The "energy" word problem
A 101 crash course on “energy prices are surging.” Three different markets. One word. Total confusion. That’s the point.
Watch any cable news segment about energy prices.
Watch the B-roll.
A reporter says “energy prices are surging.” Cut to a gas pump. Cut to an electricity bill. Cut to a flare stack in West Texas.
Three different markets. Three different price drivers. One word.
This is the whole game.
When a politician says “energy,” they almost always mean one of three things. They almost never tell you which.
Crude oil. Set by Organization of the Petroleum Exporting Countries (OPEC), geopolitics, and global demand. The base ingredient. Refinery margins, taxes, and distribution stack on top to make the price you pay at the pump. It’s a fossil fuel.
Natural gas. Heats your house. Cooks your food. And (this part matters) generates a huge chunk of your electricity. Also a fossil fuel. Cleaner then coal and crude oil when burned.
Wholesale electricity. What you actually buy on your monthly utility bill. Made from a mix of fuels. Delivered through a regulated stack of wires and policy charges.
Oil can spike while electricity is flat. Gas can crash while gasoline stays high. Sometimes they may all move in tandem. Mostly they don’t move together.
Next time a politician says “energy prices are up” ask which one.
They may not know either.
(One more layer. Most of the world calls it petrol. Americans call it gas. Confusing, because gasoline is a liquid and natural gas is a gas. I’ll call it petrol.)
Quick case study. California. Highest petrol prices in the country.
When I moved here I thought it was just taxes.
It is not just taxes.
Roughly, the price of a gallon in California breaks down like this: crude oil ~35–45% (currently elevated thanks to the Iran war), refining ~15–20%, state and federal excise taxes about 80 cents combined, climate programs (Cap and Trade + Low Carbon Fuel Standard) another 60–90 cents, plus distribution and retail margin.
The refining premium is the part nobody talks about. California makes its own boutique blend, technically called California Reformulated Gasoline, Phase 3 (CaRFG3), the cleanest gasoline in the world. Out-of-state refineries won’t bother making it unless the premium is huge. So when a California refinery goes offline, and two are closing in the next year, there is no quick substitute.
81% of the petrol burned in California in 2025 was refined in-state. That number used to be over 90%. The state is closing refineries faster than demand is falling.
Did the blend work? Yes. California Air Resources Board’s 2003 assessment found the emissions benefits were equivalent to removing 3.5 million vehicles from California’s roads. It cut carcinogenic toxic air contaminants by more than a third. It is a big part of why you can see the mountains from downtown LA on most days.
The Gulf Coast pipeline network that feeds the rest of the country with refined product doesn’t cross the Rockies. The whole West Coast has to fend for itself. (PADD 5 - Petroleum Administration for Defense District 5 (the West Coast region: California, Oregon, Washington, Nevada, Arizona, Alaska, Hawaii) in U.S. Energy Information Administration (EIA) -speak.
Now here is the part nobody explains.
Your electricity bill is not one thing. It is four things bundled into one number.
Generation. The actual cost of making the electrons. 40–60% of the bill. The part that tracks fuel prices.
Transmission. Moving high-voltage power across the country on those big lattice towers. 5–15%. Regulated.
Distribution. The local poles. The wires on your street. Sometimes called telephone poles. The transformer the squirrel keeps blowing up. 25–35%. Also regulated.
Taxes, fees, and policy charges. State surcharges. Renewable mandates. Energy efficiency programs. 5–20%.
When your bill goes up, the politician on TV will pick whichever one is convenient to blame.
Here is the trick most people miss.
Natural gas is the marginal fuel in most US and European electricity grids. Meaning, even when only a fraction of your electricity actually comes from gas, the price of gas often sets the wholesale price of *all* electricity.
This is why Europe’s electricity bills exploded after Russia invaded Ukraine.
Gas spiked. Gas set the price. The wind farms got paid the gas price too.
Rage about wind and solar all you want. The grid was still running on the gas price.
There is also energy prices you don’t think about as energy.
Heating oil - basically the same product as diesel.
Jet fuel - in every plane ticket.
Bunker fuel - fuels maritime vessels. Price included in every imported thing you own.
Propane - the grill, the backup generator. Each one its own market. None of them what the politician means.
And the sneaky one - the energy cost of everything you buy is baked into the price.
Aluminum is essentially frozen electricity. 13–15 kilowatt hours (kWh) per kilogram. The reason aluminum smelters are next to cheap hydro.
Synthetic fertilizer is essentially frozen natural gas. The Haber-Bosch process turns gas into ammonia. When gas spikes, urea spikes. When urea spikes, food spikes.
Your grocery price is not just food.
It is natural gas with extra steps.
So here is the homework.
Next time someone in a suit says “energy prices are up” ask the question they don’t want you to ask.
Which one?
Crude oil is mostly OPEC and geopolitics. The president has limited levers. (But aometimes they really fuck it up.)
Natural gas is weather, pipelines, exports, and storage.
Electricity is a regulated stack. Most of which was set by your state utility commission, not the White House.
Three different markets. Three different stories. Three different sets of people responsible.
One word.
That is not laziness.
That is the whole point.
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