Rising natural gas prices expected to drive up electricity costs

Price volatility and sticker shock could trigger public backlash against utilities, an Institute for Energy Economics and Financial Analysis expert says.

From Utility Dive

• Growing international demand is causing natural gas prices to rise, which will in turn push U.S. electricity prices higher now that about 40% of U.S. generation comes from natural gas, according to the Institute for Energy Economics and Financial Analysis.

• Natural gas prices are expected to average $4/MMBtu in 2025, and jump to $4.90/MMBtu in 2026, up from $2.20/MMBtu in 2024, according to the U.S. Energy Information Administration.

• While EIA anticipates high gas prices will shift more generation to coal in the short term, IEEFA energy analyst Dennis Wamsted argues the electric industry’s ability to switch back to coal generation is limited.

Wamsted said he no longer sees how most U.S. electric utilities can avoid raising electricity rates given surging natural gas prices and declining federal support for renewable energy.

“I believe that is going to be the outcome here,” he said. “There will be higher prices for everybody, across the board ... I don’t see a way around that.”

In March and April, the amount of natural gas consumed by LNG exports equaled about half of all the natural gas used to produce electricity in the U.S., according to IEEFA. U.S. exports of LNG are expected to grow 84% in the next four years, but new gas production has not kept pace with rising demand, Wamsted said. “Economics 101” imply gas prices will reach new heights as producers continue to seek out more competitive markets overseas, he said.

Rising natural gas prices have already caused the share of U.S. electricity coming from gas generation to drop from 42% in 2024 to 40% as of mid-2025 as electric companies shifted to more coal, solar and hydro, according to EIA. But Wamsted doesn’t see this trend continuing in the future; aging coal plants will continue to go offline as they reach the end of their useful lives, and there is limited appetite for building new coal-fired power plants.

“They are very expensive to build,” he said. “And I think in most regulated territories in the U.S., a regulator would look at your proposal for a new coal plant and ask if you really think you will have this operating 40 years from now. And I think the answer would almost uniformly be no.”

The U.S. has already seen dramatic swings in gas prices from international events and LNG markets, Wamsted said. Besides the recent price increases, the Russian invasion of Ukraine in 2022 also triggered a dramatic uptick in prices. Gas prices have also dipped when, for example, major LNG plants have gone offline temporarily, he said.

Rate case settlements to pay back the cost of these past price hikes have already resulted in fuel surcharges that are expected to remain on customer bills for years to come. If another international incident or severe winter weather causes additional gas price spikes, the sticker shock of multiple overlapping surcharges is likely to trigger backlash from consumers, Wamsted said.

The likely solution, he said, is renewable energy — and especially energy storage. Battery prices continue to decline, and storage can absorb low-cost, surplus solar energy. This could deliver far more stable electric prices than natural gas in the coming years, Wamsted said.

But to maximize the potential of battery storage, the U.S. needs to catch up on its massive grid infrastructure backlog — all while trying to build enough new generation to meet growing demand from AI data centers, according to Wamsted. So for the foreseeable future, Wamsted said, rising electric prices seem inevitable.