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Frigid Temps Send Natural Gas Prices Skyrocketing, Despite the Fracking Boom

Last year, shale gas supporters said hydrofracking would stabilize prices, but that hasn't happened.
 
 
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Photo Credit: David P. Lewis/Shutterstock

 
 
 
 
Last year, natural gas prices hit record lows and shale gas promoters confidently predicted a bright future of stable low prices, making the fuel the best choice for home heating and electrical generation alike.

But last year was also marked by an unusually mild winter amid a still-sluggish economy. This year, cold winter weather returned across much of the U.S. – and consumers and utilities have begun to confront a strikingly different reality. Natural gas prices immediately spiked as high as $8.15/mmBTU Henry Hub this month – the most expensive prices seen since the 2008 economic collapse – as demand for power and heat surged.

And that $8.15 represents the daily price at a Louisiana pipeline hub often referenced by traders and federal energy analysts; regional prices have spiked far more dramatically. In the frigid Northeast, local prices have skyrocketed this year, with some operators paying up to $120 per mmBTU. "I’ve never seen anything like this," one New Jersey power company executive told Bloomberg Businessweek in January. The spike’s effects have even reached as far south as East Texas, where spot prices topped $40/mmBTU, nearly reaching the highs seen in 2004 when the current onshore drilling rush began in the Barnett shale.

Keep in mind that the same amount of natural gas cost only $1.92 in April 2012.

That’s a little like suddenly finding out that a McDonalds burger that used to be 2 bucks will now cost you as much as full dinner at a five star restaurant.

These massive fluctuations in natural gas prices over the past year drive home a vital point: natural gas has always been prone to sudden booms and busts. The idea that shale gas – less than ten percent of the nation’s natural gas production and some of the most expensive to produce – could fundamentally transform the natural gas market, keeping prices consistently low, now seems more like a pipe dream than ever before.

Already, utilities and their customers are paying the price.

In New England, natural gas shortages were so bad that power generators were told to fire up not just their mothballed coal-fired plants, but also plants that run on oil and even jet fuel. Meanwhile, the Nebraska Public Power District shut down its gas-fired plants because the costs were 300 percent higher than power from other sources. And in Wisconsin, spiking propane prices led Gov. Scott Walker to declare a state of emergency, authorizing a call-up of the National Guard to help his state’s residents cope with a shortage of the fuel, which also comes from natural gas wells.

Because residential customers in some states are allowed first dibs on natural gas supplies during shortages, price spikes have hit some private companies that also rely on natural gas particularly hard. Some New England paper companies, for example, had to shut down their paper mills for days this December because natural gas prices were too high, leaving their workers without pay before the holidays.

At home, natural gas customers are also feeling the pinch. In New York City, for example, power bills in January were 20 percent higher than usual, The New York Post reported. Some residents in Chicago told reporters their January natural gas bills were nearly triple what they paid in November.

Just a few years ago, shale gas supporters projected that the drilling rush would keep natural gas prices low and stable for decades. "From shale gas discoveries onshore to new gas fields offshore, our nation has significant supplies of clean energy that will power our economy affordably for generations to come—an anticipated 100 years," Dave McCurdy, president and CEO of the American Gas Association said in 2011. "As crude oil prices continue to rise, stability with regard to natural gas pricing is welcome news to homeowners, small business owners and larger commercial manufacturers across the country."

 
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