Pretty much any fuel that comes out of the ground in southwestern Pennsylvania is worth more today than it was for most of the past five years.
Nearly all of the reasons for this lie outside the region’s borders and, often, across oceans.
A confluence of factors that determine energy prices have converged to boost the value of oil, natural gas, liquids such as ethane and propane, and coal. Economies are recovering from the COVID-19 slump. Chaotic weather has disrupted some traditional energy flows. Natural gas stored underground in the U.S. is below its five-year average.
Consumers are now seeing the trickle-down effects of those price spikes — at the gas pump, on their utility bills, and in the overall inflation that comes from rising energy costs and from higher feedstock prices. Oil and natural gas liquids, after all, are the building blocks of huge quantities of consumer goods, from diapers to car parts to plastic bottles.
“Prices are going up drastically,” said Terry Barchanowicz, vice president at Ross-based Chrislynn Energy Services, which helps clients buy and manage natural gas and electricity.
“They started, basically, in late May and it’s been a sharp, rapid increase in both natural gas and electric prices.
“The reason you’re starting to see electric increase is because gas has gone so crazy.”
Although fuel costs are just one part of a utility bill, customers should expect higher electricity and natural gas prices this winter, he advised.
Recently, the Pennsylvania Office of Consumer Advocate warned that “if current pricing holds, upcoming winter bills can be expected to increase by approximately 20%.”
“As shale gas became a more dominant feature, the use of hedging programs across the natural gas utilities has minimized,” Christine Maloni Hoover, Pennsylvania’s interim acting consumer advocate, testified before a state legislative committee on Oct. 4. Now, with natural gas prices rising quickly, Ms. Hoover wondered if it might be a good time to restore those hedging programs to protect consumers from price spikes.
Mr. Barchanowicz said that he expects that after a tumultuous winter, natural gas prices will likely settle in the $3.50 range.
Not rushing to drill
Gas producers, meanwhile, are so far following through on their promise to shareholders to show discipline and not rush to drill during temporary price spikes. While the natural gas coming out of the Marcellus and Utica is the highest it has ever been, the pace of growth is much slower today than during the “Drill, baby, drill” phase of the shale rush.
That means there won’t be a surplus of gas coming out of the ground that could be shoved into a storage well for use during the winter.
Over the past decade, as shale gas turned the U.S. into a net exporter and the price of natural gas remained below $5 per million BTU (and for large stretches south of $3) for most of that time, talk of reshoring manufacturing to the U.S. hinged on energy prices being affordable and predictable.
Oil and gas advocates, including the Marcellus Shale Coalition, have leaned on the promise of a manufacturing renaissance in the U.S., powered by shale gas. Until it blossoms, they argued, producers should be able to export natural gas to Europe and Asia, where it fetches a much higher price.
Now, with prices rising in the U.S., some of those manufacturers are worried.
Last month, the Industrial Energy Consumers of America, a group representing large energy users like manufacturers, sent a letter to the secretary of the U.S. Department of Energy, urging her to curtail exports of liquefied natural gas until gas storage inventories in the U.S. reach their five-year average levels.
“U.S. consumers, the health of the economy, and national security should take priority over LNG export profits,” they wrote, while at the same time asking for a halt to all pending permits for new LNG facilities.
Currently, about 10% of the gas produced in the U.S. is exported.
Pain at the pump
The prices of oil and gas are connected, in part because oil production from shale wells in places like Texas brings with it a large amount of associated gas, which can flood the market and depress the price of the commodity. A higher oil price — the price of crude surpassed $80 per barrel last week — sends a signal to oil drillers to produce more.
It also means increasing pain at the pump.
Gasoline prices averaged $3.35 in Pittsburgh on Monday, 85 cents higher than a year ago, according to GasBuddy.
The group’s head of petroleum analysis, Patrick De Haan, explained the rise — which mirrors what is happening at pumps across the country — is the results of the highest crude oil price in seven years.
“If Americans can’t slow their appetite for fuels, we’ve got no place for prices to go but up,” he warned.
Looking to exports
Over the longer term, energy demand is going to continue to rise by as much as 50% by 2050, the U.S. Energy Information Administration forecast in its international outlook.
The agency predicted “continued growth in oil and natural gas production, mainly to meet growing demand in Asia.”
The developing countries will be the ones with the most rapid growth, the biggest spikes in energy demand, and the most pull for oil, gas and coal.
Already, this dynamic has prompted Cecil-based Consol Energy to focus on exports. During the second quarter of this year, the company for the first time in its history sent more Pennsylvania coal abroad than it sold domestically.
India — which Consol executives told analysts in August is experiencing an “industrial revolution” — is a particular focus for the company.
But a spat between China and Australia last year — China sought to ban Australian coal imports last year — has allowed the company to pick up some of the slack. CEO Jimmy Brock announced Consol sent its first coal ship to China since 2018 as a result.
Fossil fuels may be out of favor politically, but right now, they’re making money.
Anya Litvak: alitvak@post-gazette.com
First Published: October 12, 2021, 10:00 a.m.
Updated: October 12, 2021, 10:03 a.m.
