With the coldest air so far of the season moving into the Plains and Midwest, many of us will turn up the heat. The big surprise will come in the mail when the gas bill comes amidst the highest natural gas prices in nearly a decade.
Natural gas futures, (price for delivered fuel at a future date) are at a seven-year high, according to tradingeconomics.com. That is the price your power and gas company will pay then pass the overages on to the consumer. The price right now is $6.5 per million British thermal units (mBtu) for January 2022 delivery. In February 2016, that same mBtu was $1.7. (Natural gas commodities are measured in price per mBtu. One Btu is a unit of energy required to heat one pound of water one degree Fahrenheit.)
Look at your gas bill which is measured in therms. One therm equals 100 mBtu. I paid $1.64 per therm in September and $1.88 per therm in October and this is up 50% just from 2019. My local power company estimates that the average winter gas bill of $40 a decade ago will jump to $118 this winter. This is just residential use for natural gas.
Check out the graph of U.S. natural gas front-month futures prices and storage deviation from five-year average.
Set your thermostat to the lowest comfortable temperature and keep your heating system tuned-up to save on heating costs. (A Con Edison Power Company spokesperson gave us some tips.)
While U.S. natural gas prices have risen about 150%, overseas prices are over 500% higher according to the U.S. Energy Information Administration (EIA). Europe, Asia, and the U.S. are competing for a limited supply of natural gas, and bidding wars are driving costs.
Nick Loris of the Conservative Coalition for Climate Solutions (C 3 Solutions) says Asia, for example, gets three-quarters of their natural gas supply through long-term, fixed-price contracts while the remainder of their need is filled through the open market. "Because the demand has increased, you've seen the spot prices for these LNG tankers increase day by day, if not hour by hour. Some of these tankers have effectively made U-turns and gone from where they were headed to, which was Europe to Asian markets." Tankers ship LNG, liquefied natural gas.
This graph shows international gas prices. There is a 20-fold increase for European prices per mBtu in yellow (labeled TTF) with Japanese and Korean prices not far behind in orange. Henry Hub are U.S. prices.
Higher gas costs for energy companies will be passed down you and me via heating and electric costs. Loris says, "prices for other goods and services will increase too because energy is such a critical input for everything we make and do."
Businesses will pass those costs along too. Loris fears economic stagnation, "Not to mention the more money that you spend on energy, the less you have available for food, health care, education, clothes going out to eat. So it has all of these ripple effects throughout the economy."
Why do we suddenly have a shortage of natural gas?
World economies are firing up again after the pandemic slow down calling for more natural gas. Loris says Europe also had a long and harsh winter in 2020 and the steep price of natural gas on the open market forced countries to draw down their stockpiles. Analysts told FOX Business that natural gas stockpiles in some European countries were over 20% below normal for this time of year.
Add in worldwide efforts to take coal-fired and nuclear power plants offline in favor of options like wind and solar, further increasing the need for natural gas. Loris adds, "that all exacerbates the supply shortage. We know these are intermittent energy sources. The wind doesn't blow all the time and the sun doesn't shine all the time. But they underperformed based on what the projections for their performance was going to be."
Russia has also been keeping their natural gas supply to Europe intentionally tight Loris feels, "Russia has used their ability and control of natural gas markets for political purposes. We saw that in Crimea a few years ago, in which they held citizens of Crimea hostage and cut off natural gas supplies."
The U.K. was even forced to fire up a coal-fired power plant to supply energy while the United Nations Climate Change Conference (COP26) is underway in Scotland says the BBC. Energy shortages and instability loom large while talks of reducing carbon emissions and eliminating reliance on fossil fuels heat up. (Stay up-to-date on the very latest at COP26 on FOXWeather.com or app.)
When will prices flatten out?
C3 Solutions says oil, coal, and natural gas supply 80% of worldwide energy needs. Transitioning to renewables or increasing the production of natural gas will take time.
"I think I could see it leveling off in January or February. It may depend on how harsh this winter is. I know in places like Europe and Asia, they're expecting a harsh, long winter again, and therefore the price impacts over there might get worse before they get better and might last longer than January," adds Loris.
The economy further staggers while we wait for supply to catch up to demand
We all know about current kinks in the supply chain of about everything. Loris cautions the natural gas shortage will lead to more issues, "It's even more problematic for some energy-intensive manufacturers who are also struggling because natural gas is such an important feedstock for a lot of the chemicals in the fertilizers and things manufacturers produce. From an economic standpoint, the fact that they have to curtail their operations or shut down their factories because they're not getting enough natural gas only exacerbates some of the price impacts and economic impacts that we're seeing as a result of these energy shortages."
While the first Winter snows move into the Great Lakes we realize how weather may determine the amount of pain in our wallets for the next couple of months. Loris looks at the bottom line for most Americans, "Affordable, reliable energy is so important. People really need energy to heat their homes in harsh winter conditions. And that's an ultimate priority for families to get through severe weather."