One topic mostly absent from the recent election was energy and America’s energy future.
Perhaps it would have been more prominent if the current energy situation was not as rosy as it is. Most forms of energy still cost less than a few years ago, and most experts believe we are still in a range that will trade lower than two years ago.
If we look back at 2016, we saw energy pricing volatility, but prices still remain favorable compared to recent history.
Natural gas in storage was already at record high levels at the start of winter 2015-2016. Then we had one of the warmest winter seasons for the lower 48 states going back more than a century.
This meant natural gas producers faced a market surplus and a shortage of storage space. This brought natural gas pricing nationally to well below $2 per million British thermal unit – a plunge of 41 percent in pricing over spring 2015.
Low market pricing for gas, especially in Pennsylvania, led many producers to curtail production. A warmer summer this year than 2015 led to more natural gas being consumed by electricity producers, but we will still go into this winter at another record natural gas storage number in excess of 4 trillion cubic feet.
The abundance of natural gas in Pennsylvania has many producers sitting on wells that have been drilled but are not producing. Producers are waiting for pricing to improve and new pipelines to take away their production to markets that need it.
The drilling boom in the Marcellus shale areas of Pennsylvania has ended. The break-even price needed to entice producers to increase production is around $3 per 1 million Btu.
Since the marginal cost of electricity generation is set by power plants which burn natural gas, the background of low-cost natural gas availability in the near future means we should enjoy low electricity pricing in the next few years, as well.
Another factor keeping electricity prices down is that electricity generation plants are becoming more efficient.l