High Natural Gas Prices Will Cripple Europe And Hurt US Consumers This Winter
Russian gas supply cutoffs will devastate the European economy this winter, starting with Germany. US consumers will not be spared pain; natural gas prices are up 95% on US futures markets for the crucial November through March time period.
Few consumers are thinking about natural gas prices and their winter home heating bills, which, if futures markets are correct, will be almost double this year versus last year. Those of us living in cold weather climes of the Northern Hemisphere are about to be hit with a massive increase in our wintertime household heating expenditures.
When comparing last year’s September 1, 2021 closing prices of the five month winter contract natural gas price strip that runs from November through March, the prime winter heating months, against those of September 1, 2022, U.S. natural gas futures markets are up a stunning 95% year-over-year.
Thankfully, Americans are not going to experience anything like the massive price increases that have already hit Europe, where astounding wholesale gas price increases of 400% and more have already taken hold in certain areas. The United States is the world’s largest natural gas producer, and our domestic supplies, while running on the lower side of the five year average, are more than adequate. More importantly, the supplies are ours, we are not beholding to Russia (the world’s second largest natural gas producer) for our supplies, and we control our own destiny by virtue of our energy independence.
Germany is facing the opposite problem; it is the poster child for natural gas dependency, and right now Russia holds all the cards. The repercussions are enormous because Germany is the largest economy in Europe and the fourth largest in the world; its fate will determine the fate of the European and global economies this winter.
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Setting aside all of the implications to industrial production that high natural gas prices will have, Northern Hemisphere residents dependent upon gas for their heating needs, most especially those in Europe, face a hard winter indeed. Russia has completely halted gas flows through one major pipeline, and two others, both of which flow through Ukraine, have been deeply curtailed and are likely to be completely shut before winter is over. European natural gas prices, while stunningly high as of this writing, may not be anywhere near their potential upper limits if Russia does shut all gas supplies to Europe, or if the winter is colder than normal.
What does it all mean for gas prices in the United States? Current prices are about double last year’s levels, and the deepening European natural gas crisis will continue to affect US consumers this side of the Atlantic. Europe needs natural gas and it will import as much compressed natural gas, called Liquified Natural Gas, or LNG, as it can. And while the US is a major source of LNG because of its abundant natural gas supplies, LNG export facilities take years to build. Existing US LNG export levels are literally maxed out in terms of capacity. This means no matter how high demand for LNG becomes, US gas prices will not directly follow European gas prices into the stratosphere, but US gas prices will likely remain elevated, and perhaps rise, as winter’s cold takes hold.
In addition, if Europe lacks natural gas for its energy needs, it will need to use more oil and coal as substitutes, and this will be reflected in continued price increases for both, which will also be supportive for natural gas prices in the United States because the energy content of all hydrocarbons is arbitraged and, within the limits of physical capacity constraints, the price of oil, gas and coal do tend to rise and fall in lockstep, albeit to wildly varying degrees.
Suffice it to say that consumers across the Northern Hemisphere face an expensive, and in the case of Europe, a possibly cold and dangerous winter season this year. Americans need to be prepared for much higher winter heating bills than last year and plan accordingly.