already reshaped global markets. Europe is feeling the pinch over the amount of gas that is coming from Russia, but the United States is facing a problem of a different kind.
Over the bone In 2010, the United States had a supply glut that kept wholesale gas prices low. Supply far exceeded domestic demand, and almost none of it was exported as liquefied natural gas (LNG) to other countries. But since 2016, the United States has built new terminals capable of exporting the gas in its more condensed liquid form. Increased exports have increased costs for American consumers as they compete with global markets that bring better profits to the industry. Add in inflation costs and severe weather disasters like winter storm Uri, and it seems unlikely that prices will fall for some time.
Now that the United States is increasingly at the whims of the global market, the risks of running a gas-dependent economy are becoming clearer.
Gas exports lead to an increase in prices
Until the last few years, the main consumers of gas were industry, the electricity sector, homes, businesses and vehicles. With the growth of LNG exports, it has essentially “squeezed” the rest of the US markets, particularly the residences, explains Clark Williams Deary, energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).
Like the gasoline you pay for at the pump, there is no universal price for natural gas. The closest we have to it in the US is called the Henry Hub, a wholesale price named after a busy distribution spot in Louisiana. Looking at what happened to Henry Hub prices helps explain how strange the US gas markets are right now.
Henry Hub is not what you pay for. By the time the gas gets to the house, you pay for what it takes to distribute the fuel and the pipeline and labor required. In general, regulated utilities charge consumers for the gas they use and then a fixed cost, which is the cost of building pipelines to deliver the gas. Those costs are also on the rise, thanks to inflation Residential prices It goes up faster than Henry Hub might indicate.
The Henry Hub price It has been so low for most of the past decade that producers have had trouble staying in business. By 2016, the US had It opened its first LNG terminal in Louisiana, allowing it to condense the gas so it could be exported to other countries. The opening coincided with a significant decision made in 2015 to lift a 40-year-old ban on crude oil exports. To fend off another government funding showdown with the GOP-controlled Congress, President Obama signed a spending bill that meant the United States could begin shipping oil to foreign markets at a better price than it could earn domestically.
It took the US time to ramp up its export capacity, with the pandemic mixed into the equation, so the impact on markets took some time to catch up. But economists, including those at the EIA, agree that these stations have an impact on local prices.
An unexpected event this summer showed how important exports are in determining the price of gas in the United States.
In June, an explosion occurred at the second largest natural gas export plant, Freeport LNG, a facility designed to convert the gas into its liquid form so that it can be shipped across the ocean. responsible factory 20 percent of US LNG capacity closed since thenwhich reduces export capacity by a few percentage points.
Henry Hub prices were skyrocketing at the time of the explosion, but even a two percentage point drop in total US gas consumption was enough to make a visible difference. The station has faced a series of delays in reopening, but when it does, it will once again divert the domestic supply of gas. Two percentage points may not seem like a lot, but there isn’t much room to maneuver since the pandemic in oil and gas supply and demand. As the explosion showed, it is enough to change the wholesale price of gas. In fact, the Energy Information Administration expects prices to rise even more “when the Freeport LNG terminal in Texas resumes partial operations” because more gas will be exported.
The pressure will only get tighter if the US continues to build more of these plants. As it intensifies, LNG exports are expected to rise Double from 2020 levels in 2023. Normally, these stations undergo years of environmental reviews and permits, but Republicans and some Democrats have pushed to speed up those timelines. Some progressive Democrats have pushed for the Biden administration to pull the plug on LNG exports altogether, fearing that it would not only drive up prices, but lock the world into more decades of fossil fuel use than it could afford.
“There’s no point where you can build enough infrastructure to somehow insulate yourself from global markets,” said Lorn Stockman, director of research at Oil Change International Group. “There are times when supply catches up with demand and prices fall, but inevitably demand starts catching up with supply again. It’s like a hamster wheel.”
You get charged more for epic extreme weather
Henry Hub prices have dropped since August, but residential consumers haven’t felt much relief. Mark Dyson, managing director of the carbon-free electricity program at the RMI Energy Research Center, pointed to another reason: extreme weather.
In February 2021, Texans are caught off guard by the unusually fierce Ori winter storm. Unprepared for the high temperatures, the state’s autonomous grid has seen major power outages as gas infrastructure froze and heating demand soared.
Shortages of supplies this time were caused by weather, not international conflict, but the effect was similar to war: prices skyrocketed. The combination of these things could have turned a $200 bill into a $10,000 bill. To stave off this disaster, utility regulators instead assigned companies to storm costs over a longer period—so Consumers, not just in Texas but in Colorado and Minnesota, could pay for the storm over the next decade.
The problem is that winter storm Uri may not have been a one-off fluke but an event that could be made more likely by climate change. It is difficult for scientists to link a single freezing weather event to climate change; some research She suggests Arctic warming will increase the chances of polar air spilling south.
Energy efficiency and clean energy help us get out of the “hamster wheel” of high energy prices
There is a valuable lesson in this summer’s Freeport explosion. Just as a major offline LNG station can make a difference to local prices, so can other things. Energy managers immediately point to more production as one solution, even though that creates all sorts of other problems for global warming. As a fossil fuel, methane is a natural gas The planet is heating up faster of carbon dioxide.
Stockmann suggests that it is time to get off the hamster wheel as we try to get out of high energy prices. “The fundamental thing that will make energy cheaper and safer for Americans is to reduce and eventually end our use of these goods,” Stockman said.
This is where the policies Inflation Reduction Act It might make some difference — not in time for this winter, but possibly as early as 2024. One of them is a fee on excess methane emissions seeping through natural gas exploration and transmission that could incentivize producers to finally capture more of the lost gas from the hike. temperature. Another is the suite of tax credits for consumers that incentivize energy efficiency in the home, including energy-efficient appliances such as heat pumps. Finally, utilities and consumers alike are facing new incentives to buy renewables instead of gas, tilting the economy strongly in favor of solar and wind power.
“We’ll start to see a level of adoption over the next 12 to 24 months that will add up to a very significant impact on gas demand in the medium term,” said Dyson. “Even a two percentage point drop in gas demand from energy, buildings and industry can have a very big impact on prices. It can actually drive down the prices we’re seeing now.”