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What to Expect from Natural GasPrices in 2010

Natural Gas Powers TexasAccording to the US Dept. of Energy, Texas produces and consumes more electricitythan any other state. Over half of Texas energy comes from natural gas-poweredgeneration plants. Texas produces 25% of the nations natural gas and is the largestproducer; storing and supplying natural gas via pipeline for all regions of the country.Yet while Texas has large reserves oflow grade coal, most of what is burned in its coal-fired plants is brought in via train from Wyoming and Montana.

So, it makes sense for Texas electric power generators to rely more on the supply ofnatural gas in our back yard rather than waiting for the next 10,000 tons of coal to roll infrom Wyoming. Natural gas burns cleaner than coal and does not leave behind largeamounts of cinder and ash that require proper disposal.

In the past, natural gas was usually uncovered when drilling for oil. Many middle easternoil companies commonly used natural gas to push oil out from deposits in the earth andthen let the gas burn off (called flaring). This was because there was neither largelocal demand for natural gas, nor a way to safely transport it overseas to markets thatwanted it.

In Texas, the practice was very different. Natural gas and oil have been twincommodities that helped build Texas. Natural gas pipelines stretch in all directions fromTexas and it has long been used throughout the US for heat, light, and electricalgeneration. So, its little wonder that in this country its price has long been bound to oil,a commodity in a very volatile market where prices are often shaped by world events.For this reason, power generating companies have paid more for natural gas than coal,nuclear, and wind. Because it is the most expensive and so heavily relied upon, theprice of natural gas determines the price of electricity.

When the Wave Broke

Throughout 2007 and into 2008, petroleum and natural gas prices rose due to a populartide of speculative investment. This drove resource development and innovation innatural gas technologies to bring gas reserves to market. Among these:

The growing Liquified Natural Gas (LNG) trade is expected to increase at 6.7percent per year until 2020. New fleets of inexpensively built ships and refineriesexpanded the industry worldwide. LNG now involves 15 exporting countries and17 importing countries, including the US.

Qatar announced its goal to develop both its Northfield natural gas reserveproduction (from roughly 54 billion cubic feet in 1995 to 2.7 trillion cubic feet in2008) and its Gas-to-Liquids capacity. Qatar is now the worlds largest LNGexporter.

Developments in horizontal drilling and rock fracturing techniques with highpressure water provide lower-cost access to several huge deposits of natural gastrapped in common shale. These include the Marcellus shale bed and the Barnett

http://tonto.eia.doe.gov/state/state_energy_profiles.cfm?sid=TXhttp://en.wikipedia.org/wiki/Lignitehttp://en.wikipedia.org/wiki/Powder_River_Basinhttp://www.eia.doe.gov/emeu/cabs/Qatar/NaturalGas.htmlhttp://www.eia.doe.gov/emeu/cabs/Qatar/NaturalGas.htmlhttp://en.wikipedia.org/wiki/Lignitehttp://en.wikipedia.org/wiki/Powder_River_Basinhttp://www.eia.doe.gov/emeu/cabs/Qatar/NaturalGas.htmlhttp://www.eia.doe.gov/emeu/cabs/Qatar/NaturalGas.htmlhttp://tonto.eia.doe.gov/state/state_energy_profiles.cfm?sid=TX

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shale in Texas (much of it under Ft. Worth) which has been estimated atholding 26 trillion cubic feet of natural gas and is producing 2 billion cubic feet perday.

In July, 2008, the petroleum/natural gas price wave peaked. Gasoline surged to over$4.00 per gallon and natural gas prices to $13.69 per billion BTU (mmBTU). The cost of

Texas electricity exploded.Inundated with high fuel prices, consumers all across America cut their travel and theirenergy use. In the fall of 2008, the economy contracted so severely that businesses laidoff workers or closed. They stopped using natural gas to heat their buildings andstopped needing electricity to power their machinery. This helped drive down the priceof oil, gasoline, and natural gas. But in the case of natural gas, the big developments inLNG supply and natural gas shale brought enormous amounts of natural gas out of theground. Ready to use, it now lay idle in pipelines, tanks, and ships at sea. With plenty ofsupply but no demand, the price sank further.

