Appalachian Basin

Study: Marcellus Shale Development Has Cut Pa. Natural Gas Bills 40 Percent Since 2007

A new study from the University of Pennsylvania’s Kleinman Center for Energy Policy credits the abundance of Marcellus Shale natural gas for a 40 percent reduction in natural gas bills in the Commonwealth compared to a decade ago. And, as the report notes, this trend is being seen nationally too.

As Christina Simeone, author of the report and director of policy and external affairs at the Kleinman Center, said in the study’s press release,

“In terms of cost, shale gas has been a clear win for consumers.”

The study explains that annual Pennsylvania natural gas production increased by 2,800 percent from 2007 to 2016. According to the study,

“The increase was larger than in any other major gas producing state, and made Pennsylvania the biggest driver of America’s 32% increase in annual natural gas production.”

In fact, Pennsylvania went from consuming four times more gas than it produced in 2007 to becoming a net exporter of the resource in 2011, and exporting or storing 75 percent of the gas produced in the state by 2016. This was done at the same time that overall gas demand within the state increased by 50.5 percent, compared to a national increase in demand of 18.5 percent.

The end result is that Pennsylvania’s consumers are seeing significant reductions in the price of gas today versus a decade ago.

It should be noted (and is in the study) that Pennsylvania has historically had higher natural gas prices for residential consumers than the national average, and that is still the case. But, as the study explains, residential prices are falling at a faster rate (40 percent or a decrease of $6.79/Mcf) than the national average, which is also decreasing dramatically (34 percent or a decrease of $5.09/Mcf).

This is also resulting in fewer utility service terminations, total debt and consumers in debt in the Commonwealth, as the study notes,

“Comparing 2007 levels to 2016 on a statewide annual basis, the total number of customers in debt was reduced by almost 79,000 people, total dollars in debt was reduced by nearly $49 million (nominal terms), and customer service terminations (where gas service is shut off due to debt) were reduced by over 4,000 people. The cost of customer assistance programs also dropped by over $72.5 million (nominal terms).” (emphasis added)

Further, the commodity price that utilities are charging residential customers has dropped significantly – 72 percent – from an inflation adjusted annual average of $11.76/Mcf in 2007 to $3.28/Mcf in 2016. As the study explains,

“It is important to note that PA NGDC’s are required to follow a least-cost natural gas procurement strategy in the competitive wholesale gas markets, then pass along gas costs to retail ratepayers with no profit markup. As a result, gas consumers enjoy the benefits of wholesale gas cost reductions.” (emphasis added)

The industrial and commercial sectors have seen even more of an impact, with the PA Hubs Average – a proxy for Pa. industrial and commercial gas commodity prices – decreasing 65 percent from 2010 to 2016, while the Henry Hub has seen a lower, but still impressive, 44 percent decrease during that time period.  The largest reductions, both in Pennsylvania and nationally, occurred in the electric power sector, where the price reductions were 79% (a decrease of $7.32/Mcf) and 65% (a decrease of $5.47/Mcf), respectively.

Gas demand has increased by 250 percent in the electricity sector since 2007 – transitioning from the smallest sector to the largest for natural gas demand – and is driving the increased overall demand for the state. That is a trend that is also being seen nationally, with U.S. electric power sector demand growing by 46 percent from 2007 to 2016 and taking the slot as the highest user of gas by sector.

As EID recently reported, that growth in Pennsylvania’s electric sector shows no signs of slowing down, with new natural gas power plants slated to bring more than $10.5 billion in investments and 12,359 megawatts (MW) of power to the Commonwealth over the next few years.

This latest study represents an important part of the Marcellus story – namely how even though shale development takes place in select parts of the state, it really is benefitting the state as a whole, and particularly consumers.  As cold weather sets in this week and many Pennsylvanians turn on the heat for the first time this season, it will be costing them far less than a decade ago thanks to the Marcellus Shale.

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