It seems incredible, but the United States may be on the cusp of an energy crisis that will cause your home heating bills to skyrocket this winter.
What makes that prospect so unbelievable is that the U.S. is the number one producer of fossil fuels in the world thanks to the revolution in shale oil drilling. But that revolution led to a glut in natural gas supplies that drove prices through the floor. Now that the world is emerging from a pandemic economy, prices have begun to climb.
But supplies have lagged. The resulting shortages are being keenly felt in Europe as Great Britain grapples with a tripling in energy costs, thanks to — of all things — a lack of wind.
Because the wind was disappointing, Europe has had to increase its consumption of coal and natural gas, 90 percent of which is imported, to fill in the gaps. Storage of fuels was low coming out of last year’s chilly winter, which in this era of global warming was yet another unexpected development. Consequently, as nations raced to refill storage and bought gas to tide them through the becalmed fall, prices bounded higher.
The resulting surge in EU demand ran smack into another big increase in natural gas consumption coming from China. Last year, China punished Australia for daring to ask where COVID-19 originated by unofficially cutting off imports of coal from that nation. Given that Australia was China’s biggest coal source, the dispute led to a shortage of fuel and a sudden increase in natural gas burning and a spike in prices.
Not a big surprise. And the problem, as Liz Peek notes, is in how the Western world is dealing with climate change.
The Western world’s response to climate change has been poorly designed and aimed at pleasing activists instead of intelligently solving the problem. After all, as Biden’s climate envoy John Kerry admitted, whatever the U.S. does on climate is not going to matter much. China’s emissions are greater than those of the U.S. and the entire developed world combined and, along with those of India and other developing nations, rising quickly. Any decrease in EU or U.S. carbon output is a relative drop in the bucket.
The Chinese Communists are impervious to the kind of virtue-signaling and shaming that Western climate activists use as a tactic to get their way. In fact, the Chinese are befuddled that powerful Western politicians would kowtow to the nutcases like that.
Natural gas prices are on the way up, independent of what’s happening in European markets. That’s due almost exclusively to the slowdown in shale oil production in the United States. There is fear that the government will slap restrictions and perhaps even a ban on liquefied natural gas exports. This may temporarily keep prices artificially low but guarantees a rise in prices later in the winter as it gets colder.
But despite the robust availability of domestic oil and gas, the biggest question looming that could determine whether prices fall is whether U.S. producers respond as would generally be expected with high prices.
U.S. natural gas producers are reluctant to drill more because they face growing pressure from Wall Street to demonstrate capital discipline. In addition, investors have soured on fossil fuels in response to public pressure to address climate change.
“If you are saying, ‘I guess we are going to have low prices forever because we have all these molecules in the U.S.,’ that is part of the story, but without investment, that’s not going to be true,” said Kevin Book, managing director of ClearView Energy Partners, a research group.
It doesn’t help that the United States currently has a president who is hostile to fossil fuels — including natural gas. Joe Biden could calm the waters by guaranteeing no change in government policy. But Biden has the green lobby to answer to and he can’t make that guarantee.
Buckle up, because America is in for a roller-coaster ride on energy prices.