Already an efficient fuel, natural gas is now also a highly affordable and dependable energy source because of dramatic increases in supply.
All energy sources have costs, whether for recovery of natural resources, such as natural gas or coal, or for the manufacture and installation of equipment, such as windmills and solar panels. Because of the abundant gas resources in North America and high efficiency and low capital cost of combined cycle gas-fired power plants, natural gas is one of the most affordable fuels in America today. Thanks to increases in production and transportation capacity, supply has risen and prices have fallen. Natural gas is now an even more attractive option for residential and commercial consumers in manufacturing, chemical production and power generation.
Prices Have Fallen Dramatically
In the last 10 years, the boom in production from tapping shale gas formations has increased the technically recoverable natural gas resource base by 70 percent. What's more, this figure is still rising as new shale gas formations are discovered across the country. As a result, U.S. natural gas prices fell by 73 percent between 2008 and 2010.
Investments in infrastructure expansions have also improved the price outlook for natural gas consumers. More than 16,000 miles of new interstate pipeline were approved between 2000 and 2010, the most in 40 years. Combined with a 22 percent increase in high-turnover storage space, this added pipeline capacity will increase the amount of delivered natural gas, which is expected to moderate prices going forward.
A Price-Competitive Source of Power
While wind and solar energy appear to be free, the equipment required to generate electricity from these sources is capital intensive. Relative to other sources of electric power generation, the cost of natural gas fuel alone may be higher, but taken in conjunction with higher efficiency and lower capital costs, natural gas results in the most cost-effective source for new power generation.
Efficient, natural gas combined cycle plants are far less expensive to build than coal, nuclear power, wind, solar or geothermal. What's more, natural gas is a continuous source of electrical power, not impacted by whether the sun is shining or the wind is blowing.
The significant increase in the supply of natural gas brought about by technical innovation in producing gas from shale deposits has reduced costs, stabilized prices in the market and helped to position natural gas as the least expensive source of new power generation. The affordability of natural gas is another reason we believe it should be an important part of America's energy future.
The Attractive Economics
Unlike other energy sources, natural gas is used in all energy sectors – as a fuel in the residential, commercial, power and industrial sectors, as well as a feedstock for petrochemicals. Unlocking the potential of vast shale gas resources would result in ample supplies that would help bolster the economy with lower, more stable prices.
Much of North America's natural gas supply comes from large geographic areas that offer opportunities to drill hundreds or even thousands of wells over a period of years. This amount of drilling enables producers to reduce costs and maximize efficiency. These new shale resource developments are among the lowest-cost supply sources. They also represent attractive business investments for energy companies, even at today's relatively low wellhead prices for natural gas.
The U.S. Department of Energy now forecasts that wellhead prices in 2025 will essentially be unchanged from what they were in 2004, in constant dollars. These forecasts predict that upward price pressures will be mitigated with the help of North America's supply surplus, ongoing shale gas development, excess liquefied natural gas (LNG) import capacity, and recent addition of new pipeline and storage capacity.
The decline in wellhead prices has translated into significantly lower prices for natural gas delivered to residential consumers. During the first four months of 2011, monthly residential gas bill averages ranged from $9.79 to $11.02 per thousand cubic feet, compared to peaks exceeding $20 in mid 2008. In fact, residential gas prices in 2011 are the lowest since 2003. Monthly prices typically rise during the winter heating season and fall during the low-demand periods of the spring and fall.
Our nation's growing supply of natural gas is adding to the global competitiveness of U.S. industry, creating tens of thousands of well-paying jobs in the U.S. and expanding the nation's capacity for generating electric power. And reduced natural gas prices have translated into lower natural gas bills for homeowners, businesses and industries, freeing up spending and investment that can generate additional economic activity in the U.S.