Gas Prices Heading North

By Published On: October 7, 2011

California power plant operators and utility customers can expect to pay more for natural gas over the next couple years due environmental rules and a shift to higher cost shale gas supplies, say a growing chorus of analysts. Over the past couple years, customers have become accustomed to gas in the $4/MMBtu range at major hubs, but can expect the price to steadily march up to $6/MMBtu by 2013. California Energy Commission projections show that gas could hit as high as $7/MMBtu by 2013 at Topock, Pacific Gas & Electric’s giant gas compressor station along the Colorado River. Factors are building to drive prices higher both inside and outside California, analysts say. In California, demand for gas is expected to grow fairly slowly, according to Ross Miller, California Energy Commission electricity analyst. Underlying that, there are long-term policies aimed at shifting away from coal-fired to natural gas-fired power plants, plus efforts to run cars and trucks on natural gas--both internal combustion vehicles and electric models powered by gas-fired electricity from the grid. These policies promise to push demand up, according to Miller. Outside the state, shorter-term factors are expected to play a more immediate role in pushing gas prices up, according to some analysts. The break-even price for producing shale gas--which is abundant and supplying an increasing amount of energy to the nation--runs anywhere from $3.75/MMBtu to $7/MMBtu, according to Kenneth B. Medlock, Rice University economics professor. That’s higher than conventional gas. Demand for gas by out-of-state power generators is rising annually at a rate of 1.42 percent compared to 0.69 percent in California, he adds. Clean air regulations are driving the increased use of gas to make power outside of California An Accenture analysis notes that nationwide industrial demand for natural gas has been rising at about a 5 percent annual clip since 2009. The analysis also highlights that Northeasterners--many of whom have long used fuel oil for heating--are retrofitting their homes to burn natural gas because it has been less expensive than oil for the past five years.

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