What rising EU energy costs might mean for Americans

What rising EU energy costs might mean for Americans

Pavel Morav / Getty Images/iStockphoto

Pavel Morav / Getty Images/iStockphoto

The price of energy in Europe, as elsewhere in the world, has been on the rise for some time. Much of Europe’s energy is imported, and the unprecedented increase in import costs between December 2020 and December 2021 affected both consumer and producer energy prices, according to data from the Council of the European Union and the European Council.

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In addition, after years of supplying natural gas to Europe for heat and power needs, Russia cut off its natural gas flow to Europe in the third quarter of this year – just before winter. Meanwhile, demand for natural gas remains high globally.

Read on to learn more about the EU energy crisis and how its rising energy costs could affect Americans.

Europe’s energy crisis

The stage was set for trouble even before Russia invaded Ukraine. At that time, it had already reduced its supply of natural gas to Europe to about 20% of the agreed amounts. Then, in late August, Russia completely cut off all natural gas supplies to Europe, plunging the continent into an energy crisis seen by European lawmakers and energy analysts as a move to weaponize energy by Russia.

Around the same time, the Kremlin announced that once Europe lifted its economic sanctions against Moscow, gas supplies would be restored. The move effectively created a deadlock between the two as Europe has said it will not lift sanctions until Moscow reaches a peace deal in its ongoing war with Ukraine.

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Now, Europe is in the depths of an energy crisis. Although Europe managed to bring its gas storage facilities to 95% full as of the end of November, thus making the economic outlook less bleak, the demand for natural gas is still there, along with rising inflation.

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What is happening with the demand for natural gas?

According to the US Energy Information Administration, demand for natural gas is expected to remain high despite the high prices of the commodity. In the US, 46% of households rely on natural gas for heating.

In addition, EIA Director Joe DeCarolis said options for replacing natural gas are currently limited. “We expect that electricity producers – especially in Europe – will have to generate some electricity from petroleum-based fuels this winter.”

What is happening with natural gas prices in the US?

“The price of oil is global,” said Lawrence Kotlikoff, an economics professor at Boston University, president of Economic Security Planning and a New York Times best-selling author.

“So what we are experiencing is what Europe is experiencing and vice versa. Gas is a different story. Its main supplier – Russia – is embargoed or embargoed itself. There are only so many tankers and LNG terminals in Europe. Therefore, we will be able to see gas prices in the US Falling and gas prices in Europe are rising. Maybe we’re already seeing it. But prices are lower compared to six months ago in both regions now because of a hot fall and increased supply from different sectors.”

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Although prices are lower than they were at the beginning of the year, the US Energy Information Administration expects natural gas prices to rise by early 2023.

It said, “We expect natural gas prices to rise from November levels, both as a result of higher demand for natural gas in the winter and an increase in LNG exports… We expect natural gas prices to begin to decline after January, as US storage levels approach the previous five.” annual average, mainly as a result of an increase in natural gas production in the US. However, the possibility of price volatility remains high.”

In other words, if your household runs on natural gas, your heating bills will likely be higher this winter.

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