All of us need a little “pick me up” now and again. Some of us turn to a cup of coffee in the morning, some of us scroll through nostalgic photos. None of us were looking forward to the jolt we got recently when we opened our utility bills that had spiked from the month before. Sticker shock is an understatement. Sure, we heard that inflation was higher than it has been in years and it was the start of winter, but this was unbelievable.

So what is happening and why? It all starts with understanding how your home is heated. Many people in the US who are subject to cold climates heat their homes with some type of fossil fuel (natural gas, heating oil, propane, etc.). And the economic factors that can influence pricing of those fossil fuels can vary widely, with little control of it on our end of the bill. While we can do our part to shut off the lights when we leave a room, keep the thermostat set to a “reasonable” temperature, unplug devices not in use, and the like, we can’t control things like:

• Weather conditions – More extreme weather events, more likely to have higher utility bills 
• Global or Regional Supply Chains – Importing and exporting natural gas is important 
•  Local Pipeline and/or Storage Infrastructure – Without the appropriate infrastructure, some regions of the country can experience greater supply constraints more often 

Nine times out of ten, utility costs passed on to you and I can be boiled down to simple economics: supply and demand. When supply is low and demand is high, prices will rise. When supply is high and demand is low, prices will move lower. Simple, right?

Over the last couple of winters, we have experienced greater Natural Gas supply constraints across the country due to the globalization of the natural gas markets and more frequent extreme weather events. Europe’s limited natural gas infrastructure and aggressive phasing out of fossil fuel power plants over the last several years has had a global impact on gas prices. European citizens are heating their homes more than they did last year, and their renewable power supply has underperformed from what was expected. Therefore, the demand for natural gas in Europe has skyrocketed to not only generate electricity, but also heat homes. For context, European Natural Gas prices are currently trading at 345% higher than they were this time last year.

Why does this impact us in the United States and ultimately your utility bill?Well, in recent years there has been a major uptick in companies importing and exporting Liquefied Natural Gas (LNG). LNG is the liquid form of Natural Gas, which can be more efficiently shipped from one country to another similarly to oil. What this means is that gas suppliers who are in possession of natural gas now have the ability to sell their inventory in Europe for hundreds of dollars per unit compared to tens of dollars per unit in the US. This has a global impact on natural gas prices and on your heating bill.

The supply constraints mentioned is just one side of the coin. Demand has also risen year-over-year. COVID concerns have decreased from this time last year, meaning more businesses are open and operating. Extreme weather events have continued…thankfully we haven’t seen a Uri-type storm this year, but overall meteorologists are calling for a colder than normal winter this year.

All of the above are examples of why you did not need any more of a “pick me up” after you opened your energy bill, unless it was someone helping to get your jaw off the floor. The outlook for 2022 is much of the same as the first sticker that shocked you – prices are expected to remain higher than last year. I, for one, am going to keep taking plenty of photos to reference when the mail arrives.