It’s now December, which means even the most reluctant home and apartment dwellers will soon be turning up their thermostats.
If you’re a stickler for savings, you can easily make it through October without turning on the heat. November’s manageable, too. You might wear a sweater around the house, and throw on some thicker socks, but you can do it. December, though? That’s when the last holdouts throw in the towel, swallow their pride, and turn the thermostat up to at least 60.
This year, the heating bill will be a bit easier to handle. That’s because gas prices are at their lowest levels in more than a decade. Energy analysts, government regulators and heating providers say drilling in Pennsylvania’s Marcellus Shale formation is playing a major role in the price decline.
This week, UGI announced a 13.5 percent drop in its purchased cost rates, beginning December 1. (Two smaller UGI subsidiaries, UGI Central Penn and UGI Penn Natural Gas, will see smaller decreases.) Philadelphia Gas Works is lowering rates by 1.1 percent, and Lancaster County-based Rhoades Energy is decreasing its prices, too.
UGI’s vice president, Vicki Ebner, credits Pennsylvania’s energy boom for the adjustment. “The increase of supplies of natural gas from Marcellus Shale has helped create continued downward price pressure on natural gas,” she said in a statement. “We are pleased to pass this cost savings on to our customers as we approach the winter heating season.” (While Ebner may be “pleased,” utilities are actually required by law to keep their rates in line with natural gas market prices. The numbers are adjusted every three months, and approved by Pennsylvania’s Public Utility Commission.)
Marcellus Drilling Boosts National Supply
Does Marcellus Shale drilling deserve the credit?
Jennifer Robinson is an analyst at Bentek Energy, who specializes in the northeastern natural gas market. She said by and large, Ebner is right. “Supply growth has outpaced demand growth” in recent years, she explained. Natural gas production has increased in several regions, including Texas and the southeast gulf, but the Marcellus Shale is a major driver. “You have a growing supply [of gas] from the shale areas, and demand is growing slower,” Robinson said.
Two factors have cut into demand: many consumers have scaled back heating and electricity usage in recent years, to save money during the ongoing economic downturn. And aside from the freak Halloween snowstorm, the northeast has experienced a relatively mild fall, so most people haven’t used much heating.
Jennifer Kocher, a spokeswoman for the PUC, backed up Robinson’s analysis. She added one more factor on the “supply” side: there weren’t any major hurricanes in the Gulf of Mexico this year, so southern natural gas extraction wasn’t interrupted.
So, thanks in large part to Marcellus Shale drilling, supply for natural gas is greater than demand. And as everybody learns in economics, when there’s more stuff to sell than people to buy, prices drop.
What does the decrease mean for consumers? Well, cheaper utility bills. UGI’s statement says the average residential consumer pays about $109 a month for natural gas heating, right now. Under the utility’s new pricing, that bill would drop to about $94. Kocher said prices haven’t been this low since 2003. The price for a thousand cubic feet of natural gas is hovering around $5.70 right now – that’s about a dollar less than where it was in September, and way below 2005, 2006 and 2007, “when we were seeing prices well over ten dollars, and as high as fifteen,” Kocher said.
Klaber: Dip In Price Makes Higher Impact Fee Unreasonable
The decrease may also have an impact on political issues, particularly whether or not to impose an impact fee on natural gas drillers. The Marcellus Shale Coalition, which represents drillers in Pennsylvania, was happy to tout news of the lower rates. They tweeted a link to an article on the UGI decreases, and linked to it on their site. But the group’s president, Kathryn Klaber, pointed out lower rates mean lower profits for drillers. She said the decreases mean the $50,000-a-year impact fee that recently passed the state Senate would be too high, given the current market. “It may have been [reasonable] at one point, but we’ve got natural gas prices at an historic low, and not looking to be going up any time soon,” she said. “Really, any new tax or fee – you have to look at it in the context of what the natural gas prices are.
Democrats say the Senate bill’s fee, which would last 20 years, but gradually decrease to $10,000-a-year, amounts to a three percent tax on the typical Marcellus Shale well’s production. The lower rate in the House bill – $40,000-a-year at first, with a ten-year limit – equates to a one percent rate, using the same estimates.
But as prices continue to drop, Klaber argued, “any fee is going to have a bigger impact at those lower prices, than when prices are higher. This is a really bad time to be talking about higher fees.” Klaber has repeatedly warned that drillers could take their business elsewhere, if Pennsylvania adds fees, taxes, or harsher regulation. She said lower gas prices magnify the threat. “We’re at risk of moving more rigs [out of Pennsylvania] now than ever before.”