In a recent interview for CNBC, Joe Dominguez, CEO of Constellation Energy, one of the US largest generators, said that “natural gas sets the price of electricity in America, over 90 percent of the time.” So don’t buy into the BS talking point that it’s all this green energy pushing prices up, and that “Drill Baby Drill” is the solution.
In fact, the new administration is not doing anything likely to bring prices down, and everything to push them upward.
Mathew Zeitlin in Heatmap:
European demand for liquified natural gas has been high recently, which helps pull the American natural gas price closer to a global price, as Europe is a major buyer of U.S. LNG.
During the early years of the shale boom in the 2010s, before the United States had built much natural gas export capacity (the first LNG shipment from the continental United States left Louisiana in early 2016, believe it or not), American natural gas consumers benefited from “true natural gas abundance,” Amarnath told me. “We had this abundance of natural gas and no way for it to get out.”
Those days are now over. The Trump administration has been promoting LNG exports from day one to a gas-hungry global economy. “We’re not the only country that wants natural gas, and LNG always pays a premium,” Amarnath said.
In March, Western European gas imports hit their highest level since 2017, according to Bloomberg. And there’s reason to expect LNG exports will continue at that pace, or even pick up. One of the Trump administration’s first energy policy actions was to reverse the Biden-era pause on permitting new LNG terminals, and Secretary of Energy Chris Wright has issued a number of approvals and permits for new LNG export terminals since.
The EIA last week bumped up its forecast for natural gas prices for this year and next, citing both higher domestic natural gas demand and higher exports than initially expected. And those are in addition to all the structural factors in the United States pulling on electricity demand — and therefore natural gas demand — including the rise in data center development and the boom in new manufacturing.
But we’re in the era of “drill, baby, drill,” right? So all that new demand will be met with more supply? Not so fast.
Increased production of oil overseas — pushed for by Trump — is playing havoc with the economics of America’s oil and gas companies, which are starting to level off or even decrease production. The threat of an economic slowdown induced by Trump’s tariffs also influenced some of those decisions, though that fear may have eased with the U.S.-China trade deal announced on Monday.
While it’s the price of oil that largely determines investment decisions for these companies, a consequence can be fluctuations in natural gas production. That’s because much of America’s natural gas comes out of oil wells, so when oil wells go unexploited, natural gas stays in the ground, too.
“A drop in crude oil prices over the past three months has reduced our expectations for U.S. crude oil production growth, and we now expect less associated natural gas production than we did in January,” the EIA wrote last week.
“Together, these factors mean we expect natural gas prices will be higher in order to incentivize production and keep markets balanced.”
At the same time, Republicans in Congress and the Trump administration look to choke off policy support for a boom in renewables investment with their planned dismantling of the Inflation Reduction Act. This means a less diversified grid that will be more reliant on natural gas, Amarnath explained.
When natural gas prices spike, “it’s very useful to have non-gas sources of supply,” Amarnath told me. The alternative fuel can be anything as long as it’s not fossil. It can be solar, it can be wind, it can be nuclear — all three of which would be hammered by the IRA cuts.
What these sources of power do — besides reduce greenhouse gas emissions — is diversify the grid, so that America’s electricity consumers are “not held hostage to what Asian or European LNG buyers want to pay,” Amarnath said.
“The less you rely on a fuel source for electricity, the more stable you are from a price spike. And we’re more at risk now.”
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Meanwhile, the House is in the process of drafting budget legislation that will seek to gut Biden era tax credits for clean energy, and nuclear power. Recent analysis shows those actions will also increase electricity prices.
In this analysis, we consider the full repeal of energy tax credits and rollback of regulations…..On a national average basis, we find that rollbacks + repeal leads to an increase in total household energy costs by $111-184 in 2030, compared to a scenario where energy tax increases and regulatory repeals are avoided, a 2-4% increase in total costs. Cost increases continue to rise over time, leading to $277-371 in added costs per household in 2035, or a 6-9% increase relative to no rollbacks or repeal. Costs increase across the board for electricity, home energy (including natural gas and heating oil), and gasoline and electricity for mobility.