Energy Costs - A Global Issue

Most of the people I talk to think about energy costs as a local problem. Your utility, your supplier, your rate class, your load factor. All true, all worth watching. But if you zoom out even a little, almost everything moving the price you pay right now traces back to something happening somewhere else in the world.

I want to walk through four things I'm tracking that have nothing to do with Texas or Ohio or wherever your facility sits, and everything to do with what shows up on your invoice this winter.

El Niño is back, and it's supposed to be a big one

NOAA moved off La Niña earlier this summer and has El Niño building fast, with current models putting the odds of a very strong event above 60% for this winter. Some forecasters are already using the word "super." That typically means a warmer than normal winter for a lot of the country, which sounds like good news if you're the one paying the heating bill.

Here's the catch. Warm on average doesn't mean warm every day. Winter 2020-2021 had a mild outlook too, right up until a polar vortex parked itself over Texas and gave us Uri. El Niño winters have a track record of delivering sharp, short cold snaps even while the seasonal average stays mild, because the same pattern that keeps the core of the country warm also tends to load the dice for bigger storms in the South and a messier setup in the Northeast. A grid that's already tighter than it used to be doesn't handle surprise demand spikes well, warm winter or not.

So don't read "El Niño winter" as "nothing to worry about." Read it as "the average will look fine and a handful of days won't."

Why a ceasefire in Iran still shows up on your invoice

The U.S. and Israel struck Iran back in February, and it briefly shut down a meaningful share of traffic through the Strait of Hormuz, close to a quarter of the world's oil supply on a normal day. Prices spiked hard, a ceasefire came together in April, and the headlines have mostly moved on.

The market hasn't fully moved on. There's still a risk premium sitting in energy prices, because the underlying vulnerability, that a huge share of the world's oil and gas has to pass through one narrow strait, didn't go away just because the shooting stopped. More importantly for U.S. buyers, the war landed right as Europe should have been refilling gas storage for winter, and a lot of that refill didn't happen.

Which brings me to Europe.

Europe is heading into winter with the emptiest tank in almost twenty years

European gas storage sat at just over 57% full at the start of August. That's the lowest for this point in the season in records going back to 2009, and it's well behind the EU's own target of 90% full by December 1. Hitting that number now requires something like 68 billion cubic meters of net injections before winter, and injections have been running behind both last year's pace and the longer term average.

Why should you care what's sitting in a German storage cavern? Because Europe doesn't produce that gas, they buy it, mostly as LNG on the global market, the same market U.S. exporters sell into. A Europe that's scrambling to catch up on storage is a Europe that's going to bid aggressively for cargoes this fall, and every cargo they win is one that isn't going somewhere else. That competition puts a floor under U.S. gas prices even while our own production and storage numbers look comfortable.

Ukraine's role in this is less about the war itself and more about what it already took off the table. Russian pipeline gas, which used to be a major source of supply for Europe, is mostly gone from that market now and hasn't come back. Every heating season since has leaned more heavily on LNG imports to cover the gap. This year, with storage already behind and Middle East risk still elevated, that lean gets heavier.

Meanwhile, U.S. gas is cheap, but that's not the whole story

Henry Hub has actually been soft, trading recently below $2.70/MMBtu, near a three month low, thanks to strong production and storage that's stayed above the five year average most of this year. The EIA has full year 2026 LNG exports pegged at a record 17 Bcf/d, and that number keeps climbing as more export capacity comes online.

Cheap gas at the wellhead and cheap electricity in your building are two different things, and I've written about that gap before. Data center growth alone pushed PJM's capacity price up more than tenfold in two years.

Now layer in a winter where a strong El Niño could deliver isolated but severe demand spikes, and a global gas market where Europe is competing harder for the same cargoes we'd otherwise have more of at home. None of these forces move prices in a straight line, and none of them show up neatly on a chart the way a hurricane or a cold snap does. They just quietly tighten the market underneath you.

What you should consider

1. If you have a contract expiring in the next 12 months, don't wait on this one. Gas is cheap today for reasons that may not hold through the winter restocking season in Europe. Locking in now protects you from a market that has more upside risk than the current spot price suggests.
2. Build a plan for volatility, not just the average forecast. A warm winter outlook is not a guarantee. Make sure your risk management, whether that's your contract structure, your demand response enrollment, or your backup power, can handle a week of extreme cold even in a mild winter.
3. Take backup generation seriously if you haven't already. I've been recommending it to clients for over ten years, and it used to be a nice-to-have for facilities that couldn't tolerate any downtime. With capacity costs where they are and grid margins as thin as they are, it's turning into a real hedge against both reliability risk and cost risk. GTI Energy Advisors has some no capital options worth a conversation.
4. Ask your broker or consultant what they're watching. If the answer doesn't include European storage levels or Strait of Hormuz shipping activity, they're not looking far enough upstream to catch the next move before it hits your bill.

The war in Iran didn't end when the ceasefire was signed. It just relocated, into a storage cavern in Germany, a shipping lane in the Persian Gulf, and eventually, your energy invoice.