What to Expect from Natural Gas

Prices in 2010
Natural Gas Powers Texas
According to the US Dept. of Energy, Texas produces and consumes more electricity
than any other state. Over half of Texas’ energy comes from natural gas-powered
generation plants. Texas produces 25% of the nation’s natural gas and is the largest
producer; storing and supplying natural gas via pipeline for all regions of the country.
Yet while Texas has large reserves of low grade coal, most of what is burned in its coal-
fired plants is brought in via train from Wyoming and Montana.
So, it makes sense for Texas electric power generators to rely more on the supply of
natural gas in our back yard rather than waiting for the next 10,000 tons of coal to roll in
from Wyoming. Natural gas burns cleaner than coal and does not leave behind large
amounts of cinder and ash that require proper disposal.
In the past, natural gas was usually uncovered when drilling for oil. Many middle eastern
oil companies commonly used natural gas to push oil out from deposits in the earth and
then let the gas burn off (called “flaring”). This was because there was neither large
local demand for natural gas, nor a way to safely transport it overseas to markets that
wanted it.
In Texas, the practice was very different. Natural gas and oil have been twin
commodities that helped build Texas. Natural gas pipelines stretch in all directions from
Texas and it has long been used throughout the US for heat, light, and electrical
generation. So, it’s little wonder that in this country its price has long been bound to oil,
a commodity in a very volatile market where prices are often shaped by world events.
For this reason, power generating companies have paid more for natural gas than coal,
nuclear, and wind. Because it is the most expensive and so heavily relied upon, the
price of natural gas determines the price of electricity.
When the Wave Broke
Throughout 2007 and into 2008, petroleum and natural gas prices rose due to a popular
tide of speculative investment. This drove resource development and innovation in
natural gas technologies to bring gas reserves to market. Among these:
• The growing Liquified Natural Gas (LNG) trade is expected to increase at 6.7
percent per year until 2020. New fleets of inexpensively built ships and refineries
expanded the industry worldwide. LNG now involves 15 exporting countries and
17 importing countries, including the US.
• Qatar announced its goal to develop both its Northfield natural gas reserve
production (from roughly 54 billion cubic feet in 1995 to 2.7 trillion cubic feet in
2008) and its Gas-to-Liquids capacity. Qatar is now the world’s largest LNG
exporter.
• Developments in horizontal drilling and rock fracturing techniques with high
pressure water provide lower-cost access to several huge deposits of natural gas
trapped in common shale. These include the Marcellus shale bed and the Barnett
 shale in Texas (much of it under Ft. Worth) – which has been estimated at
holding 26 trillion cubic feet of natural gas and is producing 2 billion cubic feet per
day.
In July, 2008, the petroleum/natural gas price wave peaked. Gasoline surged to over
$4.00 per gallon and natural gas prices to $13.69 per billion BTU (mmBTU). The cost of
Texas electricity exploded.
Inundated with high fuel prices, consumers all across America cut their travel and their
energy use. In the fall of 2008, the economy contracted so severely that businesses laid
off workers or closed. They stopped using natural gas to heat their buildings and
stopped needing electricity to power their machinery. This helped drive down the price
of oil, gasoline, and natural gas. But in the case of natural gas, the big developments in
LNG supply and natural gas shale brought enormous amounts of natural gas out of the
ground. Ready to use, it now lay idle in pipelines, tanks, and ships at sea. With plenty of
supply but no demand, the price sank further.
One year after the price peak, the DOE’s EIA reported in its weekly natural gas storage
report for August, 14, 2009:
“Working gas in storage was 3,204 Billion cubic feet (Bcf) as of Friday, August 14, 2009,
according to EIA estimates… Stocks were 562 Bcf higher than last year at this time and
513 Bcf above the 5-year average of 2,691 Bcf.”
By September, 2009, natural gas lost over 80% of its July 2008 value and had
plummeted to $2.409 per mmBTU. Texas electric rates fell as well.
