By Terry Jarrett
Thanks to the laws of supply and demand, right now is a good time to be selling natural gas. That’s because the price for natural gas just keeps going up. But why is it rising, and how will that impact millions of U.S. households that depend on natural gas for both home heating and electricity?
In mid-November, natural gas prices rose to their highest level in more than four years. But it wasn’t just the impact of an early winter that sent prices climbing. The U.S. Energy Information Administration (EIA) reports that storage of natural gas is running roughly 16 percent lower than its five-year average. And a Marketwatch analyst says the U.S. is experiencing a “15-year low in stockpiles.”
It may seem surprising that the U.S. could be running low on natural gas right now. After all, the United States has been the world’s top producer of natural gas since 2009. But there are a number of challenges in getting that gas to market, and in preparing sufficient supplies for the coming winter.
Part of the problem is that natural gas is now the top fuel choice for electricity generation in the U.S.—and responsible for 32 percent of net electricity production. In comparison, coal produces a nationwide average of 30 percent, and nuclear 20 percent. But with many coal and nuclear power plants being retired over the past decade, natural gas is now under the gun to make up the difference.
The data bears this out. The North American Electric Reliability Corporation (NERC) reports that more than 46.5 Gigawatts of coal-fired generation has been shut down since 2011, and another 19 Gigawatts are slated to close in the next decade. Six nuclear units have also been retired since 2012, with 14 more units set to close by 2025.
So, at precisely the time when Americans are preparing for winter, natural gas is being forced to shoulder more of the workload. But America’s gas producers are already aiming to ship more natural gas overseas—with natural gas exports expected to triple by the end of 2019.
There’s also the vagaries of winter. The deep freeze that hit the United States last January taxed much of the nation’s power grid to the limit. Available natural gas was prioritized for home heating, which left coal to provide 55 percent of daily incremental power at the time, according to the Department of Energy (DOE). In fact, the DOE says that, without the nation’s remaining coal plants, “the eastern United States would have suffered severe electricity shortages, likely leading to widespread blackouts.”
It’s also troubling that, after the harsh winter of early 2018, the nation just experienced a record Thanksgiving cold snap. An early winter could further drain the same natural gas stockpiles that producers are still attempting to refill. A Financial Times analysis is warning of “historically low gas storage”—and cautioning that the U.S. “cannot meet winter gas demand without storage.”
Reliable, affordable electricity is what keeps Americans warm and safe. But recent price swings in natural gas—and reduced availability—argue for the continued use of both coal and nuclear power to keep meeting baseload electricity needs. Anything less could mean worrying shortfalls for America’s power grid.
Terry M. Jarrett is an energy attorney and consultant who has served on both the National Association of Regulatory Utility Commissioners and the Missouri Public Service Commission. He contributes regularly to LeadingLightEnergy.com.