This past week someone challenged me to name a single thing that has improved with Joe Biden as President. I said “Well, U.S. natural gas production set a new record last year, and is on pace to set a new record this year.” He then followed up with “Then why are my heating bills surging?”

That’s a different question. Let’s address it.

It is true that U.S. oil production remains below the record levels set just before the COVID-19 pandemic crushed the energy markets.

The all-time monthly high for oil production took place in November 2019 at 13.0 million BPD (Source). The all-time annual high was also in 2019, when U.S. production averaged 12.3 million BPD.

Current U.S. oil production is 12.1 million BPD, while the average for the year so far is 11.9 million BPD. That is on pace to be the second-highest ever annual U.S. oil production.

Natural gas production experienced a similar plunge due to the pandemic, but production has bounced all the way back.

Monthly natural gas production hit an all-time high of 3.0 trillion cubic feet (Tcf) in December 2019 (Source). Monthly production subsequently fell below 2.7 Tcf as the pandemic began to impact the markets, but production has steadily climbed back.

Average 2021 monthly production of 2.85 Tcf beat the previous 2019 average monthly record of 2.82 Tcf. However, the monthly average through the first half of 2022 was even higher at 2.89 Tcf.

So, average monthly natural gas production is at an all-time high. Therefore, it certainly makes sense to question why natural gas prices are so high.

It’s because natural gas demand is also at an all-time high. According to the 2022 BP Statistical Review, global natural gas demand last year reached a new all-time high, surpassing the previous record set in 2019 by 3.3%.

Demand has increased primarily because of coal-fired power plants switching to natural gas. But another development over the past decade has changed the dynamics of the U.S. natural gas markets.

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There was a time when what happened in the rest of the world didn’t impact the U.S. natural gas markets all that much. We consumed what we produced, and imported a bit. Because the U.S. market was essentially isolated from the rest of the world, large price dislocations could occur. Natural gas prices in Japan and Europe would frequently be several times higher than they were in the U.S.

But as natural gas production ramped up in the U.S., companies began to build liquefied natural gas (LNG) terminals. Over the past decade, the U.S. became the world’s fastest-growing LNG exporter, and is on a pace to become the world’s largest LNG exporter this year.

To understand how quickly U.S. LNG exports have ramped up, consider that in 2015 only 0.01% of U.S. natural gas production was exported as LNG. By 2019 that had jumped to 5.1%, and just two years later it was 10.0%. It will be higher still this year. That’s a huge increase in incremental natural gas demand.

The implications are that the global LNG market now impacts U.S. natural gas prices. And that market has been upended by Europe’s needs. Russia is a major supplier of natural gas for Europe, but those gas exports have plummeted as a result of Russia’s invasion of Ukraine.

Thus, Europe is out trying to secure natural gas supplies for the winter. American companies are exporting as much LNG as they can to Europe, and that is impacting U.S. prices in a way it wouldn’t have a decade ago.

That is a big part of why Americans are facing steep heating bills this winter. It’s also why companies like EQT (NYSE: EQT), the nation’s largest natural gas producer, have seen share prices more than double in 2022.

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