Study: Iranian Conflict Effect on Texas Energy Rates This Summer
Iranian Conflict Effect on Texas Energy Rates This Summer
Texas Electricity Customers Should Stop Worrying About Hormuz
The Israeli-U.S. conflict with Iran has resulted in the flow of one-fifth of the global supply of oil and natural gas being effectively shut off at the Strait of Hormuz. Loading ships with that amount is hard for anyone to fathom. Just in terms of liquified natural gas (LNG) alone, about 12 billion cubic feet per day (Bcf/d) is stopped by Iran's control of the strait.
Even though this conflict is half a world away, its effect on the cost of global natural gas prices has reverberated all the way to Texas. The Lone Star State relies on natural gas to generate nearly half of its electricity. And with summer heat already building, air conditioning season this summer could be one for the record books.
While the Iran conflict has not made Texas electricity rates go crazy, it's important for consumers to better understand the market conditions facing them this summer. The best way to do that is to compare the current international crisis with a similar crisis involving a major global energy producer. Fortunately (and sadly), we don't have to go back that far.
Did 2022 Foreign Natural Gas Prices Affect U.S. Prices?
On February 24, 2022, Russia invaded Ukraine. As a result, NATO allies and EU nations cut energy imports from Russia. This included shutting off critical natural gas pipelines that supplied much of central Europe. Very quickly, natural gas prices in Europe skyrocketed. The European benchmark price, the Dutch Title Transfer Facility (TTF) rose from roughly $25 per MMBtu on February 14 to about $65 on February 28. Gas rates hit an all time high of about $117 per MMBtu in March.
But natural gas prices in the US barely noticed. That's because the U.S. produces more than enough oil and natural gas to meet its energy needs. And about 1/4 of it comes from Texas.
All the same, U.S. natural gas prices in 2022 ran two to three times above normal. Why?
Our Weather Drives Our Natural Gas Prices
In 2021, the U.S. was producing an average of over 90 BCF of natural gas per day. So, high domestic production insulated U.S. gas prices from global shocks. When Russia invaded Ukraine that February, the NYMEX price took a week to rise 60 cents and then fell 30 cents the week after.
However, January, 2022 was one of the coldest U.S. winters since 2014. Widespread cold resulted in the highest monthly electricity demand for any January on record. The fear of more winter storms, less than average natural gas in storage, and risky short-selling by traders persisted through February, keeping the U.S. natural gas futures market jittery.
U.S. natural gas production normally ramps up by late March and April. But, stored natural gas amounts in mid-March were 17% below the 5 year average. Winter lingered in many parts of the country, and further depleted stores. When it finally left, the industry was hard pressed to raise production. By June 1, natural gas supplies were rebounding sluggishly. But then, summer heat roared in and high cooling demand boosted Henry Hub spot prices throughout the summer. Baking under days of 100°F heat, Dallas electricity rates climbed. At one point, the demand for cooling had generators burning natural gas at a record-high 42.6 Bcf/d.
While the U.S. had already begun shifting more natural gas to be liquified for export, it wasn't a market-rattling amount. At that time, the U.S. exported roughly less than 80 BCF of LNG in a week. In Europe, this was a different story. Imported U.S. LNG prices soared as countries competed to fill up their gas storage for the winter. Prices peaked in August at nearly $100 per MMBtu.
In short, foreign natural gas prices had little effect on U.S. prices. Weather drove the consumption and cost of natural gas and electricity in the U.S.
How This Affected 2022 Texas Electricity Prices
With any Texas summer, cooling demand plays a deciding factor in electricity prices. In 2022, Dallas saw 47 days with highs above 100°F; Houston saw 22. While 2022 was not record breaking, it points out that the average number of 100°F days in Texas has been increasing since the mid-1990s. And as temperatures rise, so does the demand to power air conditioners.
Degree Days Fahrenheit (°Df) measures how much a day's average temperature deviates from a baseline (typically 65°F). NOAA weather data shows that the number of cooling degree days in Texas have been steadily rising, going from 2,200 °Df in 1996 to 2,581 °Df in 2022. That roughly translates into a 17% increase in energy for air conditioning.
