Multiple factors behind high costs of energy

CASPER — The U.S. became the world’s biggest exporter of liquefied natural gas (LNG) during the first half of 2022, the Energy Information Administration said Monday. Over those six months, the price of natural gas — which began the year unusually high — nearly tripled. 
Natural gas is transported mostly by pipeline and tends not to leave the region where it originates. That leaves natural gas markets more vulnerable to local disruptions, but less vulnerable to global price swings, compared with oil. 
But U.S. exports of LNG — natural gas cooled to its liquid form — have been on the rise for the last two decades, and accelerated over the last several years, according to agency data. 
In 2019, the U.S. exported about 14% of the natural gas it produced. That share jumped to almost 16% in 2020, as demand faltered and prices tumbled early in the pandemic, then climbed past 19% in 2021. Demand quickly recovered. Production lagged behind. 
“Natural gas prices have increased substantially over the past year-plus from the historically low prices that we’ve become accustomed to over the past 8-10 years,” Michael Howe, gas utility Black Hills Energy’s community affairs manager, said in an email. 
The fuel became expensive enough by last fall that electricity suppliers cut back on their natural gas use and paid premiums for increasingly cost-competitive coal. Powder River Basin spot prices nearly tripled in November and have remained elevated since. 
Now, as unrelenting heat waves exacerbated by climate change bake the U.S. this summer, air conditioners are working overtime, causing household electricity consumption to spike. And the spate of closures of coal-fired power plants, which emit more carbon than gas-fired plants and were, until recently, more expensive to run, means a growing share of baseload electricity comes from natural gas.
In early June, a fire at one of the country’s biggest LNG export facilities forced it to close, boosting the domestic natural gas supply and almost halving the fuel’s price within a few weeks. 
The relief was short lived, however: Prices are again close to their pre-closure highs. The plant has not reopened. 
U.S. natural gas producers continue to face supply chain interruptions and labor shortages as they try to expand, and remain wary of overextending financially after weathering the pandemic. 
Natural gas wells’ output drops off faster than oil wells, said Ryan McConnaughey, communications director for the Petroleum Association of Wyoming — meaning companies have to drill even more frequently just to maintain production. 
“When you have lots of demand, and supply is constrained, prices go up pretty quickly,” said Rob Godby, an economics professor at the University of Wyoming. 
Households’ natural gas bills are usually highest in the winter and lowest in the summer. Black Hills Energy warned its customers in early June that their costs might not drop as much as expected this year. The utility recommended adaptations like lowering the temperature on the water heater, cooking and baking at the same time and avoiding using the stove, oven, dishwasher and washing machine during the hottest part of the day. 
In Europe, meanwhile, natural gas prices have skyrocketed since the start of 2022 amid simmering tensions between Russia and the rest of the continent — much of which relies heavily on Russian natural gas — in the wake of the invasion of Ukraine. 
Germany and other major European economies, fearful that Russia may curtail natural gas supplies as cold weather nears, have scrambled to secure alternative sources. 
“People really don’t have a lot of substitutes for natural gas,” Godby said. 
Europe is looking to renewables, electric vehicles and alternative heating technologies, like electricity-powered heat pumps, to help end its dependence on Russian energy. The shift could take a while, though. 
For now, at least, natural gas remains a necessity — and a liability. 
Since February, the U.S. has exported as much LNG as it could to Europe. But existing infrastructure limits how much can be sent and where the gas is shipped from. 
The country’s LNG exports were up 12% between January and June compared with the second half of 2021, according to the Energy Information Administration. Most went to the EU and U.K., where LNG imports increased 63% during the same period, with almost half of total LNG coming from the U.S. 
“That’s going to continue to be an ongoing demand factor that just reduces the amount of gas that’s kind of left over for the domestic market,” Godby said. “LNG exports will increase over time as our capacity on this side of the ocean builds out even more, and as the capacity to receive imports builds out in Europe.” 
Wyoming, the country’s ninth-biggest natural gas producer as of 2020, is too far from the East Coast and Gulf of Mexico LNG ports to start shipping its natural gas to Europe. 
Its hopes of exporting LNG to Asia via the West Coast have been stonewalled by opposition in the U.S., but could eventually become possible in Mexico, south of the California border. 
But if other states’ exports do rise in the coming years, Godby said, the impact on U.S. natural gas prices depends on whether companies, including Wyoming’s, can produce enough to make up for them. 
“We fit in by filling that gap,” Godby said. “As demand remains high for natural gas, we’ll continue to see higher demand for our gas, regardless of what it’s being used for.”
 
This story was published on July 28, 2022.