Energy Costs, Consumers and Increasing U.S. Production to Help Demand-Supply Mismatch

Mark Green
Posted October 15, 2021

News item #1: Because energy demand has continued to significantly outpace supply, the U.S. Energy Information Administration (EIA) expects U.S. households will spend more money on heating costs this winter compared to last winter – for electricity, natural gas, propane and heating oil. EIA Acting Administrator Steve Nalley:

“As we have moved beyond what we expect to be the deepest part of the pandemic-related economic downturn, growth in energy demand has generally outpaced growth in supply. These dynamics are raising energy prices around the world.”

News item #2: Again, largely due to the demand-supply mismatch that’s further tightened energy markets and put upward pressure on prices, White House officials continue to wrestle with the impacts of higher consumer energy costs, including gasoline. Bloomberg reports:

Top administration officials met Tuesday night to discuss rising gasoline and natural gas prices, as President Joe Biden faces intensifying pressure to keep a lid on inflation that threatens the economic recovery and Democrats’ political ambitions. … A White House spokeswoman declined to share details about the meeting, but reiterated that the administration will use “all the tools” at its disposal to restrain gasoline prices, which are the highest they have been for this time of year since 2014.

In a separate report, oil historian Daniel Yergin said the U.S. likely will ask OPEC member states to pump more crude to help ease a surge in energy prices – which it has done recently (see here, here and here). Even so, White House Press Secretary Jen Psaki said there’s no plan to curb U.S. natural gas exports because of the global need for energy. (Good news for Europe, which is mired in its own energy crisis.)

News item #3: Coal use has climbed, complicating U.S. efforts to reduce carbon dioxide emissions. Bloomberg reports U.S. power plants are projected to burn 23% more coal this year, the first increase since 2013, driven by higher natural gas prices:

As the world emerges from the coronavirus pandemic, reopening economies are driving a huge rebound for power demand. But natural gas is in short supply, creating shortfalls at a time when wind and hydro have been unreliable in some regions. Europe and Asia have been hit the worst, with skyrocketing markets, blackouts in places like India, power shortages in China and the threat of outages in other countries.

A side note is that rising coal consumption was projected in an OnLocation analysis for API of the potential effects of the administration’s indefinite pause in federal leasing – basically, that reduced natural gas production and availability could boost coal usage for power generation.

Taking all of this in, let’s make this point: There’s affordable, reliable energy available in the U.S., right now – American natural gas and oil.

Instead of calling again on OPEC, support American natural gas and oil production to increase supply and put downward pressure on prices. Instead of contemplating raising taxes on American producers, increase access to U.S. reserves for safe and responsible development. Instead of discouraging energy investment to support production, acknowledge that natural gas and oil will be leading energy sources for decades to come. Policy and policy signals matter.

API President and CEO Mike Sommers:

“The challenge of meeting the world’s growing energy needs at the same time that we are building a lower-carbon future is massive, intertwined and fundamental. Our industry also views it as the opportunity of our time, and one we are uniquely positioned to meet with our scale and expertise, aided by smart policies and relentless innovation. … There are many routes to support U.S. communities, meet energy demand and tackle climate change. They share two things in common: American energy from U.S. natural gas and oil.”