Natural Gas Glut is Double Edged Sword

Natural gas prices have plummeted over the last two years due to the market glut as a result of the shale gas explosion created by hydrofracturing or “fracking”.  For energy consumers, this is a major financial benefit in that the market price for those heating with natural gas has fallen significantly.  This is also a boon to the electric generation industry, which has shifted new power generation facilities to natural gas turbines. The result has been a 50% reduction in costs for the US Power industry for national electric generation. How this has only equated to a LIPA 4.5% rate reduction is a question that should be asked of the State Public Service Commission. LIPA has said it is using the savings to write down losses and loans.  Still, LIPA’s rates are now at their lowest in 5 years.

There is such a glut of natural gas on the market that drillers and energy companies are cutting extraction and production in a play to increase and stabilize market prices. As energy companies have reaped windfall profits at higher energy prices, it behooves them to use Keynesian supply and demand principles to manipulate profits. Unfortunately, capital expansion of gas pipelines has not increased significantly to increase consumer demand. For example, I’ve been trying to get our local utility to extend the gas main 300 feet for the past 20 years.

An unfortunate byproduct of this natural gas boon is the effect that it has had on alternative energy sources. The combination of a harsh recession, disappearing federal tax credits and lower natural gas prices has seen consumers and municipalities running from alternative energy capital improvement projects. Wind power, solar and geothermal projects have all taken a hit since the return on investment has increased because of falling natural gas prices. “Cheap gas makes it difficult for rival forms of fuel to compete”, said Sam Brothwell, a senior utility analyst with Bloomberg Industries. Add to this that in an election year politicians are loathe to suggest energy taxation measures to create a level playing field and it pushes our window to achieve a fossil fuel free future into the next generation.

As always, to keep up to date with what’s new in HVAC technology, visit our website at airideal.com and follow us on Twitter @airideal and at our Facebook page!

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