The changes in the energy market this August included an increase in electricity and natural gas prices and a piece of new legislation to reduce inflation and help with climate change. Energy prices continued to climb in August thanks to the strong demand for electricity and return of the Freeport LNG terminal to normal operations sooner than expected. Despite high natural gas prices in 2022, the Henry Hub price for natural gas is expected to average $7.54/MMBtu in the second half of 2022 and drop to $5.10/MMBtu in 2023. With demand for natural gas exceeding supply, inventories are at an all-time low, driving up the prices to all-time highs. The rising price of natural gas caused a spike in electricity prices this year because of its use in generating power.
This year U.S. natural gas inventories have less in storage than previous years. At the end of July, U.S. natural gas inventories had 2.5 Tcf in storage, 12% lower than the five-year average. By the end of October, or the end of the injection season, it is expected that natural gas inventories would reach 3.5 Tcf in storage, 6% lower than the five-year average. The EIA forecasts that LNG exports will average 10.0 Bcf/d in the third quarter of 2022 and 11.2 Bcf/d for all of 2022, a 14% increase from 2021 (EIA, 2022). In the first half of 2022 the U.S. became the largest LNG exporter in the world with nearly 70 percent of its exports going to Europe. The U.S. natural gas exports increased by 12 percent compared to the second half of 2021. The increase in LNG capacity, raised international natural gas and LNG prices, and higher global demand all contributed to the spike in exports from the U.S. Exports from the U.S. are expected to increase from 11.2 Bcf/d to 12.7 Bcf/d in 2023. Since Europe reduced their imports of LNG from Russia, over the past 5-6 months, 64 percent or 7.3 Bcf/d of U.S. LNG exports went to Europe.
The U.S. natural gas consumption is up by 3% with the 2022 forecast predicting averages of 85.2 Bcf/d an increase of 3% from 2021. The increase in price from the demand spike for natural gas resulted in an increase in electricity demand because of limited switching from natural gas-powered generators to coal-powered generators. Rising temperature in the U.S. and rising economic activity are also contributing to the rising prices of electricity. Electricity generation is coming from renewable energy sources such as solar and wind which provided 22% of the U.S. generation throughout 2022. Prices for electricity have increased by 6.1% to an average 14.6 cents per kWh in 2022. The annual wholesale average electricity price in the ISO New England and New York Markets is $95/MWh. Another factor that plays a role in the rising energy prices is inflation, or the overall increase in prices. The Inflation Reduction Act of 2022 released on Wednesday, July 27, 2022, by Sen. Schumer and Sen Manchin contains a set of provisions to promote clean energy production, addresses climate change, and facilitates domestic energy production. The Inflation Reduction Act protects ratepayers from volatility in natural gas prices because electricity rates are expected to decrease despite high natural gas prices. According to Resources for the Future the retail price of electricity is expected to drop 5.2-6.7 percent over the next decade. This will end up saving consumers a total of $209-278 billion. With more buildings and households becoming more energy efficient, emission drops of 69.8 percent to 74.9 percent below 2005 levels are expected by 2030.
Greenhouse emissions are expected to be reduced by 1 gigaton by 2030.
The energy outlook is hopeful for 2023 and depending on the severity of the winter weather, international issues, and market conditions we can see price drops as soon as the first half of 2023 where F&D Partners will recommend a different pricing strategy.
A little about us:
F&D Partners is one of the leading energy consultant and engineering firms in the deregulated market, established in July of 2015 and is based in New York City. We currently manage the energy for 1,500 clients in nearly 20 states and five Canadian provinces. We work to find the most competitive prices for electric and natural gas in the market to save our clients up to 40% on their energy bills.
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