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Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…
Affordability has become a big issue. Drivers see oil affordability increasing to the dismay of the drillers and electricity consumers see the opposite picture as prices rise. Politicians tell us not to worry because stock portfolios have risen in value and, therefore, people are richer and can afford more, but there is a good chance that the people with the affordability problem do not have a rising portfolio of stocks or gold to buffer the higher household bills.
The following chart shows the percentage change in value of various measures of income and wealth for 2025 and for the five years 2020-2025.
Basically, the average family’s income barely kept up with the price of key services and came nowhere near the gains in the markets. The future for energy pricing looks mixed. Oil prices depend on a myriad of factors, including wars and revolutions. For instance, will Venezuela re-enter the world oil market? Will a new government in Iran lead to an end to sanctions, how quickly will massive South American oil fields go into production? What will the Saudis do to protect market share? How will economic activity affect demand? You all undoubtedly have your models. The consensus of the quotable experts is that oil prices will decline for some time to come, due to expanding supply. Well-reasoned inspired guesswork? But we will buy that conclusion, which leads us to think that oil price affordability will not be a problem for a while. Not a problem to consumers, anyway. The producers may have other thoughts.
But then we move to electricity. Here, decisions about new power generation and AI demand will bake in the numbers for years to come. Electric generating companies want to build gas-fired power plants. The government wants them to build nuclear and coal plants, too. The AI people want a lot of power fast, and they don’t care how it’s produced. The government wants to encourage exports of LNG, which will put pressure on natural gas prices in the US,A just as new gas-fired generators demand more gas to support the AI load. Residential consumers use gas to heat homes, so they will see higher prices. And so will electric generators who buy gas, and they will have to raise prices, and will do so especially in regions that have competitive markets tied to natural gas prices.
There is more. The Trump administration opposes the installation of renewable energy generation, which could relieve some of the pressure on demand for natural gas. Renewables with storage attached are way cheaper than coal and nuclear and some projects are close to gas pricing. Pushing renewables out in favor of coal and nuclear will raise prices to consumers. In addition, electric companies have to upgrade the aging grid and that will raise costs and prices, too.
So, when does this collision of policies awaken politicians and consumers and turn into an affordability “crisis”? How about sometime between when consumers add up their utility bills at the end of this super cold winter and the utilities’ quarterly earnings call, when they are likely to report outsized earnings? In other words, maybe not long from now.
By Leonard Hyman and William Tilles for Oilprice.com
Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…
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