Since the end of April, natural gas prices have shot up from less than $2 (per million BTU’s) to over $3.20. (As of this update, the spot price has fallen back to $2.93, but the longer term future contracts are over $3.50 for January and further out). This may seem like bad news, but in the larger picture it is good for us. The nation and the Marcellus Shale belt in particular, have been enthralled with fracking madness as the low prices seemed to show that we had a virtually unlimited supply of cheap gas. However, natural gas prices are extremely volatile. Just two and a half years ago the price was over $6.
But fracking is expensive and fracking takes time – enough for a developer to roll out the trucks, dig the hole and start pulling the gas out, only then to find that he has missed the momentary price surge, and now has to sell at a loss just to recover the cost of the well. No one knows how expensive drilling is, but industry experts are publicly discussing the recent low prices as an anomaly. Both the gas developers and the coal companies that have been hurt are in agreement on the fact that the price of gas is going to rise.
With higher gas prices, there will be more fracking – our nation is already dependent upon unconventional gas production and we cannot put the genie back in the bottle. But higher prices will also help us, our leaders and our corporate citizens understand that sustainable energy is the real key to economic growth, price stability and a future we can be proud of.
Where gas prices are today, the utilities stop running all their gas plants full bore, and start firing up a little more coal. Around $7, the only gas plants still operating will be the ones in states like New York that have no alternatives. And customers in these states will get very high electric bills and painful gas heating bills.
Over the last four years the United States increased its use of natural gas for electric generation from about 24% to over 38% of total generation. We had a massive glut of under-used natural gas plants due to a wave of construction in the 2002 – 2004 timeframe, after the first of the recent gas price spikes, and before the second (much worse) spike. Most of those plants have been idle for most of the last decade. Now, there is little appetite for building new coal or natural gas plants because construction costs have risen so much that new plants cannot be counted on to be profitable, especially as the nation moves toward competitive electric pricing.
The Clean Air Act will require about a third of the nation’s coal plants to close or be repowered in this decade. Repowering those plants would be the kiss of death for our climate efforts. Each state has a different set of issues to deal with in getting more energy efficiency, and more renewable electricity, but all states have room to make progress.
Windpower costs have dropped twenty percent in the last four years, making wind affordable in almost a third of the nation where it was not so affordable before. It is expected to drop another 20% by the end of 2013. Moreover, utility efficiency programs are the largest single climate response in effect in the U.S. today. Most efficiency programs run by utilities are funding measures which save electricity at a quarter to a sixth of the retail price of electricity, so there is plenty of room for these programs to be vastly expanded. And they save enough money to fund the construction of renewables, if we can make regulators and other customer groups see how it all fits together.
The Sierra Club is very good at promoting legislative and policy changes when we can get behind a goal that has been impressed upon the public consciousness and has been defined, by being embodied in a proposed law.. Now is the time for us to push hard for efficiency and renewables. Not only is it the only strategy which can actually end our dependence upon natural gas and fracking, it is also the only way we can protect our economy from disruption due to wild energy price swings.
New York has strong efficiency programs relative to most other states. But no state has really pushed the limits of efficiency potential.