Natural Gas Prices and Supply
By The National Environmental Trust
Last update: May 8, 2001
Natural gas prices spiked this winter, particularly in the West. A relatively prolonged period of low gas prices, beginning in 1986, led to reduced investments in natural gas production resulting in abnormally low supplies at the same time demand began to rise. Markets signaled the need for greater supply through these high prices, encouraging an increase in production. Now government agencies predict adequate supplies from available U.S. reserves well into this century. Lack of available reserves is not the cause of the high price of natural gas.
"Last year when prices were lower, producers cut their production. That production cut has led to the current shortage with corresponding higher prices." --Rep. Henry Hyde in a letter to Federal Trade Commission Chairman Robert Pitofshy
- High prices of natural gas are the result of a series of market forces. In September 1998, wellhead prices fell to below $1.69 per thousand cubic feet, seriously discouraging well development and lowering summer additions to storage. By the winter heating season of 2000-2001, there was nearly 20 percent less natural gas in storage than previous years. The coldest winter in three years prompted demand for natural gas to skyrocket and by the spring of 2000, there was a tightening of supply that resulted in a jump in prices. ( "What's Up With Gas?" Energy and Environmental Analysis, Inc., November 7, 2000. )
- According to Baker Hughes, a leading oilfield services company, rig counts reflect the strength of energy prices and high prices have led producers to increase their production schedules. Virtually all existing rigs and crews to recover natural gas are being used, and a number of proposals exist that would expand pipeline capacities. The number of natural gas drilling rigs in the fields has increased from 770 to 1164 between March 2000 and March 2001, an increase of 51 percent.
- The Texas Railroad Commission and the Mexican Energy Regulatory Commission met in September 2000 to discuss ways to promote construction of a U.S.-Mexico gas infrastructure. Additionally, the Energy Information Agency reported in February, 2001 that Sempra, PG & E and Proxima Gas plan to construct a $230 million, 212-mile pipeline that will carry approximately 146 billion cubic feet per year and connect natural gas grids from Tijuana to southern California and Arizona.
- The Energy Information Administration Annual Energy Outlook 2001 projects prices to fall as more natural gas makes it to market. 2001 natural gas prices are projected to be the highest to occur for at least 10 years.
"Available natural gas resources in the United States combined with supplies from foreign sources are believed to be adequate to meet demand increases expected through 2020." --Dr. Mark Mazur, Acting Administrator of the EIA before the Senate Energy and Natural Resources Committee, December 12, 2000.
- Long term, the United States Geological Survey estimates that the United States has sufficient reserves of natural gas to meet its needs for 45 years at current demand levels and 34 years at the Energy Information Administration's average levels of projected future demand. The National Petroleum Council report "Meeting the Challenge of the Nation's Growing Natural Gas Demand, 2000" refers to additional sources of natural gas available from Canada, from which the United States currently imports 15.35 percent of its annual consumption.
- According to the Department of the Interior's Minerals Management Service and the National Petroleum Council, an industry trade group, 89 percent of proven gas reserves in the United States (on and offshore) are in areas with no restrictions on natural gas drilling. Of onshore reserves alone, 90.7 percent are completely open to drilling and 84 percent of estimated reserves on the Outer Continental Shelf are also unrestricted. The National Petroleum Council estimates these unrestricted reserves to be approximately 286.2 trillion cubic feet.
- A recent Department of Energy study found that best estimates of the amount of natural gas that can be recovered from protected areas feasible for drilling would equal only two months of U.S. consumption.
For more information, contact Kevin Curtis or Brandon MacGillis at The National Environmental Trust, 202/887-8800