Americans need to brace for an expensive winter. While the Biden administration celebrates a national gas average that has fallen from its summer peak of $5 to roughly $3.67, households across the country are confronting a new concerning reality: skyrocketing electricity bills. That’s the latest warning coming from the Wall Street Journal and the Energy Information Administration, which anticipates the residential price of electricity will average 14.8 cents per kilowatt-hour in 2022, up 7.5 percent from 2021. Americans across the country are already experiencing skyrocketing electricity costs with the consumer-price index for electricity in August a whopping 15.8 percent higher in August than it was just one year ago. That is the biggest twelve month increase since 1981, according to the U.S. Bureau of Labor Statistics.
Though the price at the pump has fallen, natural gas prices have been exacerbated by Russia’s war in Ukraine. European nations have worked to reduce their dependence on Russian energy sources, and in turn, Russia has drastically cut flows through the Nord Stream 1 pipeline. The U.S. has supplemented the void left behind by the absence of Russian energy with 60% of its LNG exports going to Europe last month. This is reducing the cost of gas in Europe from potential catastrophic extremes, but the necessity of these exports points to the larger issue of global natural gas supplies.
The existing geopolitical reality has placed significant pressure on the supply of natural gas, which according to the Wall Street Journal, “prices have more than doubled this year because of a global supply shortage made worse by the war in Ukraine, and they are expected to remain elevated for months as fuel is needed to light and heat homes during the winter. The supply crunch has made it substantially more expensive for utilities to purchase or produce power, and those costs are being passed on to customers.” Beyond higher costs for electricity, elevated energy costs will also make it more expensive for consumers to purchase home heat heating oil this winter.
Domestic infrastructure limitations are the largest threat to the U.S. natural gas industry. Pipeline constraints mean that natural gas producers have not been able to increase production, hampering the ability for those companies to get the energy to market. The European energy situation is dire, but the U.S. is helping to facilitate relief. However, the situation at home is far from optimistic. New England has been hit particularly hard. The region relies upon imports more heavily than other areas in the U.S. due to a lack of pipeline infrastructure and renewable projects that are not yet operational.
As the country deals with the highest inflation levels in forty years, higher energy costs will continue to fuel price increases. Thankfully, the U.S. has the ability to lower domestic prices through expansion of its own resources. For example, the Marcellus Shale is one of the largest natural gas fields in the world, and the Appalachian Basin is the third largest natural gas producing region in the world. Development of the Marcellus Shale has been encouraging over the last decade, but must be leveraged over the coming years to provide the Mid-Atlantic and Northeast with more natural gas. Until then, consumers will be in for a costly winter.