One year after the price peak, the DOEs EIA reported in its weekly natural gas storagereport for August, 14, 2009:

Working gas in storage was 3,204 Billion cubic feet (Bcf) as of Friday, August 14, 2009,according to EIA estimates Stocks were 562 Bcf higher than last year at this time and513 Bcf above the 5-year average of 2,691 Bcf.

By September, 2009, natural gas lost over 80% of its July 2008 value and hadplummeted to $2.409 per mmBTU. Texas electric rates fell as well.

Big Supply + Little Demand = Low Price

Because of booming US domestic supply, natural gas price tumble has decoupled itfrom oils price. As analyst Fadel Gheit put it, [O]il is a global commodity; gas is aregional commodity. You can have a huge discrepancy in gas prices from country to

country, from continent to continent, because of a lack of adequate transportation themeans of shipping to take gas from where its found in abundance to where its needed.

As a regional commodity now, present US domestic natural gas prices are somewhatinsulated versus shocks from international problems. New shale deposits being drilledthroughout the lower 48 states provide a more stable supply and stable pricing. As aresult, LNG imports to the US are dropping, prompting the United Nations InternationalEnergy Agencys chief economist, Fatih Birol, to forecast a world-wide natural gas glutcontinuing through 2015.

In an interview with Bloomberg News, energy commodities analyst Stephen Schorkpainted this picture of the current natural gas supply: We have more gas than we knowwhat to do with in the U.S.; we have more waterborne gas floating around the worlds

oceans that doesnt have a home.When natural gas prices began their slide, many natural gas companies capped theirwells and cut their production. The EIA recently reported in its Short Term EnergyOutlook:

Total marketed natural gas production is estimated to have increased by 3.7 percent in2009, despite a 59-percent decline in the working natural gas rig count from September2008 to July 2009.

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Even Qatar announced it will not pursue any new development in its North field reservefor another four years.

Right now, the two big drivers of US consumption are its winter and its economy. Thiswinter, an early cold snap increased heating demands for much of the country and evencaused a brief $1 price increase. Though faltering, the US economy has improved

somewhat since September, 2008. Because of the slight contraction in productivity andthe early cold weather, natural gas prices have risen from their September, 2009 low but they are still 50% lower than their peak in 2008. The EIA statistic for the January 27,2010 price at the Henry Hub in New York ($5.42 mmBTU) is 14% higher than the samedate last year ($4.75).

The big new for 2010 is its still a natural gas buyers market. With storage levels still at5 year highs, enhanced domestic production capabilities, and slow consumption growth,prices are not expected to rise dramatically through 2010. EIA projects that the naturalgas spot price at the Henry Hub will increase to an average of $5.25 mmBTU in 2010,which is $1.27 more than the 2009 average of $3.98 mmBTU. Remember, this is anaverage price; seasonal increases will occur, especially during the summer cooling

months in Texas when power demand is at its height.For Texas electricity consumers, this means that energy prices will remain low throughfor the rest of the year, though there will be some fluctuation due to seasonal demand,as stated. However, one thing about the near future is certain: consumption of naturalgas will increase as economic conditions improve. Businesses will need more people asthey will get back to running equipment and machinery and they will all use moreenergy. As consumption rises, more generators will burn natural gas to meet that need.Natural gas prices will rise. And so will the price of Texas electricity.

Long Term Solutions for the Texas Energy Consumer

The best thing an electricity consumer in Texas has right now is energy choice. If you

sign on to a two year (24 month) plan now, you can lock in the current 2010 ratethrough 2012. Switching between now and spring when rates are low could save youhundreds of dollars over the next two years. Why? Because you can take advantage ofa long term fixed energy plan that locks in the current low energy price. In the nearfuture, the EIA projects that prices will increase in 2011, averaging $6.00 mmBTU asthe existing surplus shrinks in the face of a rebounding economy. Thats a 13% increasein price. Right now, if your energy plan is locked in at .114 cent/kWh for 1500 kWh permonth, youre paying about $171/month. But in 2011 given a 13% average increase,your bill could jump to $193.23/month. Thats a difference of $22.23/month or $266.76for the year.

To maximize your savings for these next two years, you need to act before mid-April

because thats when the price begins its annual increase for summer cooling costs. Tofind a long term plan that will help you save the most money, go to Bounce Energy andcheck out theirPrice Protector 24 plan. Qualified customers will receive movie tickets,bill credits, companion airline tickets, price reductions and more for paying their bill on-time!

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