Energy prices went through a roller coaster ride in 2020 and 2021, dropping during the early months of the COVID-19 pandemic, then rising more than every commodity except one (see later). The rise was driven in large part by basic economics: increased demand for energy due to the economic recovery of the COVID-19 pandemic, which outpaced crude oil and natural gas production, according to the Energy Information Administration (EIA). Producers had cut production during the early months of the pandemic as lockdowns suppressed demand so greatly. Then when demand roared back, it took time to get production out of mothballs and respond to the new strong demand. Extreme weather events also contributed to the rise in energy prices in 2021, such as the Texas winter storm in February and Hurricane Ida in September.
Prices of the energy index group of the S&P Goldman Sachs Commodity Index (GSCI) (https://www.eia.gov/todayinenergy/detail.php?id=50718) rose 54% in 2021. By comparison, most other commodity prices grew by about 20% in 2021. This major rise was most influenced by two crude oil benchmarks, the West Texas Intermediate and Brent, which influences global oil pricing. Natural gas prices increased the least among energy commodities, but still rose by 38% in 2021.
Higher prices for oil and coal and higher prices for carbon emission credits resulted in increased electricity rates worldwide, the International Energy Agency says (https://www.iea.org/commentaries/what-is-behind-soaring-energy-prices-and-what-happens-next). Such market tumult led to global power shortages, particularly in Europe and China, the latter cutting power supply for a time in certain regions, slowing manufacturing and contributing to the current global supply chain concerns.
Which commodity’s price increased more than energy’s in 2021? Something you may need in order to cope with the energy and electric price rises: coffee.
Where are energy prices headed in 2022? There seems to be major disagreements in forecasts. The US government predicts both oil and gas prices will decline in 2022, while several private sector forecasts predict the opposite occurring. The EIA (government) says that production will maintain its high levels throughout 2022 and, therefore, meet growing energy demand as the world recovers from or at least copes with COVID. Plus, the government released oil from its strategic reserves. The EIA predicts a drop in oil (and, therefore, gasoline) prices of about 10-15% in 2022. Several banks and financial institutions do not agree, saying the release from strategic reserves will cause only a temporary leveling of energy prices and that while oil and gas production is being maximized, some demand has still been depressed because of COVID, but will be fully released as the world recovers or copes with the disease. A couple of major banks/institutions predicts a 15-20% rise in oil prices in 2022.
One factor assumed in the models is the behavior of OPEC oil producers. OPEC has stated that it plans to raise oil production in 2022. If they follow through and keep oil production high and consistent, then the government models may be correct. If infighting or other factors depress production, then prices will likely rise in 2022.
Whether energy prices drop some or go up more in 2022, there is no question that energy prices will continue its long-term rise that has been occurring over many years, far outpacing inflation. Companies should take into consideration and assume that their own energy bills will rise significantly in the foreseeable future.
CCES has the experts to help your firm or entity reduce energy usage and save significant costs with tried-and-true strategies, without major disruptions – all the more important as base energy rates are increasing much more than inflation. Contact us today at karell@CCESworld.com or at 914-584-6720.