Energy as a Weapon. First Gas, Now Electricity

May 13, 2022

Europe gets a large portion of it’s gas, for electricity, and critically space heating, from Russia. In this tense moment, Russia is using it’s gas as a weapon against democracy, in Ukraine, Europe, and beyond.

A few years ago, US consumers were insulated from global fossil gas markets because we simply did not export into those markets, or force consumers to compete with European and Asian consumers. That’s now changed, as the US has become the world’s largest exporter of gas, and President Biden has committed US gas to help Europe wean itself from Russian supplies.
Higher gas prices have big implications for the energy transition.

Utility Dive:

The rising cost of natural gas is an issue for consumers, utilities and state regulators. Late last month, Duke Energy Indiana asked the Indiana Utility Regulatory Commission to approve rate hikes of up to 16% for residential customers, up to 20.3% for commercial customers and up to 25.7% for industrial customers in response to rising fuel costs, according to the Daily Journal.

Natural gas prices, up sharply this year, typically help set electricity prices, and power plants in January burned 31.6 billion cubic feet per day of natural gas, a wintertime record, the Energy Information Administration said in a report Thursday.

Henry Hub natural gas prices averaged $4.38 per million British thermal units in January, up from $2.71/MMBtu in January 2021, according to EIA data. Henry Hub prices averaged $4.69/MMBtu in February and $4.90/MMBtu in March.

Higher LNG exports are one factor driving the price increases, according to consumer advocates.

“PJM power producers are now forced to compete for gas supplies with Chinese and European customers because of our record LNG exports,” Slocum said Friday in an email, noting the U.S. had zero LNG exports in 2015 and is now the largest natural gas exporter in the world. 

“That has consequences for American consumers and the U.S. power sector,” he said.

Also, the natural gas physical benchmark pricing systems that FERC oversees are “fundamentally broken” and vulnerable to market manipulation, according to Slocum.

FERC should end voluntary price reporting for natural gas, Public Citizen said in a filing with the agency last year. 

FERC is “choosing to retain the current uncompetitive, illiquid, non-transparent gas pricing system,” Slocum said in the email.

The PJM and ISO-NE market reports highlight the need for FERC to make sure the U.S. has a robust natural gas pipeline system, according to Travis Fisher, president of the Electricity Consumers Resource Council, a trade group representing industrial companies.

“Natural gas is key to achieving electric reliability at least cost, a goal that is central to FERC’s responsibilities under the Federal Power Act,” Fisher said in an email, noting the agency is in the process of revising how it reviews natural gas infrastructure.

In PJM, gas-fired generation was 36% of all power production in the first quarter, a 6.8% jump from the same period last year, while coal-fired power production was 23.7% of all generation, down 3.1% from a year ago, according to Monitoring Analytics, the grid operator’s market monitor.

Energy prices, the largest part of electricity prices, which also include transmission, capacity and other costs, jumped 75.5%, to $54.13/MWh, in the first three months this year, compared with $30.84/MWh in the first quarter of 2021, the third-highest first-quarter increase since 1999, Monitoring Analytics said.

Looking ahead, the EIA expects Henry Hub natural gas prices to average $7.83/MMBtu in the second quarter this year and to climb to $8.59/MMBtu in the second half of the year, in part because of expectations for high levels of power plant usage and increased LNG exports, the agency said in an energy assessment released Tuesday.

“Natural gas prices could rise significantly above forecast levels if summer temperatures are hotter than assumed in this forecast and electricity demand is higher,” the EIA said, noting it expects the Henry Hub spot price will fall to $4.74/MMBtu, on average, next year.


4 Responses to “Energy as a Weapon. First Gas, Now Electricity”

  1. redskylite Says:

    Seems very likely that Turkey will veto both Finland’s and Sweden’s application to join NATO anyway, over the perceived support Finland offers to Kurdish refugees etc.

    • rhymeswithgoalie Says:

      I hate one-veto-kills-it systems, like the EU has. (See also: Faux filibuster mechanism in the US Senate.)

  2. rhymeswithgoalie Says:

    I don’t think Finns are stupid enough to not have seen this coming.

    Maybe they can generate electricity from forest debris….

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