Although the economy is mediocre at best, at least natural gas and electricity prices are at their lowest levels in 10 years. Since the U.S. is relying on natural gas to produce more electricity, it follows that electric prices follow natural gas prices. The low natural gas prices are due to mild early winter temperatures in most of the U.S., strong natural gas production primarily from shale gas, and high storage levels in the ground that can be called upon. Even if the weather gets very cold, that storage should see us through.
New York City and the Massachusetts saw the greatest drops in wholesale electricity prices at 26% and 25%, respectively. As shown below, the January-February Average Forward On Peak Electric Prices have been declining along with natural gas prices. Natural gas prices at Henry Hub fell 18% over this time period. Consumers are essentially benefiting from these record low prices and so are businesses that use natural gas a feedstock for manufacturing.
But demand for Natural Gas is increasing in U.S. and Abroad
Because of the rock bottom prices of natural gas in the U.S., electric utilities are relying more on natural gas fired power plants to meet demand. Natural gas companies are also looking to overseas markets where natural gas prices are a lot higher. Ultimately, this could put pressure on natural gas prices to rise. The question is when and no one really knows the exact answer. Some energy companies seem to be thinking that U.S. natural gas prices will remain low for some time and are getting what we call gassy. The EPA's proposed new clean air rules have something to do with this too. However, utilities like Southern Company have been steadily moving away from coal plants for some time now. We worry about this since we are advocates of diversified power portfolios.
In the U.S., the Southern Company made dramatic shifts in producing electricity with natural gas. In fact as natural gas prices fell, Southern displaced coal-fire electric generation in 2011. Southern Company continued to purchase electricity outside the region also, because the market cost of power was lower than the cost to operate more expensive coal fired power plants that it owns.
in the global markets, India signed another contract with Cheniere Energy for U.S. liquefied natural gas (LNG) exports. Cheniere will export U.S.-sourced LNG from its Sabine Pass LNG terminal to GAIL (India) Limited, India’s largest and quasi-government owned natural gas transmission and marketing company. Like the earlier contracts, the deal calls for the export of 460 million cubic feet per day of LNG over 20 years, with an extension option of up to ten years.
The Department of Energy (DOE) awarded the Jordan Cove LNG project, located in Coos Bay Oregon, a 30-year license to export up to 738 billion cubic feet of U.S.-sourced LNG annually to free-trade agreement nations. Likely destinations for natural gas are Japan since the Japanese government has all but abandoned the nuclear option. The project developer of Jordan Cove LNG said they would make their proposed LNG facility and its 1.2 billion cubic feet per day connecting transmission pipeline a dual export-import project. So the LNG terminal would be able to liquefy natural gas for export when overseas natural gas prices are high and also import LNG cargoes and gasify them for use in the U.S. when U.S. prices are high. Jordan Cove’s approval adds 1.2 billion cubic feet per day of export capacity to the already 6.4 billion cubic feet per day approved by DOE.