Energy prices to stay high in the near term, SGS Maine Pointe says

Energy prices will continue to be high for U.S. regions in the near term, according to a forecast released Thursday by the supply chain and operations consulting firm SGS Maine Pointe.

The market forces propping up energy prices in the U.S. include increased demand for natural gas exports and decreased oil and gas capital expenditures, the report said. Mild winter weather in the U.S. and Europe have counterbalanced those impacts so far this season, but that relief is likely to be only temporary, SGS Maine Pointe said.

Government charts shows that the average electricity price per KWH in U.S. cities was $0.165 in December, up significantly from $0.142 a year ago. Likewise, the average price for utility (piped) gas per therm in U.S. cities was $1.667, up from $1.402 a year ago. However, gasoline prices have been largely flat, measured at an average of $3.356 per gallon of unleaded regular in U.S. cities in December, down from $3.408 a year ago. 

SGS Maine Pointe says the reason for those trends is a reshuffling of the global natural gas supply, increased U.S. exports to the EU, and an increased investment in renewables. Renewables-centric markets tend to have higher energy costs because of the intermittent nature of renewable energy generation and lack of adequate power storage, two issues that must be addressed before the market can achieve the resource adequacy goals needed to provide a fully resilient power grid, Richard Zdunkewicz, a study co-author and the firm’s energy markets analyst and lead energy advisor, said in a release.

“To effectively incorporate renewable energy into the mix, we need better grid management technologies and the ability to properly balance resources,” Zdunkewicz said. “We’re just not there yet in terms of energy storage technology.” 

Proponents of a shift from fossil fuel to renewable power sources argue that higher prices in the short run will be a far lower price to pay than the long-term effects of climate change triggered by greenhouse gas emissions, including droughts, flooding, and other impacts of more extreme weather.

Whatever the ultimate cost of re-balancing energy sources, the change is already affecting markets, SGS Maine Pointe said. The firm’s report found that oil and gas companies are increasingly reluctant to invest capital in traditional hydrocarbon development, due to shifting government policies and shareholder activism oriented towards renewables. SGS Maine Pointe says that major oil and gas companies are investing about half as much capital as a percentage of cash flow than they were when crude was $100 a barrel. Crude oil futures at press time for this article were $80.19 a barrel, as measured by the Brent Crude commodities market.