National opinion: Next energy shock could be far worse

With each visit to the gas pump, Americans are beginning to see the limits of “energy dominance.” Despite the United States being the world’s largest oil producer, prices at the pump are soaring due to the war in the Middle East.

The price of oil is set on the global market, and what happens in Iran has a direct impact on U.S. consumers. Americans have now paid an extra $10 billion for gasoline since the start of the conflict.

Fortunately, the same price spike has yet to hit U.S. natural gas — the nation’s leading fuel for heating and electricity generation. Remarkably, despite global oil and natural gas supplies being deeply affected by the closure of the Strait of Hormuz, natural gas prices in the U.S. have actually fallen. In fact, they’re at a six-month low. How, you might ask, is that possible?

Unlike oil, natural gas prices remain far more regional, even local. But that’s changing, and it should serve as a warning to Washington.

The United States has become the world’s largest liquefied natural gas (LNG) exporter. Our export capacity has yet to reach a level where prices at home are shaped by global demand. But with America’s LNG exports set to double by 2030, the influence of higher overseas prices is coming.

Yes, U.S. natural gas producers can and will respond to higher demand. But as we’ve seen with oil, record domestic production can’t guarantee low prices in an interconnected global market.

When the next global energy crisis comes — and history tells us it will — there’s ample reason to believe consumers will feel it in their utility bills. Smart energy policy needs to prepare for that next shock now, and fuel optionality will be key.

The U.S. economy is growing increasingly sensitive to the price of natural gas. While that has been a boon under low prices and soaring production, a potential price spike could be crippling. U.S. electricity prices have already jumped 40% since 2020.

Demand for U.S. natural gas isn’t just soaring from overseas — it’s also coming from a surge in domestic power demand. Data centers with the electricity needs of large cities are relying on natural gas for their power generation.

While the addition of renewable sources of electricity can help balance the supply of power, our irreplaceable price shock absorber remains America’s coal fleet.

Last year, when U.S. natural gas prices rose 26% from historic lows, utilities turned to coal plants to soften the impact on ratepayers.

According to recent economic analysis, increased coal generation helped reduce natural gas demand last year, saving consumers an estimated $30-40 billion in higher electricity and natural gas costs.

The optionality provided by America’s coal fleet remains an essential, but often overlooked, strength of our energy supply. We must be careful not to lose it.

Growing and diversifying the nation’s supply of electricity is critical to meeting soaring power demand and addressing ballooning costs. As we build, we should be careful to build on the shoulders of our existing coal capacity, not in place of it.

The very strategy that can help tackle today’s electricity inflation can also fortify our economy against the next global energy shock. We can’t afford not to prepare for it.