A new threat to affordability – just in time for winter
CNN
By Matt Egan, CNN
New York (CNN) — A new problem is threatening to worsen the affordability squeeze this winter: Natural gas prices have raced back up just as extreme cold forces Americans to crank up the heat.
President Donald Trump has said he’s focused on lowering energy prices. And the most visible energy price for most Americans, gasoline at the pump, has been a clear bright spot on the cost-of-living front.
But the progress on gas prices could be offset by the 39% spike in natural gas futures since the end of September. Natural gas recently climbed to the highest level since December 2022 before retreating sharply this week.
It’s a double whammy for consumers.
First, natural gas is the most common way to heat homes in America. The higher natural gas prices go, the more expensive it will be for many families to stay warm this winter.
Secondly, natural gas is by far the No. 1 fuel source powering the nation’s electric grid. Higher natural gas prices could exacerbate the sticker shock consumers are already experiencing when they open their electric bills.
“All that money the consumer is saving on gasoline may be eaten up by the soaring price of natural gas,” said Andy Lipow, president of consulting firm Lipow Oil Associates.
Natural gas turbulence
The good news is that after jumping on Friday, natural gas prices have tumbled 13% this week.
Still, even at current levels, natural gas is nearly 50% more expensive than at this point last year.
Natural gas prices are extremely volatile, and analysts say it’s unclear at this point whether prices will continue to retreat or resume their recent climb.
Government forecasts don’t expect natural gas to crash back to earth anytime soon.
The Energy Information Administration ramped up its natural gas price forecast by about 10% on Tuesday from its November forecast, citing the “cold snap” in the United States that will drive up demand for heating.
After averaging just $2.19 per million BTU in 2024, the EIA expects natural gas to average $3.56 this year and $4.01 in 2026.
It takes time for those higher natural gas prices to filter through to Americans’ utility bills.
Households that use natural gas for heating are expected to experience a 3% jump in heating prices this winter, according to the EIA. That’s despite the fact that consumption is expected to be 2% lower.
The biggest price hikes are expected in the Northeast (4%) and the Midwest (7%), whereas heating costs in the West are forecasted to be flat and down 3% in the South.
Electricity prices are already rising fast
This isn’t just a wintertime problem.
Higher natural gas prices will contribute to higher electric bills.
According to federal data, natural gas accounts for about 40% of US electricity generation – more than the next two fuel sources, coal and nuclear, combined.
Electricity prices have already been rising sharply.
Residential electricity prices increased by 7.4% over the 12 months ending in September, the most recent month federal data is available. That’s more than twice the rate of inflation.
But the sticker shock is even greater in certain states, including Virginia (9%) and New Jersey (21%), two states where Democrats seized upon the issue in key gubernatorial wins last month.
‘Burned badly before’
So why is natural gas getting more expensive?
Part of the problem is supply.
Analysts say natural gas producers, especially public ones, have been apprehensive to ramp up production out of fear they’ll cause a supply glut that crashes prices.
“They’ve been burned badly before. No one wants that to happen again. There is a certain degree of reluctance,” said Robert Yawger, commodity specialist at Mizuho Securities.
Another factor: cheap oil.
Natural gas is a byproduct of drilling for crude oil. But oil drilling has slowed in recent months because crude is relatively inexpensive. That means so-called associated natural gas could take a hit. (Of course, cheap oil has helped keep a lid on prices for homes that rely on home heating oil to stay warm.)
Exports and AI boost demand
On the demand side, a relatively new phenomenon is that a significant chunk of natural gas produced in the United States is getting shipped overseas as liquified natural gas (LNG).
The EIA expects LNG exports to average 16.3 billion cubic feet per day next year, up 37% from 2024.
LNG exports are helping to supply US allies with relatively inexpensive energy, including European nations attempting to wean themselves off Russian gas.
But that also leaves less natural gas for Americans.
“That’s obviously contributing. These are molecules going overseas that were historically going to the consumer in the United States,” said Yawger, who estimates about 15% to 20% of the natural gas is getting exported.
New LNG export facilities are being built and slated to come online soon, potentially adding to demand.
Yawger emphasized that, at the end of the day, there’s no risk of running out of natural gas. If Americans need to produce more natural gas, it can be done relatively quickly.
But it could take a period of higher prices to encourage that production.
Another factor on the demand side: Artificial intelligence.
The data centers that act as the brains of the AI boom are sucking up enormous amounts of power – including natural gas.
“This is demand that I don’t think the market really anticipated as recently as a year ago,” said Patrick Rau, senior vice president of research and analysis at Natural Gas Intelligence.
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