Big Supply + Little Demand = Low Price
Because of booming US domestic supply, natural gas’ price tumble has decoupled it
from oil’s price. As analyst Fadel Gheit put it, “[O]il is a global commodity; gas is a
regional commodity. You can have a huge discrepancy in gas prices from country to
country, from continent to continent, because of a lack of adequate transportation – the
means of shipping to take gas from where it’s found in abundance to where it’s needed.”
As a regional commodity now, present US domestic natural gas prices are somewhat
insulated versus shocks from international problems. New shale deposits being drilled
throughout the lower 48 states provide a more stable supply and stable pricing. As a
result, LNG imports to the US are dropping, prompting the United Nations International
Energy Agency’s chief economist, Fatih Birol, to forecast a world-wide natural gas glut
continuing through 2015.
In an interview with Bloomberg News, energy commodities analyst Stephen Schork
painted this picture of the current natural gas supply: “We have more gas than we know
what to do with in the U.S.; we have more waterborne gas floating around the world’s
oceans that doesn’t have a home.”
When natural gas prices began their slide, many natural gas companies capped their
wells and cut their production. The EIA recently reported in its Short Term Energy
Outlook:
Total marketed natural gas production is estimated to have increased by 3.7 percent in
2009, despite a 59-percent decline in the working natural gas rig count from September
2008 to July 2009.
Even Qatar announced it will not pursue any new development in its North field reserve
for another four years.
Right now, the two big drivers of US consumption are its winter and its economy. This
winter, an early cold snap increased heating demands for much of the country and even
caused a brief $1 price increase. Though faltering, the US economy has improved
somewhat since September, 2008. Because of the slight contraction in productivity and
the early cold weather, natural gas prices have risen from their September, 2009 low —
but they are still 50% lower than their peak in 2008. The EIA statistic for the January 27,
2010 price at the Henry Hub in New York ($5.42 mmBTU) is 14% higher than the same
date last year ($4.75).
The big new for 2010 is it’s still a natural gas buyer’s market. With storage levels still at
5 year highs, enhanced domestic production capabilities, and slow consumption growth,
prices are not expected to rise dramatically through 2010. EIA projects that the natural
gas spot price at the Henry Hub will increase to an average of $5.25 mmBTU in 2010,
which is $1.27 more than the 2009 average of $3.98 mmBTU. Remember, this is an
average price; seasonal increases will occur, especially during the summer cooling
months in Texas when power demand is at its height.
For Texas electricity consumers, this means that energy prices will remain low through
for the rest of the year, though there will be some fluctuation due to seasonal demand,
as stated. However, one thing about the near future is certain: consumption of natural
gas will increase as economic conditions improve. Businesses will need more people as
they will get back to running equipment and machinery – and they will all use more
energy. As consumption rises, more generators will burn natural gas to meet that need.
Natural gas prices will rise. And so will the price of Texas electricity.
Long Term Solutions for the Texas Energy Consumer
The best thing an electricity consumer in Texas has right now is energy choice. If you
sign on to a two year (24 month) plan now, you can lock in the current 2010 rate
through 2012. Switching between now and spring when rates are low could save you
hundreds of dollars over the next two years. Why? Because you can take advantage of
a long term fixed energy plan that locks in the current low energy price. In the near
future, the EIA projects that prices will increase in 2011, averaging $6.00 mmBTU as
the existing surplus shrinks in the face of a rebounding economy. That’s a 13% increase
in price. Right now, if your energy plan is locked in at .114 cent/kWh for 1500 kWh per
month, you’re paying about $171/month. But in 2011 given a 13% average increase,
your bill could jump to $193.23/month. That’s a difference of $22.23/month or $266.76
for the year.
To maximize your savings for these next two years, you need to act before mid-April
because that’s when the price begins its annual increase for summer cooling costs. To
find a long term plan that will help you save the most money, go to Bounce Energy and
check out their Price Protector 24 plan. Qualified customers will receive movie tickets,
bill credits, companion airline tickets, price reductions and more for paying their bill on-
time!