Why Undoing the IRA Could Set Up a Gas-Fueled Power Price Shock

The Trump administration’s policy of increased natural gas exports abroad, plus increased industrial and artificial intelligence investment at home, plus cuts to green energy tax credits could add up to more energy price volatility for Americans.

On Monday, the House Ways and Means Committee unveiled its plan for deep cuts to the Inflation Reduction Act, including early expiration dates and restrictions on the core clean energy tax credits that would effectively gut America’s signature climate law.

But Tuesday’s good news about inflation also contained a troubling omen for electricity prices.

Overall, prices are rising at their slowest rate in years. The Bureau of Labor Statistics reported that overall prices have risen 2.3% in the past year, the slowest annual increase since February 2021. But electricity prices were up 0.8% just in the past month, and were up 3.6% over last year.

This is likely due in part to rising natural gas prices, as natural gas provides the better part of American electricity generation.

The benchmark Henry Hub spot price for natural gas was $3.26 per million British thermal unit last week, according to the latest Energy Information Administration data — around twice the price of a year ago. And there’s reason to think prices for both gas and electricity will continue to rise, or at least be vulnerable to spikes, explained Skanda Amarnath, the executive director of Employ America.

European demand for liquified natural gas has been high recently, which helps pull the American natural gas price closer to a global price, as Europe is a major buyer of U.S. LNG.

During the early years of the shale boom in the 2010s, before the United States had built much natural gas export capacity (the first LNG shipment from the continental United States left Louisiana in early 2016, believe it or not), American natural gas consumers benefited from “true natural gas abundance,” Amarnath told me. “We had this abundance of natural gas and no way for it to get out.”

Those days are now over. The Trump administration has been promoting LNG exports from day one to a gas-hungry global economy. “We’re not the only country that wants natural gas, and LNG always pays a premium,” Amarnath said.

In March, Western European gas imports hit their highest level since 2017, according to Bloomberg. And there’s reason to expect LNG exports will continue at that pace, or even pick up. One of the Trump administration’s first energy policy actions was to reverse the Biden-era pause on permitting new LNG terminals, and Secretary of Energy Chris Wright has issued a number of approvals and permits for new LNG export terminals since.

The EIA last week bumped up its forecast for natural gas prices for this year and next, citing both higher domestic natural gas demand and higher exports than initially expected. And those are in addition to all the structural factors in the United States pulling on electricity demand — and therefore natural gas demand — including the rise in data center development and the boom in new manufacturing.

But we’re in the era of “drill, baby, drill,” right? So all that new demand will be met with more supply? Not so fast.

Increased production of oil overseas — pushed for by Trump — is playing havoc with the economics of America’s oil and gas companies, which are starting to level off or even decrease production. The threat of an economic slowdown induced by Trump’s tariffs also influenced some of those decisions, though that fear may have eased with the U.S.-China trade deal announced on Monday.

While it’s the price of oil that largely determines investment decisions for these companies, a consequence can be fluctuations in natural gas production. That’s because much of America’s natural gas comes out of oil wells, so when oil wells go unexploited, natural gas stays in the ground, too.

“A drop in crude oil prices over the past three months has reduced our expectations for U.S. crude oil production growth, and we now expect less associated natural gas production than we did in January,” the EIA wrote last week.

“Together, these factors mean we expect natural gas prices will be higher in order to incentivize production and keep markets balanced.”

At the same time, Republicans in Congress and the Trump administration look to choke off policy support for a boom in renewables investment with their planned dismantling of the Inflation Reduction Act. This means a less diversified grid that will be more reliant on natural gas, Amarnath explained.

When natural gas prices spike, “it’s very useful to have non-gas sources of supply,” Amarnath told me. The alternative fuel can be anything as long as it’s not fossil. It can be solar, it can be wind, it can be nuclear — all three of which would be hammered by the IRA cuts.

What these sources of power do — besides reduce greenhouse gas emissions — is diversify the grid, so that America’s electricity consumers are “not held hostage to what Asian or European LNG buyers want to pay,” Amarnath said.

“The less you rely on a fuel source for electricity, the more stable you are from a price spike. And we’re more at risk now.”