Natural gas boom leads to low prices
Mining shale deposits consumers -- but fracking has environmental costs.
Pioneer Drilling Co. derrickman Jacob Schroeder secures a drill pipe on a rig near Montrose, Susquehanna County, in 2010. (Daniel Acker/Bloomberg)
By day, the co-director of the Penn State Marcellus Center for Outreach and Research crunches numbers and looks at reports coming from the region's booming natural gas industry — all of which show plunging consumer prices.
By night, he goes to a home heated by oil.
"Natural gas is the cheapest heat," he said. "Oil is near a record" in price.
It is a story of the first law of economics: supply and demand. Thanks to advances in drilling technology, natural gas is being found in record amounts not only in the mile-deep shale deposits of western and northern Pennsylvania, but also in places such as West Virginia, North Dakota, Arkansas and Texas.
In the Lehigh Valley area, that change in economic dynamics has brought some needed relief to household budgets. According to UGI spokesman Joe Swope, an average residential customer spent $151.47 a month on gas heat in 2008. Today, that customer is paying $93.75 for an annual savings of nearly $700.
"You can track that specifically to the increased production of Marcellus Shale gas," Swope said.
Overall, Pennsylvania consumers saved an estimated $600 million to $700 million in lower gas bills, Murphy said.
The formation is named for a shale outcropping in Marcellus, N.Y., which stretches from Canada, through New York, Pennsylvania, Ohio, West Virginia, Maryland and a bit of Virginia. Energy companies began coveting the Marcellus areas several years ago after the U.S. Department of Energy dramatically increased its projection of how much gas could be recovered from it.
The U.S. Energy Information Agency in January estimated that the Marcellus field had 141 trillion cubic feet of recoverable natural gas, enough to serve the entire demand for natural gas in the United States for years.
Aside from being produced domestically, the local market benefits by the extraction of natural gas nearby. For instance, the gas is being produced in an environmentally stable area, Swope said. "You don't have issues with transportation from the Gulf of Mexico," which has been a major gas producing region. "Hurricane Katrina disrupted natural gas production for months" and caused a "tremendous spike" in the price of natural gas, he said.
The reliability of gas production will mean much less price volatility for the foreseeable future, he said.
It also is making for more UGI customers.
"We're seeing a record number of people converting to natural gas," Swope said. In the fiscal year that ended Sept. 30, UGI converted more than 9,000 residences. From Oct. 1 through December, he said, the company did another 3,700, which is up more than 50 percent over the company's quarterly record.
There is another significant benefit to low natural gas prices, and it's seen in electricity prices. Natural gas is used to power many electricity generating plants, so low prices there mean lower electric bills.
In 2010, the "price to compare" for PPL Electric Utilities was 10.4 cents/kilowatt hour, said company spokesman Kurt Blumenau. It has sunk to 7.7 cents/kilowatt hour, he said, adding that the forecast is for an even lower cost this spring.
Another PPL spokesman, George Lewis, said market-watchers were amazed when natural gas prices hit $5 per million BTUs. "Everybody was wondering how much lower could it go," he said.
As of mid-February, the market price for natural gas was about $2.60 per million BTUs.
Even Mother Nature has been cooperating. "The mild winter has reduced demand for natural gas, which combined with the increased availability of gas from Marcellus Shale and the economic recession, are keeping gas prices very low," he said. "We expect gas prices to stay low for the foreseeable future."