U.S. natural gas futures have soared to a seven-year high, almost doubling since the beginning of the year. Gas for October delivery recently reached $5.03 per million British thermal units, a level not reached since 2014. The former high price level occurred during the polar vortex (North American cold wave). Because the amount of gas currently held in storage is low in both Europe and America, some analysts anticipate further price increases, resulting in much larger winter heating bills.

Why will the escalating price of natural gas cause inflationary pressures throughout our economy?

  1. Natural gas directly impacts gas-intensive industries from fertilizers to steel and to food producers.
  2. Natural gas provides the largest source of U.S. electricity generation — about 38% in 2019.
  3. Almost half of all U.S. homes use natural gas for heating because it heats faster than electricity and costs less.
  4. Natural gas facilitates the production of chemicals, fertilizers, hydrogen, etc.
  5. Natural gas has widespread industrial applications such as chemical, iron and steel manufacturing.
  6. Natural gas is an important source of energy generation for the transportation, commercial and household sectors.
  7. Natural gas prices rose this summer because unprecedented heat stoked air conditioning demand, resulting in less storage for winter months.

Hurricane Ida wreaked havoc from New Orleans to New York City. The storm’s detrimental impact could surpass the toll of Katrina. The Bureau of Safety and Environmental Enforcement reported on Wednesday that an estimated 77% of oil production and 77% of natural-gas production remains closed along the Gulf Coast.

Ida and other issues have led to natural gas shortages:

  • Key ports and airports were knocked offline, slowing the redeployment of staff and equipment.
  • Companies have not been able to find enough offshore staff, because workers preferred to stay with their families following the storm. Shell, the largest producer in the Gulf, said 80% of its production remains offline.
  • Oil and gas processing plants and other key onshore facilities were damaged or remain without electricity, as widespread power outages persist.
  • Growth in liquefied natural gas (LNG) exports and rising domestic natural gas consumption have raised prices.

In Europe, natural gas prices have reached record levels. BloombergNEF (BNEF), a strategic research provider, reported that U.K futures are trading at an equivalent of more than $19. A slowdown in delivery from Russia, a key exporter, has added to the price pressures.

The Biden Administration’s efforts to crack down on the energy industry’s greenhouse gas pollution has stimulated exports of natural gas to Europe and Asia. The American fracking boom has increased U.S. gas production, and therefore reduced European dependence upon Russia. Eastern European countries such as Poland and Ukraine welcome imports of U.S. gas as an alternative to coal.

The controversy surrounding Texas oil companies’ practice of venting — simply releasing unwanted methane into the air — or burning it off through flaring, has become a major issue both in the United Sates and Europe. Climate activists believe such practices hurt the environment. According to an estimate by the Environmental Defense Fund (EDF), Texas companies have flared 1 trillion cubic feet of methane into the atmosphere since 2013. The amount of flaring could be understated. EDF reported that the Environmental Protection Agency (EPA) has probably undercounted methane emissions by 60 percent.

America faces a balancing act in phasing out fossil fuel given our climate issue concerns. Until now, fossil fuels have met our needs given their bountiful supply and efficient usage. For over a century, fossil fuels have contributed to our nation’s prosperity and industrial prowess. While America needs to ramp up our uses of renewable energy, we have not perfected the deployment of sun wind, and water to meet our multifaceted dependence on fossil fuels.

Originally published in the Sarasota Herald-Tribune