To understand the incredibly low natural gas prices of 2011, look no further than the combination of massive increases in shale gas production and a small rise in natural gas generation. Supply of natural gas is outstripping its demand in large part because the nation is slowly, slowly increasing the use of natural gas to generate electricity.
Through the first 8 months of 2011, natural gas generation increased just 2.1% nationally compared to the same period in 2010 (all data taken from the latest EIA monthly report at http://www.eia.gov/). Overall generation from all sources grew 0.5% in 2011 through August compared to 2010 so natural gas generation's growth exceeded the growth of the total generation market. Yet, considering the low, low natural gas prices of 2011, national increases in natural gas generation are minimal.
But in Pennsylvania 2011 natural gas generation increased by 32.6% or 6.88 billion kilowatt-hours through August compared to 2010. Pennsyvlania had the second highest absolute increase in natural gas generation of any state, beating Florida's increase, and only exceeded by the gas generation rise in Texas.
The large increase in natural gas generation in Texas, Pennsylvania, and Florida were more than offset by big decreases in California, Washington, Oregon, and Arizona. Record precipitation on the Pacific coast had hydro power increase more than 30% nationally and displaced considerable gas generation.
A small 2% increase in natural gas generation to date in 2011 will keep downward pressure on natural gas prices. The gains for natural gas generation, though slow and small in anyone year, have been taking place every year for more than 20 years and are adding up. America got 12% of its electricity from gas in 1990 but will get close to 25% in 2011, a substantial increase in the demand for gas to make electricity. But the shale gas revolution is increasing gas supply at a faster rate and in bigger amounts.