Rising natural gas prices will cost consumers, but there’s an upside for Louisiana industry

Oil and Gas platform. (File photo)

Demand for natural gas has risen in recent months while the supply has fallen, causing prices to spike domestically and especially overseas. 

Louisiana consumers, who may also have to pay to rebuild electricity infrastructure damaged by recent storms, could be stuck paying higher prices for gas and electricity, though there are potential upsides for the state’s industrial sector. 

“Gas market chaos” has driven prices 280% higher in Europe this year and led to a more than 100% surge in the U.S., Reuters reports. Nasdaq.com lists four key reasons for the increase:

  • Slow restoration of hurricane-affected operations of natural gas producers following Hurricanes Ida and Nicholas. 
  • Late-season hot weather in the U.S. driving consumption above normal levels.
  • Surging consumption in Europe, Asia and Latin America increasing demand for liquefied natural gas exports from America. 
  • The first three factors have led to a “pre-winter supply crunch” in which “working gas in U.S. storage currently sits at its lowest level for this time of year since 2018 going into the peak demand season.”

“All these things are hitting at once,” says Loren Scott, an economist who closely watches Louisiana’s industrial sector. “For those of us who are consumers, the way we will notice this is in our [higher] utility bills.” 

Utilities are allowed to add a markup for rising costs of their fuel, in this case natural gas. Unless the federal government steps in, Louisiana ratepayers also could be on the hook for the cost of repairs to the state’s electricity infrastructure, though those payments likely would be spread out over several years. 

Louisiana’s petrochemical plants depend on natural gas as a fuel and a feedstock. But since the prices they pay for natural gas have not gone up nearly as much as for their counterparts in Europe and Asia, the state’s plants “are not in danger of being out of competition” internationally, Scott says. 

The spread between domestic and international gas prices disappeared during the depths of the COVID-19-driven recession, he says. 

“Now, that spread has returned, and returned with a vengeance,” Scott says. 

The Haynesville natural gas play will become much more competitive, which should benefit the state’s economy, particularly in the Shreveport area, he adds. Haynesville also is convenient for southwest Louisiana’s LNG facilities, which stand to gain from greater international demand.