Will US gas prices be affected by Russia cutting gas to Europe? What experts say
Russia followed through on its threat to cut gas supplies to Europe, causing gas prices on the continent to soar, according to media reports.
Gas prices in Europe rose nearly 20% this week, CNBC reported, as Russian natural gas flows dropped to less than 20% of their usual capacity in Germany’s Nord Stream 1 pipeline.
The developments in Europe could affect energy markets in the U.S. through “several channels, kind of direct and indirect,” Maksym Chepeliev, a research economist at Purdue University’s Center for Global Trade Analysis, told McClatchy News.
The U.S. will be directly impacted through natural gas export demands, Chepeliev said, and indirectly impacted through changes in energy prices.
Will gas prices rise in the U.S.?
U.S. gas exports affect domestic prices, Steven Miles, a fellow for global natural gas at the Baker Institute Center for Energy Studies at Rice University, told McClatchy News.
Europe’s energy crunch has worsened since the war in Ukraine began in February, CNN reported. To meet the demand, the U.S. shifted natural gas exports away from South America and Asia to increase exports to Europe, data from the Energy Information Administration showed.
“We’re already all in on all the natural gas that we can export,” Miles said. “There’s nothing that can change in Europe that causes us to export more or less. Prices that they pay there in and of themselves do not cause us to pay more or less here.”
Anna Mikulska, a nonresident fellow in energy studies at the Baker Institute, told McClatchy News that the U.S. can export only a certain amount of gas to Europe because of limitations in existing infrastructure capacities.
“If U.S. producers wanted to send more, they cannot,” Mikulska said, “which means that U.S. prices — domestic prices — are unlikely to increase because of higher demand in Europe or Asia.”
Miles and Chepeliev agreed that U.S. gas prices were not likely to be directly influenced by Russia cutting gas to Europe.
However, Miles noted that, “the amount that we’re exporting has become sizable.”
He said the “quantity of (liquefied natural gas) that we are exporting is starting to be felt and seen in U.S. natural gas markets and prices.”
A June explosion at the Freeport export terminal in Texas made that clear, Miles said.
The Freeport natural gas export terminal accounts for about 20% of U.S. gas exports, Mikulska said. After the explosion, the terminal went offline, leaving more gas in the U.S. than expected.
According to Miles, “the moment the Freeport went offline, U.S. natural gas prices fell. That demonstrates the impact that the demand pull of (liquefied natural gas) exports have on prices.”
Freeport, however, is only offline temporarily, Miles said.
“When Freeport comes back online, I would anticipate there would again be pressure on U.S. prices,” he said.
That pressure may coincide with another important factor: winter demand.
What about winter gas prices?
Though Russia cutting gas to Europe isn’t likely to have an immediate effect on U.S. gas prices, when Freeport is reopened and the U.S. is back at maximum export capacity, that could have an effect on winter costs.
Chepeliev said that impact “depends on how winter goes.”
Mikulska said there are two reasons gas prices might rise this winter. First, a “very cold winter,” which “means that there’s gonna be additional demand.” Second, “there might be bottleneck in the pipelines.”
Miles agreed, saying, “We have a hard time getting gas in quantities from where we have it to where we need it.”
These bottlenecks — when supplies are available but unable to reach areas of high demand — will likely only affect particular markets and regions, Mikulska and Miles said, noting that Boston and other parts of New England were the most likely to be affected.
But the Freeport export terminal is a third factor in winter gas prices, Miles said. “Freeport is supposed to come back online in the winter. So that would, you know, offset to some degree” the current benefit of lower domestic prices due to higher domestic supply.
Still, the gas situation in the U.S. is nowhere near as bad as it could be, Mikulska said. “What would have happened if all this” — Europe’s energy crunch and Russia’s continued cutting of gas — “happened and the U.S. wasn’t oil and gas producer?”
If the U.S. did not produce natural gas, “gas prices would be skyrocketing” for domestic consumers, Mikulska said.
This story was originally published July 27, 2022 at 12:11 PM with the headline "Will US gas prices be affected by Russia cutting gas to Europe? What experts say."
