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Hail Shale
In 2015, US Natural Gas Prices Hit Lowest Annual Average in 16 Years

In 2015, American natural gas prices hit their lowest annual average this millennium, as supply swamped demand and pushed that average price down to $2.61 per million Btu. The EIA reports:

Daily prices fell below $2/MMBtu this year for the first time since 2012. Henry Hub spot prices began the year relatively low and fell throughout 2015, as production and storage inventories hit record levels and fourth-quarter temperatures were much warmer than normal.

And even as prices fell, the overall supply increased:

Despite declining prices, total natural gas production, measured in terms of dry gas volume, averaged an estimated 74.9 billion cubic feet per day (Bcf/d) in 2015, 6.3% greater than in 2014. This increase occurred even as the number of natural gas-directed drilling rigs decreased. As of December 18, there were 168 natural gas-directed rigs in operation, only about half the number of rigs at the beginning of 2015, according to data from Baker Hughes Inc. However, the remaining rigs are among the most productive, and producers have continued to make gains in drilling efficiency.

As American companies are doing in the oil market, U.S. shale gas producers are innovating new ways to stay profitable even as market conditions tilt against them. Low prices make life more difficult for these shale companies, but they’re finding ways to keep output up as they refine their processes and boost efficiencies (let’s remember that this industry is still quite young, and there’s obviously still plenty of room for improvement).

But while low prices are challenging for U.S. natural gas producers, they’re an unalloyed positive development for consumers who can now heat their homes more cheaply this winter. This kind of cheap energy is especially good for poorer households, whose heating bills take up a larger chuck of their budget.

Cheap natural gas is good for the environment, too. Natural gas-fired power plants are quickly displacing their dirtier coal-fired cousins, and in the process are cutting out local air pollutants and greenhouse gases. Last April, we saw something of a milestone when, according, again, to the EIA, “[natural] gas surpassed coal as the leading source of electricity generation on a monthly basis for the first time,” a feat it would repeat in July, August, September, and October. How’s that for good green news?

None of this would be possible without the shale boom, and as we look ahead to a year in which the U.S. will begin exporting LNG for the first time, let’s not forget that just a decade ago we were fretting about slack domestic supplies and planning to ramp up LNG imports. Fracking changed all of that, and U.S. energy security is in a much better state as a result.

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  • Fat_Man

    1 bbl oil ≈ 6 MMBtu nat gas. At $2.61 MMBtu, nat gas is energy equivalent to oil at $15.66/bbl. WTI was $35.97 today. Either nat gas is too low or oil is too high.

    • bottomfish

      I think the reason for the disproportion is that oil is a much easier fuel to transport than gas. To keep your furnace regularly supplied with oil, just call the oil company when the meter is low and the truck will come around in a few days. You can’t obtain a regular supply of gas without a continuously functioning system of pipelines beginning in Texas or Oklahoma and extending to your specific building. There are also oil pipelines but they do not need to be so extensive.) Both the maintenance and construction of this required infrastructure is part of the price of gas, even if the consumer doesn’t directly pay for it.

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