It must be a little bit tough to be Tom Murphy.
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."
It does seem that the party may be coming near an end, however.
Anadarko Petroleum Co. officials in a recent earnings call said the price for natural gas was so low it has not justified the cost of new drilling sites. "You've heard us talk in the past, we are moving more toward oil and liquids-rich opportunities in order to be able to survive a sub-$3 gas world," said President R.A. Walker in a report by SNL Financial. "It's not attractive, and I'd challenge very many places to be able to explain how you get positive wellhead economics at sub-$3."
Kathryn Klaber, president of the Marcellus Shale Coalition, an industry advocacy group, recently told The Wall Street Journal that "it is safe to say" that fewer natural gas wells will be drilled this year.
In the meantime, the expanded natural gas industry in the region continues to ripple through the economy. Besides well drilling, the industry is making job opportunities for truck drivers, engineers, heavy equipment operators, lawyers and other professionals. The Marcellus Shale Coalition said the industry in Pennsylvania was projected to generate more than $12.8 billion in economic activity in 2011, leading to more than $1.2 billion in state and local taxes and supporting more than 156,000 jobs.
There is, of course, another side to the story. Heavy truck traffic is taking a toll on rural roads and bridges, said PennFuture President and CEO Jan Jarrett. Demand for housing in drilling areas is pushing up rents and making housing unaffordable for some. National Public Radio recently featured a segment on a first-ever homeless shelter in gas-rich Tioga County, where poor residents can no longer afford soaring rents.
Fear of contamination by the millions of gallons of chemically treated water used to extract gas still appears to be first on the list of concerns about natural gas drilling, however.
"It is absolutely essential that the extraction process is tightly overseen," Jarrett said. "You can't get around the fact that natural gas drilling has significant environmental impacts."
Sooner or later, the Lehigh Valley will experience some of those impacts. Although the Valley is not in the Marcellus Shale region, the headwaters of the Lehigh River and the Delaware River are.
Pipeline companies also are going to need to get gas to the people who need it. That will mean the expansion of "gathering lines," pipelines that will deliver gas from the production areas.
"You need to build that infrastructure to bring the Marcellus Shale gas from the northern part of the state to the population centers," Swope said. "For the Marcellus Shale to really reach its full potential, you need to bring the infrastructure down here."
Pennsylvania natural gas reserves
•2007: 96 billion cubic feet
•2009: 3,790 billion cubic feet
*Numbers represent proved reserves
Source: U.S. Energy Information Administration