The San Francisco Chronicle explains to readers why shale gas production is keeping their gas bills lower this winter:
Natural gas prices that slumped to a 10-year low this month could save U.S. consumers $16.5 billion on home energy bills over the course of a year, according to a senior economist at the U.S. Federal Reserve.
U.S. households might see total savings from lower gas prices of as much as $113 billion a year through 2015, including tack-on effects such as lower product prices and higher wages generated by cheaper fuel, according to energy industry consultants IHS Inc.
The projected savings is “an unbelievable amount of money,” said Greg Ebel, chief executive of Spectra Energy Corp., during a Jan. 17 interview. “That’s better than any tax cut you’ve seen out there, better than any government handout.”
If consumers end up pocketing more than $100 billion due to low gas prices, it could add a “significant” piece to U.S. gross domestic product growth for 2012 or 2013, said Robert Solow, professor emeritus at the Massachusetts Institute of Technology in Cambridge, who won the 1987 Nobel Prize in economics. “If that figure is right, it’s a substantial amount,” Solow said in a telephone interview yesterday.
The savings realized by the nation’s 113 million households will vary depending on location and how much gas makes up the home’s total energy bill. Gas utilities are passing along the lower prices they’re paying for the fuel because of a glut of new domestic production from hydraulic fracturing and horizontal drilling in shale formations.
The price of gas has plunged about 30 percent since the end of October on mild weather and oversupplies, according to data compiled by Bloomberg. Natural gas for next-month delivery fell to $2.322 per million British thermal units on Jan. 19, the lowest price since February 2002. Gas settled at $2.728 yesterday.
Consumers will likely spend about 95 percent of the direct savings they see from their gas bills, said Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University in Dallas. While that amount is a fraction of the $10.245 trillion in consumer spending for 2010, “it’s a step in the right direction,” Solow said.
Electricity prices, historically tied to the gas market, also are falling, although not necessarily for consumers. That’s because many power companies have raised rates to upgrade an aging power grid, install pollution controls and build new generators.
The typical U.S. household gas bill this year would drop to $323.50 from $468.80 in the previous year at an average gas price of $2.50 per million British thermal units — a savings of $145.30, said Mine Yucel, vice president and senior economist at the Federal Reserve Bank of Dallas.
Residents are forecast to pay about 25 percent less this winter for gas used in stoves, furnaces and fireplaces than they did in 2008, when the fuel last touched highs of more than $13.50, according to the U.S. Energy Information Administration.
“I think of shale gas as a real game-changer for consumers of natural gas,” said Hank Linginfelter, executive vice president of Atlanta-based AGL Resources Inc., in a telephone interview. “It’s having a significant impact on prices.’
AGL Resources, the largest standalone local U.S. gas distribution owner, said December bills have fallen on average 25 percent from a year ago at its utilities in seven states.
Iowa gas bills fell about 19 percent in December compared to the same month a year ago on lower demand and prices, MidAmerican Energy Co., owned by Warren Buffett’s Berkshire Hathaway Inc., said. Piedmont Natural Gas Co., based in Charlotte, North Carolina, has proposed cutting rates next month that would bring the average bill down by 40 percent since 2008.
Source: San Francisco Chronicle
