Electric and natural gas prices: The inside scoop
How Did it Happen? How It Can Get Fixed? How Does it Affect New England? How Do We Weather It?
I understand that the title may sound dramatic, but we are witnessing the highest natural gas, electric and gasoline prices in five decades. The only difference, for those that may remember, is the long lines at gas stations. What makes this crisis different is how it started, and the fixes required to make it end.
We were fortunate that we had inexpensive energy over the last decade. The discovery of extracting crude oil and natural gas from shale rock through fracking was the catalyst of low prices and worldwide leadership in crude oil and natural gas. That, coupled with the fall of costs associated with renewable power generation of solar and wind, made traditional generation from nuclear and coal less appealing from a carbon footprint standpoint. Unfortunately, in my humble opinion, the transition from old to new generation had an ‘all or nothing’ attitude, an unfriendly administration to traditional generation, the investment pull-back in oil and gas and unexpected economic headwinds caused by the pandemic resulted in a steady and continuing rise of oil and gas that was exacerbated with Russia’s invasion in Ukraine.
The proposed legislation, that appears to have support for passing with the recent buy-in from Senator Kyrsten Sinema, will address some of the causes of the current energy crisis. Specifically, it includes $369 billion on climate and energy programs, including tax credits for buying electric and hydrogen vehicles. It provides numerous incentives to accelerate the build-out of wind and solar farms, as well as large-scale batteries to store their output for use when production declines. It also has provisions that benefit fossil fuel companies requiring the Interior Department to offer oil companies millions of federal acres onshore and offshore as well as support for nuclear power production. WELL DONE!
The main issue however is the lead time of the legislation to take effect. It will increase the supply of energy and lower costs but it will take several years for it to affect the consumer.
New England unfortunately has a front row seat on the financial impact of high energy rates especially with natural gas. The elephant in the room remains the conflict in the Ukraine that many believe Russia is weaponizing natural gas because of the European Union's support with Ukraine. Russia has reduced pipeline capacity on Nord Stream I to 20% with an expectation that ’turbine’ issues will surface in the middle of winter. Although contingencies are taking place, many expect that Europe will have a difficult winter in managing the high price of natural gas. New England’s exposure is during the winter months because of its reliance of liquefied natural gas to offset the pipeline congestion. The premium is already priced into 2022/2023. We are forecasting, based on today’s market, that the National Grid supply rate in Massachusetts, as an example, will exceed $0.30/kWh in December 2022! We are also forecasting that utility supply rates will average $0.18 until December 2024. There are solutions that take advantage of lower future rates that are available today. The Neighborhood Energy team is versed to explain the ‘what if’ scenarios along with strategic counsel that will help contain energy costs in a volatile environment.
Thank you for your continued support
Your friendly Neighborhood Energy