March 22, 2023 - Can U.S. natural gas be two maddeningly contradictory things at the same time? The answer appears to be a resounding yes. The nation’s supply of natural gas has become both the crutch of the U.S. energy system and also an energy affordability and reliability landmine.

Once persistent fears of natural gas shortages were turned on their head by fracking and a gusher of Wall Street financing chasing growth in the shale patch. But now, more than a year into a global energy crisis and with U.S. gas export capacity continuing to soar, stable domestic gas market dynamics that were a constant for a decade are gone. In their place is a return to crippling supply shortfalls in some markets during peak demand and the reemergence of natural gas price volatility.

The Wall Street Journal recently found that, “last year was the most volatile on record for natural gas boosting the cost to heat homes, generate electricity and manufacture economic building blocks such as fertilizer and steel.” That volatility is continuing this year with an expectation from energy traders and major gas buyers that the frenetic, see-sawing market will now be the norm. And troublingly for customers across the country, the loss of so much coal capacity means they’re largely stuck buying gas to keep the lights on regardless of price.

As the Journal explained, “coal-fired power plants have been retired en-masse without wind and solar farms ready to replace their output, pressuring utilities to pay up for gas. Infrastructure to export more gas is being built, but pipeline projects to move more gas within the country have been slowing.”

Between 2007 and 2021, 55% of the nation’s installed coal generating capacity was forced off the grid, largely replaced by natural gas generation. A new regulatory onslaught – what U.S. Environmental Protection Agency Administrator Michael Regan calls a suite of rules – now threatens to push much of the remaining coal fleet into early retirement. That regulatory blitz not only jeopardizes the nation’s already precarious grid reliability but it’s going to further chain consumers to volatile gas prices.

“We’ve lost that lever”

As one expert told The Journal, “In the past you’d have coal generation come on to cool off natural-gas pricing. Right now, we’ve lost that lever to pull because coal generation has tapered.” That’s certainly the case in markets where coal capacity is already gone or going—California, New England and Florida, for example, but it’s increasingly true in other states where coal used to be a hedge against rising gas prices but is rapidly losing its ability to shield consumers from gas price spikes due to retirements.

The repercussions of last year’s soaring gas prices are crushing consumers. Gas-dependent electric utilities are looking to recover billions of dollars in added fuel costs from ratepayers. For example, Florida Power & Light plans to recover $2.1 billion. Southern Company, with its service territory stretching across Georgia, Alabama and Mississippi, incurred $2.7 billion in unexpected fuel costs last year. In Massachusetts, the state’s largest utility has raised residential electricity rates 64% due to gas prices.

There is sound reason to worry that, with the return of natural gas price volatility and the U.S. market’s increasing integration with gas-hungry buyers in Asia and Europe, energy-driven inflation could be here to say. The further loss of coal capacity – especially at the tempo EPA would like – will outpace renewable additions and further expose consumers to energy supply shortfalls and the extraordinary costs that regularly accompany those conditions.

The U.S. has taken for granted its dispatchable fuel diversity. It’s a mistake that now poses an enormous threat to consumers and our economic competitiveness. While an immense amount of damage has already been done, we still have a fleeting opportunity to stop the bleeding and ensure what balance remains on the grid stays there. That begins with pushing back on EPA’s reckless agenda and recognizing the importance of the coal fleet to preserving energy affordability.