The US Natural Gas Price Slump  

AP reports that falling natural gas prices in the US are making residential consumers happy for the time being, but notes that unconventional (shale) gas drilling has fallen off a cliff in recent months - Homes that use natural gas for heat could save big.

The 60 million American homes that rely on natural gas for heat can expect substantially lower bills next winter thanks to a glut in supply and the weak economy.

Just as distributors start to lock in contracts for the coming winter, natural gas prices have fallen almost 75 percent. Not all of that will show up as savings on the heating bill, but it should still mean noticeable savings. Utilities also generate about a fifth of the nation's electricity with gas, and many of their customers should notice price breaks as well.

Electric utilities burn natural gas at power turbines, so homes that use electric heat could see big price breaks, too. And barring a scorching summer or a brutal hurricane season, analysts say prices could fall even further.

The reason: New technology this decade has unlocked massive reserves of natural gas in North America, and the sudden jump in supply has collided with a recession, the worst since World War II, that has sapped demand. The result has been a collapse even more dramatic than the drop in oil prices. ...

Many people switched to natural gas after a huge spike in the cost of heating oil last year. Heating oil is down this year as well, although not as much as natural gas.

The last supply glut in natural gas came to an end in 2002. Prices climbed, and producers began drilling more, finding new ways to pull natural gas from places previously considered unreachable.

For example, in the layered sedimentary rock known as shale, bountiful in a region stretching from Texas and Oklahoma into Appalachia, drillers learned how to free gas by forcing water into small boreholes and fracturing the rock.

Five straight years of record activity turned into 148,000 new wells, according to the American Gas Association. Then came the recession, and the drilling rush came crashing to a halt. Rigs are still being pulled from the ground at a record rate. Active rig use in North America is at the lowest level in five years.

The government's Energy Information Association says the volume of gas in storage around the country, a staggering 1.67 trillion cubic feet, is 35 percent more than it was last year. "Storage is full. There is no place for gas to go," said Ron Denhardt, vice president of natural gas services for Strategic Energy and Economic Research Inc.

And even as companies scale back their drilling, production is still running ahead of consumption. Businesses are cutting back on their natural gas use even more than homes. That means prices could go even lower.

ill the Obama administration back away from building liquefied natural gas (LNG) terminals along the coasts of the U.S.? Obama’s appointee at the head of the Federal Energy Regulatory Commission suggests that it will.

Though George W. Bush talked a lot about weaning the U.S. off foreign oil, he wanted a massive increase in imports of foreign natural gas. The Bush administration, aided by the 2005 energy bill that gave the feds sole authority over LNG terminal siting, pushed for dozens of new terminals to be constructed in coastal areas of the U.S., where massive tankers could unload their cargo from overseas.

Communities targeted for the terminals, many of them densely populated, have protested fiercely, citing serious concerns about safety and the prospect that terminals could be targets for terrorist attack. In vapor form, natural gas is extremely flammable, so accidents can lead to huge, dangerous fires and explosions. There are currently only four active LNG terminals on U.S. shorelines. At one point, some 30 additional terminals were being considered, but vigorous opposition has led to the cancellation of some projects and endless lawsuits over many others.

Among those caught up in litigation is the facility proposed for Bradwood Landing in Oregon, at the mouth of the Columbia River. FERC approved construction of the terminal in September 2008, over the complaints of local citizens and environmental activists. Oregon, Washington, a coalition of environmental groups, and the National Marine Fisheries Service all filed suit against FERC over the decision, alleging that the agency broke the law by approving the terminal before its environmental impacts were adequately assessed.

Enter the Obama administration. In March, the Justice Department said it would represent NMFS in its suit against the Bradwood terminal.

And the newly appointed chair of FERC, Jon Wellinghoff, told Grist in an interview that he thinks the Bradwood decision needs to be reassessed. That’s consistent with his vote against the project [PDF] last year, when he was one of four FERC commissioners.

“My view has been that we need to look at those [proposed LNG terminals] very carefully, and we need to consider all of the regional needs when determining whether or not there has been a finding of need for the facility,” said Wellinghoff. “That was largely why I voted against the Bradwood decision in Oregon, was because I didn’t believe that there had been an adequate determination of need for that facility to meet the needs of the region.”

Wellinghoff challenged the idea that the U.S. needs to expand its infrastructure to import more LNG. Instead, he predicted increased use of domestic natural gas reserves.

“We’ve had, since a lot of this push for LNG several years ago ... a vast expansion of the known resource reserves of natural gas in this country, based primarily on exploration in shales in Pennsylvania and Oklahoma and other regions of the country, that have allowed us to understand that we have much more natural gas resource reserves than we ever believed we had,” said Wellinghoff. “As such, we probably will be much more able to draw from domestic gas resources than we will be so concerned about foreign LNG sources.”

Of course, development of domestic shale is not without its own environmental and local concerns. Count on this to be an interesting topic to follow in the coming months.

But Wellinghoff also predicts that the U.S. won’t need big new sources of natural gas. “I think the potential is there to increase the efficient use of natural gas so rapidly that I don’t think we’re going to see significant increases in demand,” he said.