Behind The Sound Bite: Natural Gas Prices
In recent weeks, two major Massachusetts utilities, NStar and National Grid, have proposed reductions in the price customers pay for natural gas. “The continued drop in prices has made natural gas one of the most economical choices,” NStar CEO Tom May said in a statement about the reduction.
How much of a reduction are we talking about?
NStar, which serves Greater Boston and much of MetroWest, said it would lower the total heating costs for its natural gas customers by about 10 percent. National Grid, which covers a large part of Worcester County, put its price cut at 6 percent.
Why would companies reduce their prices like this?
They have to. The cuts come from the supply side of the gas bill, which, by law, is simply the price the gas company paid for the fuel. Utilities make their money on the delivery portion of the bill. The price of natural gas, measured in dollars per million British thermal units, has been falling for several years. Two years ago, it was $5.50, but it’s been as little as $2.50 in recent weeks.
So why are gas prices falling?
Mainly because of new technology that allows for the extraction of natural gas from shale formations like the Marcellus in Pennsylvania.
How long can this keep up?
The U.S. Energy Information Administration predicts that continued increases in production will make the country an overall net exporter of natural gas within a decade. It also says prices will stay fairly low until 2023, when tightening supply and the expense of extracting less accessible pockets will drive prices up. But a recent Forbes story points out that cheap natural gas, along with emissions concerns, may push coal-fired power plants to convert. That, in turn, would increase demand and push prices up more quickly.
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