Natural gas tests new frontiers in price and production

Natural gas prices were pushed above $11 per thousand cubic feet in late August and early September as hurricane Katrina hit the Gulf of Mexico producing region. This surpasses last winter’s peak heating-price levels. But the hurricane induced price spike fell short of the record set in January 2001, when spot prices reached $14.

The current price spike comes with warnings from the U.S. Energy Information Administration (EIA) that prices this winter could rise across North America by 18 to 25 per cent above summer levels.

Natural gas prices that remained below $2 per thousand cubic feet during most of the 1990s, have climbed to new records in this decade, driven by a number of factors:

• a surging world and North American economy
• restrictions and delays in access to new sources of North American natural gas supply
• strong increases in demand for natural gas for electric power generation
• rapidly rising prices for competing fuels, such as oil
• hot summer weather in parts of North America that increased demand for natural gas-fired electric power to drive air conditioning
• the low emissions profile of natural gas that has increased demand and created an environmental price premium, and
• flat North American natural gas production.

Analysts said several issues have combined to make natural gas the favored fuel for all new electric power projects, including large centrally-located and smaller distributed power plants. Emissions from gas-powered generators are about one-third of conventional coal-fired power generation, small gas-fired plants can be built unobtrusively near urban consumers to eliminate the need for transmission corridors and government approvals are much easier to obtain for small natural gas-fired plants than for huge coal or nuclear facilities. A significant portion of the necessary natural gas delivery infrastructure already exists and has proven its reliability over the past three decades. All these advantages have meant that virtually all new or proposed power plants in North America are based on gas-turbine technology and new cogeneration and distributed power generation technologies are also looking to natural gas as their source fuel.

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