By Kevin Begos
PITTSBURGH (AP) — Wholesale natural gas prices have doubled during the last year, and that’s bringing sighs of relief from an unusual variety of interests.
Soaring production and an unusually warm winter sent prices plunging to under $2 per thousand cubic feet last spring, prompting some to wonder whether the natural gas boom would kill demand for both coal and new renewable energy.
But natural gas is now just over $4 per thousand cubic feet. Energy experts say prices in the $4 or $5 range won’t affect the increasing use of the fuel by consumers and industry since the price was $8 just a few years ago. In Europe and Asia prices are even higher — $10 to $14.
“I don’t think anyone in their right mind” thought $2 or $3 natural gas was here to stay, said Manuj Nikhanj, the head of Energy Research at ITG Investment Research, a worldwide financial firm based in New York. He added that current prices are still “pretty cheap.”
Gas drilling companies are obviously happy with the rising price, and so are leaseholders and states that get revenue based on the market price. But the coal industry and renewable energy advocates are cheering the news, too, since gas no longer has a huge price advantage over those other energy sources.
Some even suggest that at current prices both natural gas and renewables win.
“Ultimately in the long term, gas and renewables are really well paired,” said Christina Simeone, the director of PennFuture Energy Center, which is run by an environmental group. That’s because while renewables don’t emit air pollution, they need backup for when the wind doesn’t blow and the sun doesn’t shine. Natural gas is a perfect backup for renewables, Simeone said.
Natural gas suddenly became cheap last year because of a surge in production from the drilling technique known as fracking. Now industry analysts expect new natural gas fields, such as the Marcellus Shale in Pennsylvania, Ohio and West Virginia, to provide fuel for decades.
Mark Brownstein, an associate vice president at the Environmental Defense Fund, noted that the price of renewable energy has declined substantially in recent years, and that’s expected to continue, making them even more competitive with natural gas.
Wall Street analysts are taking notice of the trends, too.
Earnings season: Higher natural gas prices will boost companies’ profits
A Citibank research report noted that much has been said about the potential for the natural gas boom to derail growth in renewables, but they believe “the opposite is true.”
“Gas and renewables could in fact be the making of each other in the short term,” the report noted, since renewables will cost about the same as conventional fuels in many parts of the world “in the very near term.” That would allow a surge in demand for renewables, “which in turn will drive demand for more gas-fired” power plants to be used as backup.
“Gas provides an abundant and (potentially) cheap source of energy to be used while renewables continue to gain in competitiveness,” the report said.
But a new drilling boom isn’t imminent.
The Marcellus Shale Coalition, an industry group, says current prices will have to be sustained for months or years for companies to drill significantly more wells than they are now.
“I think everyone’s watching it,” said Katie Klaber, the group’s president, who expects prices to stabilize. “There’s a lot of supply that hasn’t even been explored or tapped, that’s going to contribute to stable prices over the long haul.”
The American Coal Council, an industry group based in Washington, D.C., welcomed the rise in gas prices and said orders for coal are rebounding.
“We’re starting to see a little sunlight shining through. There is opportunity,” spokesman Jason Hayes said, though he agreed that gas has made “serious inroads” into the electricity market.