High natural gas prices may ripple across the energy sector

By Mike Lee, Carlos Anchondo | 07/28/2022 07:20 AM EDT

The Calcasieu Pass export terminal in Cameron Parish, La.

The Calcasieu Pass export terminal in Cameron Parish, La. Mike Lee/E&E News. Flight provided by SouthWings

Fallout from Russia’s war in Ukraine and hot weather are sending U.S. natural gas prices to some of the highest points in years.

Exports are up as the nation tries to ship more liquefied natural gas to allied countries in Europe while a heat wave boosts demand for gas to generate electricity domestically.

Analysts said the bump in natural gas prices will have long-term impacts on the U.S. economy as the fuel’s high costs push up summer electric bills and winter heating costs, as well as the price of everything from food to plastics.

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Natural gas prices have risen faster this year on a percentage basis than crude oil, gasoline or diesel. The benchmark U.S. price topped $9 per million British thermal units on Tuesday, more than double the price last summer, as Russia cut back shipments to European countries and the European Union’s members agreed on a plan to ration their own gas use (Climatewire, July 27).

Gas is the largest source of electric power in the U.S., and gas prices help set the cost of electricity around the country, said Tyson Slocum, director of the energy program at the consumer advocacy group Public Citizen.

In all, gas fueled about 38 percent of utility-scale power generation in the country last year, according to the U.S. Energy Information Administration.

This year’s gas price increase will mean higher electric bills at a time when consumers are already coping with the highest inflation rate since the 1980s.

“It could be several months, it could be a year, but at some point 100 percent of those costs are going to find their way into utility bills,” Slocum said.

The price is still below past peaks. Benchmark U.S. gas traded above $13 per million Btu as recently as 2008. But the fracking boom largely held down the U.S. price for a number of years. Currently, the price of gas in Europe is several times higher than in the United States.

The price of natural gas affects other parts of the economy, as well. Lots of manufacturing plants — including oil refineries — run on gas, and it’s a key ingredient in fertilizer. Those costs will ultimately get passed to consumers, too.

Yesterday, the chemical manufacturer BASF SE said it was shutting down some of its operations in Europe because of high gas costs. Molly Birman, a BASF spokesperson, said via email that reducing production at facilities like ammonia plants is “standard practice in the chemical industry … when margins are not economically viable.”

Manufacturing companies are “severely” affected by high natural gas prices, Paul Cicio, president and CEO of the Industrial Energy Consumers of America (IECA), said in an email.

In an April letter to the Department of Energy, the IECA — which promotes the interests of manufacturing companies — said the manufacturing sector “cannot invest and create jobs without assurances that our natural gas and electricity prices will not be imperiled by excessive LNG exports and the unfair market power of foreign country buyers.”

Yesterday, Cicio said the problem facing U.S. manufacturers “is that regional availability of pipeline capacity has been consumed by LNG export terminals, leaving less and less capacity available for manufacturers to grow.”

The LNG industry is also arguing for more pipeline capacity and faster permitting.

“That’s the real solution,” Charlie Riedl, executive director for the Center for Liquefied Natural Gas, said in a statement.

The U.S. became the largest LNG exporter in the world in the first half of this year, according to the EIA, which said U.S. LNG exports increased 12 percent in the first half of 2022 compared with the second half of 2021. The increase came even though an accident at a Texas export terminal interrupted some shipments.

“The importance of being a reliable energy supplier cannot be understated, and there is a significant role that U.S. energy supplies are playing in stabilizing global markets,” a DOE spokesperson said in a statement yesterday. “The [Biden] Administration has been clear in calls for industry to support both domestic demand and help to our allies.”

The amount of exports is likely to continue rising, since several export terminals are under construction or in development along the Gulf Coast. That’ll likely mean prices will be volatile for a while, said Mark Dyson, managing director for carbon-free electricity at RMI, the clean energy group formerly known as the Rocky Mountain Institute.

“This is quite different than what we’ve seen for the last 10 years, where gas was abundant and low cost,” Dyson said in an email. “This is just the beginning of what I think will be a pretty significant shift in the market.”

The price increase puts the Biden administration in a bind because the administration has promoted gas exports as a way to bolster U.S. allies against Russia. The White House yesterday announced a package of incentives to help low-income families install solar power, which could help recipients save on their utility bills (Greenwire, July 27).

The gas industry is unlikely to bring down the price by producing more fuel, said Brian Kessens, a portfolio manager for the investment firm TortoiseEcofin, which manages about $9 billion in assets. The industry as a whole has been under pressure to control their spending rather than ramp up their production quickly.

“A warmer winter would certainly help drive down prices — absent that it’s hard to see prices coming down,” Kessens said.

Some observers argued that elevated natural gas prices make renewables a more attractive investment, including their lack of a fuel price to consider.

“For renewables, you know what the cost is,” said Grant Smith, a senior energy policy adviser with the nonprofit Environmental Working Group.

“You have the capital cost, the maintenance costs are generally lower, and you don’t have to worry about these volatile fuel prices,” Smith continued. “From that perspective, it would be a far less risky investment from the standpoint of natural gas price volatility.”

Reporter Miranda Willson contributed.

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