Why Is Natural Gas So Expensive Now?

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Why Is Natural Gas So Expensive Now?
Supply for natural gas has increased, but so has demand. So why is natural gas becoming so expensive now?

In the U.S., utility gas prices in September were 70% higher than in recent years. Europeans, who already pay much higher for natural gas, saw bills rise sharply by 50% — for example, in Estonia. But to understand energy prices, you have to look at supply and demand.

Pierre-Olivier Gourinchas is the chief economist and director of the research department at the International Monetary Fund. 

"Just everywhere, rapidly rising prices, especially for food and energy, are causing serious hardships for vulnerable households," said Gourinchas. 

In terms of supply, the last 20 years have seen a quiet revolution in global energy – fueled by natural gas. Technology has driven much of that boom. 

Natural gas is mostly methane and it's produced deep underground by the same processes that create oil and coal. Horizontal drilling has allowed wells to tap hard-to-reach layers known as shale. That's rock that lacks the tiny holes that traditional wells tap. Fracking works by injecting water, sand and chemicals into the shale, creating cracks. 

The growth of shale gas shows how dramatically fracking has increased natural gas supply. New pipelines in the U.S. are delivering that gas to domestic communities. 

Meanwhile, a technique that liquefies the gas for shipping has allowed American producers to export to Europe and Asia. So supply has gone up, but demand has too, and it is outstripping supply. 

Power companies are switching fuels. As coal plants have closed, U.S. power companies have burned more and more gas. Burning natural gas, according to the Department of Energy, causes less pollution than coal, including half as much greenhouse gas emissions. As nations work to lower climate pollutants, coal plants have closed and gas plants have opened. 

Surging demand and supply that can't keep up, have created a recipe for high prices. And that was before the war in Ukraine. Until this year, Russia had provided most gas to Europe.  

But in September, Russian President Vladimir Putin shut off the gas through the Nord Stream Pipeline to Germany, putting extra pressure on Europe as the winter approached.  

"European leaders are blaming Russia for a pair of explosions Monday that ruptured two natural gas pipelines in the Baltic Sea," said Lindsay Tuchman, Newsy's Morning Rush anchor. 

By harming the pipeline, the supply of gas to the global market will be reduced further. That factor, along with increased demand from the European Union, has put fresh pressure on gas supplies, driving global prices, even higher.  

The Energy Information Agency said expected increases in supply and a reduction in exports could bring gas prices down for U.S. consumers next year.