US natural gas will be expensive this winter. Blame the export.

American households that run on natural gas can expect higher bills this winter.

How high prices go depends on many factors, including whether the war in Ukraine takes a new turn and whether the winter is unusually mild or cold. The Energy Information Agency’s winter forecast expects bills to be higher than last year, though not as high as the summer peak.

The war in Ukraine and Europe’s ban on Russian gas have already reshaped global markets. Europe is feeling the pinch because of how much gas it gets from Russia, but the US is facing a different problem.

For most of the 2010s, there was a supply glut that kept wholesale gas prices low in the United States. Supply far exceeded domestic demand, and almost none of it was exported to other countries as liquefied natural gas (LNG). But since 2016, the US has built new terminals that can export gas in a more condensed liquid form. Increased exports raised costs for American consumers competing with global markets that yielded better returns for industry. Add in inflationary costs and extreme weather disasters like winter storm Uri, and prices are unlikely to drop for some time.

Now that the U.S. is increasingly at the whim of the global market, the pitfalls of running the economy by gas are becoming more apparent.

Gas exports drive up prices

Until the last few years, the main consumers of gas were industry, the power sector and homes, businesses and vehicles. Clark Williams-Derry, an energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), explains that as LNG exports have increased, they have “squeezed out” the rest of the US market, particularly residential.

Just like the gasoline you pay for at the pump, natural gas doesn’t have a universal price. The closest we have to this in the US is called Henry Hub, the wholesale price named after a busy distribution hub in Louisiana. Looking at what’s happening with Henry Hub prices helps explain the weirdness of the US gas markets right now.

Henry Hub is not what you pay for. By the time the gas reaches your home, you pay for the fuel, pipelines, and labor involved in the distribution. Regulated utilities typically charge consumers for the gas they use and then, at a fixed price, the cost of building the pipelines to deliver the gas. These costs also increase with inflation, so home prices are rising faster than the Henry Hub shows.

The price of Henry Hub was so low for most of the last decade that manufacturers struggled to stay in business. Until 2016, there was the United States It opened the first liquefied natural gas terminal in Louisiana, which allowed the gas to be condensed for export to other countries. The opening coincided with a landmark decision in 2015 to lift a 40-year ban on crude oil exports. In an effort to avoid another government funding standoff with the GOP-controlled Congress, President Obama signed a spending bill that would allow the United States to begin sending oil to foreign markets at better prices than it can bring domestically.

It took time for the U.S. to ramp up its export capacity with the pandemic thrown into the equation, so the impact on markets took some time to catch on. But economists, including those at the EIA, agree that these terminals affect domestic prices.

An unexpected event this summer demonstrated how important exports are to determining the price of gas in the United States.

In June, an explosion occurred at the second-largest natural gas export facility, Freeport LNG, which is designed to liquefy the gas for transport across the ocean. The plant, responsible for 20 percent of U.S. LNG capacity, has since shut down, reducing export capacity by several percent.

At the time of the explosion, Henry Hub prices were rising sharply, but even 2 percentage points in total US gas consumption was enough to make a clear difference. The terminal has experienced a number of delays in reopening, but when it does, it will switch domestic gas supplies again. Two percentage points may not sound like a lot, but oil and gas supply and demand haven’t been very volatile since the pandemic. As the explosion showed, it is enough to change the wholesale price of gas. Indeed, the EIA expects prices to rise further “when the Freeport LNG terminal in Texas partially resumes operations” because more gas will be exported.

If the US continues to build more of these terminals, the squeeze will only get tighter. As they increase, LNG exports are forecast to double in 2023 from 2020 levels. Normally, these terminals are subject to environmental reviews and permits for years, but Republicans and some Democrats are seeking to speed up those timelines. Some progressive Democrats have called on the Biden administration to end LNG exports altogether, fearing that it would not only lead to higher prices but also lock the world into more fossil fuel use that it can’t afford for decades.

“There’s no point where you build enough infrastructure to cut yourself off from global markets,” said Lorne Stockman, director of research at climate advocacy group Oil Change International. “There are times when supply catches up with demand and prices fall, but inevitably demand starts catching up with supply again. It’s like a hamster wheel.”

You are charged more for extreme weather conditions

Henry Hub prices have been falling since August, but household consumers aren’t feeling much relief. Mark Dyson, managing director of the Carbon Free Electricity Program at energy think tank RMI, pointed to another reason: extreme weather.

In February 2021, Texas was spared by Uri, an unusually severe winter storm. Unprepared for the cold temperatures, the state’s independent grid saw widespread blackouts as gas infrastructure froze and heating demand soared.

This time, the lack of supply was due to the weather, not an international conflict, but the result was the same as in war: Prices skyrocketed. A combination of these things could hypothetically turn $200 bills into $10,000. To avoid this disaster, utility regulators instead forced companies to spread costs over a longer period of time than the storm. Not only in Texas, but in Colorado and Minnesota, consumers could be paying for the storm over the next decade.

The problem is that winter storm Uri may not have been a one-time fluke, but an event that could grow larger due to climate change. It’s harder for scientists to link a single cold weather event to climate change; some studies suggest that warming in the Arctic will increase the chance of polar air spilling south.

Energy efficiency and clean energy help us get out of the “hamster wheel” of rising energy prices

There is a valuable lesson in this summer’s Freeport explosion. Just as a major LNG terminal going offline can make a difference in domestic prices, so can other things. Energy experts immediately point to more production as a solution, even though it creates all sorts of other problems for global warming. As a fossil fuel, methane from natural gas warms the planet faster than carbon dioxide.

Stockman suggests it’s time to get off the hamster wheel we’ve been trying to dig our way out of high energy prices. “The key to making energy cheaper and safer for Americans is to reduce and eventually end our use of these commodities,” Stockman said.

That’s where the policies of the Inflation Reduction Act could make some difference—not just in time for this winter, but perhaps well into 2024. One is a payment for excess methane emissions from drilling and transporting natural gas. encourage producers to capture more of the lost gas that warms the atmosphere. Another is a range of consumption tax credits that incentivize home energy efficiency, including energy-saving appliances such as heat pumps. Finally, both utilities and consumers face new incentives to buy renewables over gas, shifting the economics firmly in favor of solar and wind.

“We will start to see a level of adoption in the next 12 to 24 months that will create a fairly large reduction in gas demand in the medium term,” Dyson said. “Even a few percent reduction in gas demand from electricity, buildings and industry can have a huge impact on prices. It could actually lower the prices we’re seeing now.”