New England Energy Prices Rise Despite Falling Gas Prices

December has seen a 27 percent drop in futures for natural gas, the biggest one-month drop since July of 2008.

Mild weather and record natural gas production has helped to lower prices.    JPMorgan Chase & Co. estimate surplus will increase to just less than 200 billion cubic feet (bcf) by the start of 2015.

The Energy Information Administration (EIA) reported the Marcellus shale formation as the biggest driver of gas production growth in U.S. production, indicating the formation may average 16.3 bcf per day in January.  This would be a 19 percent increase from a year ago.

For the fourth year in a row, production of heating and power plant fuel has increased to an all-time high to 74.26 bcf a day.  EIA indicates daily output will rise another 3.1 percent next year to 76.58 bcf.

Because of the way natural gas and electric utilities are regulated, customers may not see the recent drop reflected in their bills right away due to last year’s price spike.

The lower market prices could at least slow the rise in retail prices and perhaps reverse it if the low prices last.  An estimated 49 percent of U.S. households use gas for heating, according to EIA.  Gas heat is led by households in the Midwest and the Northeast.

In New England, utility customers have been having sticker shock much worse than imagined.  Utility companies blame the continuing shortage of pipeline capacity to bring natural gas to the region.

New England pays the highest electricity rates in any of the 48 contiguous states because they have no fossil fuels of their own and have to import all of its oil, gas, and coal.

Utility companies state increasing pipeline capacity would lead to lower costs for consumers, thousands of construction jobs, and millions of dollars in tax revenue.  The region has five pipeline systems now, with seven projects proposed and stalled due to fears of increasing the region’s dependence on fossil fuels, blighting the countryside, and losing property to eminent domain.

Last year, the governors of the six New England states agreed to pursue a coordinated regional strategy, including more pipelines and at least one major transmission line for hydropower. Electricity customers in New England would subsidize the projects, on the theory that they would make up that money in lower utility bills.

However, the Massachusetts Legislature rejected the plan, concerned that cheap fossil energy would flood the market and stall any attempts to advance wind and solar projects. That halted the whole effort for the region.

The problem may be getting worse, not only because of pipeline constraints but because old coal and oil power plants are being retired. The Vermont Yankee nuclear plant, which supplies nearly one-third of Vermont’s electricity, is also scheduled to go offline the end of 2014.

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