Almost everything seems to be getting more expensive these days, from prices at the gas pump to groceries to dining out.
Inflation in the United States has risen dramatically following the pandemic, affecting everyone’s finances. Meanwhile, global events continue to leave their mark on the everyday person’s bank balance.
Let’s investigate the roots of the global energy crisis and rising energy and utility prices — and review some ways to avoid the worst of these escalating costs.
What Is the Definition of an Energy Crisis?
An energy crisis happens when there’s a shortfall or shortage of energy supplies like oil and natural gas. Energy crises can also occur if energy materials are available but supplies are interrupted somehow.
What Can Cause an Energy Crisis?
The globalized world and interconnected energy markets mean many events can kickstart an energy crisis. Politics, pandemics, war, and extreme weather events are just a few potential energy crisis initiators.
These events can happen individually, and several may coincide — in short, there are multiple reasons why an energy crisis may begin.
For example, the 1970s energy crisis saw oil prices rise rapidly in the U.S. after an Arab-Israeli war spilled into the worldwide political scene. It led to the Organization of Arab Petroleum Exporting Countries (OAPEC) cutting their oil production and stopping supplies to the United States.
Fuel and energy rationing followed as the crisis spread throughout America. The White House announced measures to invest more in renewable energy and domestic energy production. The roots of the 1970s energy crisis may sound familiar to readers today.
How Did the Energy Crisis of 2002 Start?
In 2019, oil (33.1%) and natural gas (24.2%) were the cornerstones of global energy, a position that remains steady. What came next was an almost perfect storm that created the current global energy crisis.
The COVID pandemic in 2020 saw countries’ citizens in lockdowns, with travel and socializing severely restricted. Factories and offices closed for weeks or months. Global oil prices plummeted, and countries reduced production. They couldn’t stop history from being made; April 20, 2020, was the first day that oil hit a negative price, trading at -$37.63 per barrel.
Many governments gave their citizens money to help alleviate wages lost during COVID lockdowns. Some people spent the money on necessities while others were able to work from home and build up savings from salaries.
Soon, vaccine rollout programs enabled people to return to some form of normality. Demand for products and services was high, but lockdowns had affected global supply chains and the smooth delivery of products. Supply shortages and increased demand began to cause inflation.
Then came the weather. Texas is the United States energy powerhouse, providing almost two-fifths of its crude oil production and reserves and nearly a quarter of its natural gas.
In February 2021, a deadly winter storm closed oil and natural gas production and distribution across the Lone Star state. In September of that same year, Hurricane Ida damaged platforms and onshore support facilities and cut most offshore oil and gas production for more than a week. Both climate incidents reduced the supply of oil and gas resources and pushed prices higher.
Droughts in the western United States saw hydropower electricity generation drop drastically, down 48% in California. All these factors meant more demand for oil and natural gas to generate electricity. But there were global shortages of these fossil fuels, sending costs up.
At the start of 2021, a barrel of crude oil was an average of $50 a barrel. By the end of 2021, it was $78 a barrel and had briefly hit $86 per barrel in October that year.
Global Events Take Center Stage in Energy Crisis
In 2020, Russia was the second-largest gas (17%) and the third-largest oil producer (12%) globally. The country supplied many major economies with energy, including the European Union, China, and the United States.
When Russia invaded Ukraine in February 2022, many countries imposed sanctions on Russia and canceled imports of Russian natural gas and oil. Losing such a key supplier of fossil fuels sent shockwaves worldwide. The price of oil rocketed to over $120 soon after the invasion and has consistently been over $100 per barrel ever since.
Why Is the Price of Oil So Important?
Oil and its offshoot products — gasoline, aviation fuels, heating oil — underpin modern 21st-century life. We move around in cars, planes, and trains and demand goods and services from all over the world. Some 28% of the United States’ total energy consumption is for transportation, with gasoline providing more than half of transport’s energy requirements.
Rising oil prices affect almost everything. Regular gasoline at the pump has leaped from $3.14 per gallon on average in 2021 to more than $4.60 per gallon as of July 2022. Previous highs were close to $5 per gallon and the state of California continues to deal with the highest prices, hovering at more than $6 per gallon as of July 2022. For that reason, moving goods between manufacturers, suppliers, and customers costs more, so prices rise.
However, that pent-up demand from customers with savings has remained high. People have continued to spend despite inflation, buying houses, eating out at restaurants, and taking vacations. In turn, that has pushed up demand for the services that oil and natural gas underpin, creating a circle of increased consumer demand and prices.
Has the Price of Natural Gas Increased?
Natural gas prices, like oil, have risen quickly in the last 12 months. The wholesale market price for natural gas more than doubled between May 2021 and May 2022.
The United States, European Union, and many countries use natural gas to generate electricity and heat homes. In the U.S. in 2021, only 21% of fuel sources came from renewable energy, such as wind, hydropower, and biofuels.
Despite the rising prices, demand continues unabated. In January 2022, the states set a winter month record for natural gas burned for electricity consumption. Colder weather and less coal-generated capacity were to blame.
However, demand for natural gas is not expected to wane soon. Tellingly, U.S. electricity generation from natural gas is predicted to remain at around 40% of the total this summer. But that worldwide scarcity of oil and natural gas has meant electricity production costs have soared.
