In March, Joe Biden committed America to supply Europe with an additional 15 billion cubic tons of natural gas via LNG exports to the continent. Since then, Europe has become a magnet for seaborne gas, as its import needs have skyrocketed. Now, Americans in the northeast, who also buy a significant portion of their gas via LNG tankers, are facing higher prices as Biden’s policies have driven up the prices for seaborne LNG. There could be shortages that leave Americans freezing in the dead of winter. You may remember that Your Survival Guy faced a natural gas outage in Newport, RI that lasted nearly a week during the coldest days of winter, and it was no picnic. Part of the problem is environmentalist opposition to building new pipelines to the northeast. Another piece is the Jones Act, which prevents cargoes of LNG from traveling between export terminals like those in Texas, to import terminals like those in the New England states.
Katherine Blunt and Benoit Morenne report on potential shortages of natural gas in New England in The Wall Street Journal, writing:
New England power producers are preparing for potential strain on the grid this winter as a surge in natural-gas demand abroad threatens to reduce supplies they need to generate electricity.
New England, which relies on natural-gas imports to bridge winter supply gaps, is now competing with European countries for shipments of liquefied natural gas, following Russia’s halt of most pipeline gas to the continent. Severe cold spells in the Northeast could reduce the amount of gas available to generate electricity as more of it is burned to heat homes.
The region’s power-grid operator, ISO New England Inc., has warned that an extremely cold winter could strain the reliability of the grid and potentially result in the need for rolling blackouts to keep electricity supply and demand in balance. The warning comes as executives and analysts predict power producers could have to pay as much as several times more than last year for gas deliveries if severe weather creates urgent need for spot-market purchases.
“The most challenging aspect of this winter is what’s happening around the world and the extreme volatility in the markets,” said Vamsi Chadalavada, the grid operator’s chief operating officer. “If you are in the commercial sector, at what point do you buy fuel?”
Power producers in New England are limited in their ability to store fuel on site and face challenges in contracting for gas supplies, as most pipeline capacity is reserved by gas utilities serving homes and businesses. Most generators tend to procure only a portion of imports with fixed-price agreements and instead rely on the spot market, where gas prices have been volatile, to fill shortfalls.
“Anybody who is depending on the spot market for their natural-gas supply is probably going to have a pretty significant sticker shock,” said Tanya Bodell, a partner at consulting firm StoneTurn who advises energy companies in New England.
New England has been grappling with fuel-supply challenges for more than a decade because the region has limited pipeline capacity. Imports of LNG can make up more than a third of the region’s natural-gas supply during periods of peak demand, according to the Energy Information Administration. The Jones Act, a law restricting the movement of ships between U.S. ports, makes maritime delivery of domestic supplies nearly impossible, so the region relies on gas produced abroad.
Now, intense competition for LNG cargoes driven by European demand makes securing supply ad hoc a costly proposition. This summer, the European benchmark price for natural gas topped $100 per million British thermal units. Gas prices in New England, by comparison, rarely reach much above $30, said Eugene Kim, a research director at energy consulting firm Wood Mackenzie—a differential that encourages suppliers to provide gas to Europe rather than New England.
Action Line: America needs more safe, efficient pipelines, but every American should prepare their family with other forms of heating. Start stacking your holz hausen, and get ready to stay warm. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter, and you’ll learn more about me and how I help American families improve their personal and financial security.
