According to energy economists interviewed by FOX Business, the current conditions in the natural gas market could signal pain for consumers this winter and persistent problems for years to come.
Experts said the energy crisis in Europe, partly caused by the Russian invasion of Ukraine, will continue to harm consumers in the United States during the winter as global supplies of natural gas and oil are strained. They also noted that the push for green energy announced by the Biden administration and several state governments will further lead to reduced and more unreliable energy supplies, driving up future prices.
“The bigger problem is that shortages in Europe are driving up prices and prices are set globally,” Diana Furchtgott-Roth, director of the Heritage Foundation’s Center for Energy, Climate and Environment, told FOX Business. “As natural gas prices are higher globally, we export more and that is driving prices up here.”
“At the same time, we are proposing a series of policies that discourage our companies from producing,” he continued. “Reasonable people might think that if there was a shortage of natural gas in Europe, the United States would do whatever it could to increase production here.”
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Last week the National Energy Assistance Directors Association (NEADA) predicted that the average cost of home heating with all fuels, including gas, fuel oil and propane, would increase 17.2% this winter compared to last year. The group also predicted that home heating costs are more than 35% higher than two years ago.
NEADA executive director Mark Wolfe said higher prices would force millions of low-income families to choose between paying for food, medicine and rent.
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Driven primarily by rising natural gas prices, electricity prices are also expected to rise from last year. Overall, consumers are expected to spend nearly 8% more on electricity year-over-year in 2022, according to the Energy Information Administration (EIA).
“Prices will be higher, particularly for natural gas, partly due to increased demand for liquefied natural gas from Europe and Asia, depending on the weather this winter,” said Benjamin. Zycher, an economist and senior researcher at the American Institute for Business.
In the aftermath of the Russian invasion of Ukraine, the European Union (EU) attempted to isolate itself from natural gas imports from Russia. Energy producers from Russia were by far the largest natural gas suppliers to Europe in 2021.
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To help close the gap, the EU reached an agreement with the Biden administration in March to send an additional 530 billion cubic feet of liquefied natural gas (LNG) to the EU by the end of the year. The United States exported 300 million cubic feet of natural gas in June, the latest month with EIA data, up more than 10% year-over-year.
“This is a real challenge for Europe this winter,” said Jim Hamilton, an economics professor at the University of California at San Diego who specializes in energy markets. gas from Russia. Liquefied natural gas is a potential [answer] to that: you can ship it across the ocean. ”
“But it’s something I think we definitely want to try to accelerate here, given the potential real risk of crisis Europe is facing,” Hamilton said.
However, the increase in gas exports leaving the United States for European buyers has put a strain on domestic supplies.
On Tuesday, natural gas was trading at $ 7.71 per million British thermal units (MMBtu), while futures prices for January 2023 reached $ 8.04 per MMBtu, according to market data. By comparison, the average price of natural gas was $ 3.26 per MMBtu between 2010 and 2021, Federal Reserve data showed.
Natural gas inventories have dried up in recent months, down 7.4% year-on-year and 11.3% from the 2017-2021 average, according to the EIA.
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“You will get price increases,” David Kreutzer, senior economist at the Institute for Energy Research, told FOX Business. “Natural gas around the world is very tight due to the problem in Russia and the fact that Europe has decided not to develop its own gas resources. So they will turn to us.”
Kreutzer and Zycher both echoed Furchtgott-Roth, arguing that the US also faces significant grid and energy problems in future winters due to the increased push towards green energy.
They took note of Biden’s administration policies such as Department of Interior lease restrictions, a proposed climate disclosure regulation from the Securities and Exchange Commission, and a proposal from the Federal Energy Regulatory Commission that makes it more difficult. approval of fossil fuel infrastructure projects.
“There is this huge political favoritism towards wind and solar energy which, despite subsidies, are enormously expensive, unreliable – therefore, electricity prices are drastically increasing in some states due to the substitution of unconventional electricity. and non-competitive instead of traditional conventional competitive energy, “Zycher said.
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“The political – political, regulatory, ideological – attack on fossil fuels has had the effect, not surprisingly, of reducing investment and, therefore, expected future production and driving up future predicted prices,” he continued. “And, therefore, also the current prices”.
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It specifically pointed to California, where the state’s energy grid operator recently warned of large-scale blackouts due to increased demand. California and several other states have attempted in recent years to replace existing fossil fuel power generation capacity with renewable sources such as solar and wind.
“The concern … is that there are places like California where they have built renewable energies and their dependence on them and in Texas where, if you have a period with very low temperatures and there is not much wind, they will brownouts or blackouts, which are much worse than price hikes, ”Kreutzer said.