Tuesday, October 25, 2011

Marcellus Lowers Gas Prices and Summer Electricity Prices in Northeast

EIA states, "In the Northeast, wholesale natural gas prices were down between 2% and 15%, reflecting both lower regional demands and growing natural gas production from the Marcellus Shale play."  http://www.eia.gov/todayinenergy/detail.cfm?id=3530.

Lower natural gas prices also contributed to lowering spot market electricity prices in Pennsylvania, New York and New England by 3% to 15%, according to EIA.

The consumer benefit in natural gas costs and electricity costs of the Marcellus supply can also be seen by contrast. Look at gas prices in the Southwest and California.  EIA states, "Natural gas prices were about 4-7% higher than last summer in the Southwest and California markets and supported modestly higher wholesale power prices in those markets."  Power prices were up to in these regions by 2% to 5%.

Natural gas prices impact electricity prices more than any fuel. In turn natural gas provides about 24% of all electricity generated and about the same percentage of all energy produced.  But natural gas plants often set the entire market price for electricity at any given hour, because frequently a natural gas plant is the last unit needed to meet the demand for electricity.  Natural gas plants are said to be many times on the "margin of the market."

Natural gas power plants will virtually always bid into the electricity market a price that allows them to recover the cost of natural gas they burn.  Consequently higher natural gas prices become higher electricity prices and the reverse is also true.

For median income families and those in poverty, as are 24% of USA's children, energy prices are important, even life and death.  I spent my first 6 years in the workforce working with poor and struggling families and  sat across a lawyer's desk seeing a mother weep because her gas, electricity, and water services were all shutoff.  The price of natural gas matters a lot.  We all should remember that.


  1. John, why is the gas from the Marcellus not lowering prices nationwide? Is there a lack of natural gas pipelines running east-west? Or is Marcellus production not yet high enough to satisfy the demand nationwide, but just in the Mid-Atlantic & New England regions?

  2. Marcellus production ia about 4 billion cubic feet per day and national demand is about 66 bcf/d. Most Marcellus gas is going to Northeast and a lot into NY. They burn it there and it is displacing oil and coal. NY will also apparently produce Marcellus gas in the next 12 to 18 months.

  3. But the Marcellus Shale (and other North American shale gas formations) has brought prices down and has eliminated price volatility since 2008 or so when Marcellus production began its meaningful increase. Follow the industrial curve on Figure 3 (page 8) of this EIA report: http://www.eia.gov/pub/oil_gas/natural_gas/data_publications/natural_gas_monthly/current/pdf/ngm_all.pdf

  4. Interesting. Thanks to both of you.