To see just how significant a role weather played in Texas electricity rates that summer, we examined historical retail electric service rates from the Public Utility Commission of Texas. The average "bundled" 12-month plan rate (supply rate + the TDU rate) for all five TDU regions in March 2022 was about 15.59 cents per kWh. By June, however, the average residential 12-month plan bundled rate had jumped to 20.81 cents per kWh. Most notably, electricity companies in Houston charged the highest average price per kWh at 25.82 cents.
| TDU | March 2022 ¢/kWh | June 2022 ¢/kWh |
|---|---|---|
| Oncor | 15.01 | 24.32 |
| CenterPoint | 15.60 | 25.82 |
| TNMP | 15.95 | 25.80 |
| AEP TX Central | 15.70 | 24.70 |
| AEP TX North | 15.70 | 24.19 |
In comparison, the U.S. average bundled residential price was 14.41 cents per kWh at that time. In June, the U.S. average bundled residential price also rose to 15.30 cents per kWh.
During this time, natural gas spot prices were two to three times higher than they are today. The EIA reports that during the week of June 8, 2022, the Henry Hub spot price fell from $9.46/MMBtu to $7.72/MMBtu. With higher than normal temperatures in California, the desert southwest, and Texas, the electric power sector accounted for the largest change in consumption, rising by 17.6% (5.7 Bcf/d) week over week, as air conditioning demand increased.
Texas Electricity Prices, Summer 2026
Currently, the average March 2026 residential 12-month plan in Texas is running at 15.87 cents per kWh. While that's a little higher than March 2022, current market conditions are much less likely to raise rates to the highs of June 2022.
- Cheaper Natural Gas: Even with the Iran conflict raging and the Straits of Hormuz shut, U.S. natural gas prices are running 2 to 3 times lower than 2022.
- Less Volatile U.S. Gas Rates: For most of 2026, the NYMEX price has been pretty stable, staying within +/- 20 cents of $3.00/MMBtu.
- More Gas Left Over From Winter: In spite of some hard cold snaps, mild temperatures kept heating demand low. Natural gas in storage is close to the 5-year average — a point which usually keeps commodity traders calm.
- Higher Natural Gas Production: The EIA March 2026 STEO reports U.S. gas production increased to an average of 121 Bcf/d. That's 20% more than 2022.
- Diverse Generation Resources: ERCOT has much more renewable and utility-scale battery resources to rely on than ever before. These alternative generation systems help keep power prices low. And while renewables may be intermittent sources, they have fewer unplanned outages than dispatchable thermal power plants during hot weather.
Which at last brings us to Texas weather and summer electricity rates. The good news is that Texas power prices appear less likely to surge from high natural gas prices this summer. However, it's only April and hot temperatures have come back with a vengeance. NOAA currently forecasts above-normal heat gradually encompassing most of the state by June and lingering through July. Just how many 100°F days that means is unpredictable but they are nevertheless growing more likely. So, Texans may face high electric bills due to hot weather and high demand for cooling.
Sources
EIA March 2026 Short Term Energy Outlook (STEO)
https://www.eia.gov/outlooks/steo
Historical Texas Electricity Rates
https://www.texaselectricityratings.com/resources/historical-rates
Public Utility Commission of Texas, Average Annual Rate Comparison for Residential Electric Service
https://www.puc.texas.gov/industry/electric/rates/resrate/
NOAA Climate at a Glance County Time Series
https://www.ncei.noaa.gov/access/monitoring/climate-at-a-glance/county/time-series/TX-113/cdd/5/10/1895-2026
Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe,The European Energy Price Shock: A Brief Recap
https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022262-print-pdf.pdf
Bullish outlook for winter 2022-23 US power burn adds fuel to gas price rally
https://www.spglobal.com/energy/en/news-research/latest-news/natural-gas/101222-bullish-outlook-for-winter-2022-23-us-power-burn-adds-fuel-to-gas-price-rally
EIA Natural Gas Weekly Archive
https://www.eia.gov/naturalgas/weekly/archivenew_ngwu/2022/06_16/
EIA Electric Power Monthly
https://www.eia.gov/electricity/monthly/index.php
How the Strait of Hormuz closure affects global oil supply
https://www.reuters.com/graphics/IRAN-CRISIS/OIL-LNG/mopaokxlypa/
