Homeowners in the United States might be in for a costly winter.
Oil and natural gas prices continue to climb higher as supply struggles to keep up with demand, which will only increase as the temperatures begin to drop across the country and heaters begin to be switched on in houses.
The price of natural gas used to heat homes across the country and produce electricity has skyrocketed over the past year, growing by about 180%. The oil price has also significantly risen, with the cost of crude more than doubling since this time last year. As September comes to a close and fall gets into full swing, many consumers will start to feel the pinch.
Katie Tubb, a senior policy analyst for energy and environmental issues at the Heritage Foundation, told the Washington Examiner that it’s difficult to parse out the exact causes of the soaring energy prices, but supply and demand reign supreme.
Tubb pointed out that natural gas has increasingly become a more significant part of the U.S. electricity sector. She said that while state laws governing the energy sector vary, some in the country will undoubtedly feel the sting of the higher prices during the heating season, which begins on Oct. 1 and runs through the end of April.
“I haven’t seen any projections on these energy prices going down anytime soon, so I think it will be a concern for families going into the winter now,” she said, adding that the sticker shock will boil down to what state a person is in and what that state’s policies are as far as energy markets go.
David Rewcastle, a professor in the economics department at the University of New Haven, explained that it’s not just the U.S. experiencing higher energy prices. He said Europe is getting walloped even worse by the rising costs.
“Europe is facing a perfect storm,” he said.
The energy crunch in Europe is being caused by a massive supply shortage of natural gas after a colder and longer-than-expected winter last year. The problem was exacerbated by a summer that was less windy than anticipated, meaning that wind turbines didn’t generate as much energy as usual, and more natural gas had to be burned.
Russia has also eased its gas supply to Europe, and China ordered state-run energy companies to begin securing their fuel supplies at all costs. Meanwhile, Europe has been trying to buy more natural gas, resulting in bidding wars that have further upped the price of natural gas and other energy commodities.
The demand overseas has resulted in increased exports from the U.S. to Europe. Domestic exports of liquefied natural gas are up nearly 50% from last year, according to the Energy Information Administration.
“Everything is going bonkers right now,” Rewcastle said. He also said the global energy crisis could portend other sectors of the economy also being negatively affected.
“If you look in front of every recession, you will find oil shock,” Rewcastle said. “There are hardly any recessions that you will not find an oil shock preceding.”
Not only is the cost to power one’s house rising because of the higher energy prices, but they also have an impact on other consumer goods. For example, natural gas is used to produce fertilizers used to grow crops, and higher oil prices are reflected in the higher costs of goods that need to be shipped to stores.
Energy is at the root of almost every good or service people in the U.S. and worldwide engage in, so when the cost of energy goes up, it increases the cost of everything in the economy, Tubb said.
There are also concerns about inflation and the future of the energy sector, particularly in light of Democratic spending packages that include several provisions related to emissions and energy usage.
“When the federal government is injecting billions and trillions of dollars into the economy, that’s going to have an effect,” Tubb said. “It always needs to be in the back of our mind as a piece of this, and I don’t think we entirely know the role of inflation in all of this, but I wouldn’t discount it.”
James Coleman, a senior fellow at the American Enterprise Institute, told the Washington Examiner that the million-dollar question concerning the high energy prices is whether they will continue to surge as houses begin to need heating and demand increases or will supply come roaring back in response to rising prices? Predictions about the future of energy prices are all over the place.
The Energy Information Administration’s short-term energy outlook’s 95% confidence interval for West Texas Intermediate crude oil going into 2022 ranges from more than $100 per barrel to about $40 per barrel, while natural gas price projections range between $2 per million British thermal units to about $10.
“There is a huge amount of uncertainty,” Coleman said.
Coleman said the worst-case scenario regarding energy in the U.S. is that a wide swath of the country could face a scenario such as what Texas had to deal with in February of this year. Texas was blasted by several winter storms, which caused demand for heat, and thus energy, to reach all-time highs.
Soon, the state was grappling with rotating power outages (which were done to prevent demand from overpowering the electric grid). As a result, some customers who were getting wholesale variable rates were met with bills for thousands of dollars for just a few days of heating their homes.
“There was a number of catastrophic things that happened there,” he said. “We’re hopeful that that won’t happen.”
The problem with cleaner energy sources, as opposed to commodities such as coal, is that they can’t be as quickly squirreled away and stored in case a glut of energy is suddenly needed, as was the case in Texas.
“That means you have more price volatility,” said Coleman. “It’s harder to store it for the times you need it most, and you can have critical shortages in some cases.”
The start of the heating season is the beginning of October.