There has been an environmental cost to the energy crisis, too. Fossil fuel sources accounted for 79% of U.S. consumption of primary energy last year. That spurred U.S. emissions to rise by 6% in 2021 compared to 2020, the first emissions increase in years.
Can’t We Produce More Renewable Energy to Avert the Crisis?
Energy market interconnectivity has come into sharp focus because of the energy crisis. Countries have started to reassess their supply chains and energy independence.
As we saw earlier, U.S. hydropower electricity generation in some areas fell last year because of drought. However, solar and wind capacity is predicted to grow, having overtaken nuclear already in electricity production terms. Nuclear capability will continue to fall back as more reactors reach retirement.
Summer 2022 in the United States is predicted to be warmer and dryer than usual, leading more people to reach for power-hungry air conditioning units. It may also mean less electricity generated at hydroelectric power plants due to a lack of water to power the turbines. Yet electricity demand refuses to wilt despite the expense.
What Has Caused the Energy Crisis of 2022?
The current energy crisis has been caused by many factors, including:
- Coronavirus pandemic lockdowns
- Global supply chain issues
- Weather events curtailing oil and natural gas production
- Global warming and droughts affecting hydroelectric power production
- Latent post-pandemic demand for goods and services
- Russia’s invasion of Ukraine reducing oil and natural gas supplies
- Rising oil and natural gas prices through scarcity
Strong consumer demand and supply issues have led to high inflation rates across the U.S. inflation over the last couple of years. The year 2022 is looking worse, with monthly inflation rates further tightening wallets.
How Has the Energy Crisis Affected Electricity Prices?
The U.S. Energy Information Administration (EIA) says the average residential price of electricity in kilowatt-hours (kWh) has been rising steadily. In 2020, the average residential cost in the U.S. was 13.15 cents per kWh. That went up to 13.72 cents a year later and hit 13.83 cents per kWh in February 2022.
There is little room for optimism for lower rates in some states. The EIA states: “We forecast that residential retail electricity prices will continue to rise in 2022, although at a slightly slower rate. In 2022, we expect the average nominal price will increase by 3.9% to 14.26 cents/kWh.”
Changes in the climate will not help either, with increases in heating days due to colder winter weather and cooling days thanks to warmer summers. Some utilities say energy bills may continue to rise even if fossil fuel prices drop. They say they must invest to make power grids more robust to cope with global warming. Infrastructure also requires upgrading to handle the extra capacity required for electric vehicles and renewable energy suppliers being added.
But not all states are energy equal.
An Example of Renewables Bucking the Energy Crisis
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Such self-sufficiency has brought gains to Oregon’s residents during this energy crisis. Some 68% of Oregon’s electricity is generated via renewable energy sources, with half of all its electricity supplied by hydroelectric power plants.
In April 2021, electricity cost 11.33 cents per kWh in Oregon. A year later, in April 2002, prices actually dropped to 11.22 cents per kWh, bucking the general trend. Energy independence protected the state from the swings and arrows of the global markets that rely on fossil fuel trading.
How to Protect Yourself From Energy Price Rises
Texas has a deregulated energy market, and around 85% of people can choose their electric company and energy plan. Now may be a good time to consider researching a new energy plan. Make sure you always read your current contract and conditions before switching suppliers.
Pro tip: We strongly recommend Texan residents read our guide to finding a Texas energy provider before looking for a new energy contract.
There are two principle offers to consider. Fixed-rate electric plans give customers a set kWh price for their contract duration. Contracts can last up to 60 months, meaning people on fixed-rate deals know how much they will pay for their electricity. That means that people who wish to flick on the air conditioning can predict the price they’ll pay for their energy usage.
Variable-rate electric plans offer a kWh price set by electric companies, which changes with market conditions. The current energy crisis has meant a rise in kWh prices, so people pay more for their electricity than before.
Variable kWh prices work like gasoline prices. Let’s think about an automobile that holds around 20 gallons in the tank. When gasoline prices are low, it costs less to fill the car’s tank from empty. When gasoline prices are higher, it costs more to fill the vehicle.
The same applies to a home. Let’s assume someone uses the same amount of electricity each month. If the kWh prices rise, they will receive higher monthly utility bills. Prices change rapidly sometimes. People on a variable-rate deal may find that clicking that same air conditioning unit into action will cost them more on some days than others.
Fixed-rate deals may seem attractive to people who want energy security during this energy crisis.
Pro tip: Use our guide on fixed rate vs. variable rate to determine the best option for you when dealing with rising energy and utility prices.
Rising Energy and Utility Prices: Do They Point to a Renewable Future?
The current energy crisis came from several factors, including the coronavirus pandemic, supply chain issues, strong consumer demand, and the war in Ukraine.
Shortages in oil and natural gas supplies caused price rises throughout the energy sector, and higher costs eventually found their way onto people’s energy bills. The resulting inflation will continue to push the cost of living upward for the foreseeable future, according to experts.
The old adage about finding a safe haven in troubled waters holds true through the ages. A personal energy crisis could be avoided with some careful research. While sailing through choppy seas, a fixed-rate electricity deal may be the safest port in this inflationary storm. The good news is that you have the power to choose this option in the midst of rising energy and utility prices.
Brought to you by amigoenergy
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