Shale Gas Saves Consumers Up To $1500 Per Year

Time flies. Memories are short.  In July 2008, gasoline, electricity, and natural gas prices were all skyrocketing.  Gasoline cost over $4; electricity in the PJM wholesale market was over 10 cents per kilowatt-hour (just generation cost); and natural gas was $13 for a thousand cubic feet.

Less than 3 years later, gasoline is once more around $4, causing real pain for low and median income families, but natural gas and electricity bills have not skyrocketed.  Natural gas prices are down about 70% since July 2008.  Yesterday Constellation Energy in Maryland filed to lower by 17% its default electric rate.

Why are natural gas prices and electric bills not doing what oil has done?

America's shale gas supplies doubled in 2010 to 837 trillion cubic feet. These supplies and near record production of natural gas in 2010 keeps natural gas prices around $4.30, despite a growing economy.  Low natural gas prices means natural gas bills plus electricity bills are controlled.

If natural gas was now priced at $13 for a thousand cubic feet, as was the case the last time gasoline cost $4, residential natural gas consumers would have paid $800 more to heat their homes and $500 more for electricity.  Natural gas is used to generate 24% of our power, and natural gas plants are often on the margin of the wholesale market, setting the entire market price.

When you sum it all up, shale gas has saved up to $1500 for many consumers in the last year.

Why has electricity and gas moved down, while oil and gasoline have gone sharply up in price?  Doesn't the economy and not shale gas explain these price movements?

Growth in the US and world economy does explain mainly the increase in oil prices, but the economy does not explain fully or mainly the pricing of electricity and especially natural gas. 

The US economy has grown now for 7 quarters since July 2009. 1.6 million new jobs have been created since January 2010.  The stock market has boomed.  But natural gas prices have fallen substantially since July 2008.

The fundamental reason why natural gas prices are lower, even though economic growth has driven oil higher, is that shale gas supplies have doubled and US gas production is near record levels.