In addition to coping with the rising cost of oil and gasoline, Americans now face a sharp increase in the cost of natural gas. On Monday, the price spiked to $8.00 per million British Thermal Units (BTUs), the highest rate seen in the U.S. in 15 years.
Europe, too, is feeling the pain of rising natural gas prices. The World Bank reported that prices in Europe surged 55.7% in March compared to February.
Natural gas is used residentially for cooking and heating homes; more than half of all homes in the U.S. have natural gas heating systems. However, residential use only makes up approximately 16% of the total natural gas usage in the U.S.
Natural gas is widely utilized in various commercial applications, with 33% used in the production of chemicals and fertilizer and as fuel for vehicles that transport goods. The most significant portion (36%) of natural gas burned in the U.S. is used to produce electricity.
Because natural gas is used in so many ways, a price increase can affect many facets of the economy.
The last spikes in natural gas prices occurred in 2006 and 2008, hitting $13.32 per million BTUs. The price increase was related, in part, to hurricane activity in the Gulf of Mexico, which impacted gas drilling. Since 2009, the price of natural gas has remained relatively steady, trading on the Henry Hub exchange between $3 – $5 per million BTUs.
In 2020, amid the pandemic, the price fell to its lowest in decades, at $2.05 per million BTUs when adjusted for inflation. Continued drilling operations and industry advancements, such as fracking, have contributed to the steady supply of natural gas in the U.S. in recent years.
The current increase in the price of natural gas is due to several factors, including the war in Ukraine, governmental policies, and Mother Nature.
Last year, Russia supplied approximately 40% of the natural gas used in Europe. However, due to the Russian invasion of Ukraine, Europe is now looking to other countries, such as the United States, to supply its natural gas needs. The European Union has already embargoed Russian coal, and the President of the European Council has stated that “measures on oil and gas will be needed sooner or later.”
Additionally, colder-than-normal temperatures in both the U.S. and Europe this past winter and spring have increased the demand for natural gas to heat homes, helping to drive prices up further.
Although President Joe Biden was able to ease the pain of rising oil prices somewhat by releasing oil from the U.S. strategic reserves, there will be no such measures to alleviate the rising cost of natural gas. The U.S. government does not maintain a strategic natural gas reserve.
However, Biden did lift a previous pause on oil and gas drilling on federal lands. It remains to be seen if the U.S. oil and gas companies will invest in more natural gas drilling to meet the increased demand.
