Biden's battling one energy price nightmare. Here comes another.
The Biden administration has been trying for months to dodge the political fallout from high gasoline prices. Now it has an even bigger energy headache to worry about.
A new record high for gasoline at $4.40 a gallon drew a fresh spate of headlines this week. But prices for another crucial fossil fuel — natural gas — have also surged to their highest levels in more than a decade, raising costs for everything from home heating and cooking to fertilizer, chemicals and wholesale electricity.
While voters' focus on the rising prices at the pump has given Republicans a cudgel to attack President Joe Biden for what they contend are anti-oil policies, the dynamics around natural gas are more nuanced: Output of the fuel reached a record last year under Biden and is poised to top that mark this year. The United States also ranks as the world's No. 1 natural gas producer, thanks to a fracking boom that took off during the George W. Bush and Barack Obama administrations.Even so, U.S. natural gas prices have more than doubled since the start of the year and are forecast to average over $8 per million British thermal units for the rest of 2022, well above the $2 to $4 range the fuel has typically traded inside for the past decade. Prices are forecast to fall next year — if production can grow further.
While the price move may not be as immediately visible to the average consumer as the spike in gasoline, it will contribute to the inflation that has dogged Biden for months, mostly by raising costs for food, heating, plastics and utility bills. Homeowners in some states dependent on gas have complained their winter heating costs nearly doubled from the previous year.
Unlike oil production, which fell off sharply when the pandemic kept people from driving, natural gas production reached its highest point ever last year and remains strong. But demand has outstripped that extra supply because a late-spring cold snap in some parts of the country and a heat wave in others has kept consumption high during the spring, when it usually declines.
On top of that, the U.S. has become the world's leading exporter of liquefied natural gas — meaning that American consumers are increasingly competing with buyers overseas for their own country's gas production. Most of these exports go to European allies seeking to lessen their reliance on Russian natural gas in response to Moscow's invasion of Ukraine. And U.S. export capacity is expected to grow further as companies continue to open plants along the Gulf Coast, ensuring that the surge in demand is enough to offset gains in production.
Republicans so far haven't devoted much messaging to the natural gas market, though Alaska Sen. Dan Sullivan has blamed the increase on a lack of infrastructure able to match the increase in supply.
"We have hundreds of years of supplies of gas," Sullivan said. "What we don’t have and what the Biden administration is not readily providing is the infrastructure to move it. That will do more than anything to help with energy prices."
The price increase could be a boon and a curse for the Biden administration and its green energy aspirations, said Mark Jones, political science professor at Rice University in Houston who focuses on the politics of energy.
“If you’re the Biden administration, it’s a negative that rising natural gas prices will boost inflation,” Jones said. “But it’s a positive in that it will quicken the shift to renewables.”
The White House has tried counteract higher gasoline prices with a massive release of crude from the Strategic Petroleum Reserve. But the government has few levers it can pull to reverse the rise in natural gas prices.
When asked about increasing energy costs at a White House news conference last week, Biden pointed to tax credits his administration was pushing for alternative energy and efficiency — but nothing that would ease the financial squeeze in the short term.
“Tax credits for folks to buy solar panels and heat pumps and more efficient windows and doors for their homes,” Biden said during the news conference. “Estimated savings: $500 per year on average.”
A Department of Energy spokesperson pointed to forecasts that natural gas production will eventually catch up with demand, though its statistical arm, the Energy Information Administration, said this week it expects the Louisiana benchmark price will average $7.83 per million BTU in the second quarter and rise to $8.59 for the second half of the year.
“Both short-term and long-term projections from [the Energy Information Administration] show domestic production is expected to continue to rise to support increased demand for LNG exports, as well as domestic demand,” the spokesperson said. “Prices are expected to return to lower levels as production climbs and U.S. storage levels, which have been reduced to below-average levels due to unexpected late winter demand, are replaced during the refill season.”
Higher natural gas prices could bring even more scrutiny to the liquefied natural gas industry. The exports have drawn criticism from Massachusetts Sen. Elizabeth Warren and a handful of other Democrats as a threat to U.S. consumers, but the sector otherwise receives bipartisan support. The Biden administration has valued gas exports as a useful geopolitical tool allowing the U.S. to offer Europe an economic alternative to Russian energy. The Trump administration also pursued the same strategy, with former Energy Secretary Rick Perry referring to the commodity as “freedom gas."
The amount of gas flowing to export facilities — mostly along the Gulf Coast — has grown exponentially since the Obama administration approved the first liquefaction permit in the lower 48 states in 2012. Deliveries of U.S. gas to Western Europe in January and February alone were 332 billion cubic feet, triple the volume for the same time last year, according to the DOE's Energy Information Administration.
Companies like Cheniere Energy, the leading U.S. LNG exporter, are expected to ship 12.4 billion cubic feet a day of gas in 2022, a 25 percent increase from the previous year, the Energy Information Administration projected. That growth, combined with an industry that has become reluctant to speed up its steady production increases,means that LNG exports made up more than 10 percent of U.S. gas consumption as in March, up from virtually zero in 2016, according to EIA data.
“LNG exports are a factor contributing to today’s natural gas pricing,” American Gas Association Vice President of Energy Markets Richard Meyer said in a briefing with reporters, though they are “not necessarily the [only] factor.”
The growth of LNG exports has not only increased demand for U.S. gas, but also tied domestic gas market more closely to those in Europe and Asia where prices are much higher, said Francisco Blanch, head of commodities research at Bank of America Merrill Lynch.
When prices in some European countries move higher, as they did recently when the United Kingdom was paying $24 per million Btu in September — more than three times the current U.S. cost — traders feel confident that they can bid up the cost of U.S. gas well past the point most Americans would consider normal and still make a profit overseas.
“The correlation between domestic and international prices has grown exponentially,” Blanch said. “Four or five years ago there was very little link. But now you’ve seen a huge uptake in the correlation.”
Although the increased natural gas price would normally be a boon for Biden’s goal of increasing wind and solar power generation because it makes the clean energy sources more competitive, the administration may not be able to capitalize on it, some analysts said.
The solar industry says a Commerce Department trade investigation has already hurt imports of solar panels and imperiled about half the planned capacity additions. Meanwhile, large-scale renewable power project developers are facing years-long queues in getting connections to power networks from regional grid operators, said Xizhou Zhou, vice president and managing director for global power and renewables at analyst firm S&P Global.
“There is a chance that this year's [green power generation] additions might actually be slower or new investment decisions might be even slower than the past despite the high natural gas prices,” Zhou said. “It's really a policy and regulatory risk with renewables that needs to be cleared up.”
Still, the longer oil and natural gas prices stay high, utilities will remain bullish on renewables and see delays and cost spikes as a blip in the long-term play on clean energy, some industry representatives have said.
“What people aren't talking about is that the increase in the cost of renewables is much, much less than the increase in the price of fossil fuels — all of them, whether it be coal, gas, or diesel,” André Gluski, chief executive of AES Corp., said during the renewable energy development company’s first quarter earnings call last week. “So actually renewables are more competitive today than ever. And in almost all cases I can say that the energy from renewables is the cheapest energy.”
Catherine Morehouse contributed to this report.