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Shale gas boom saving US consumers billions: TD

New technologies have unlocked enormous natural gas supplies from rock formations across the US, keeping prices low.


CALGARY—Growing US shale gas output means billions in cost savings for residential and industrial consumers, according to a report by TD Bank.

Technological advances have unlocked enormous supplies of natural gas from rock formations across the US, keeping the price suppressed at around $3.50 per 1,000 cubic feet. The same fuel, by contrast, fetches around $12 in Europe and $16 in Asia.

The TD economists say the US price would be in the $10 to $12 range if not for burgeoning production in places such as Texas and Pennsylvania.

“Lower prices have cut costs for businesses and consumers and dramatically shifted the economics of power generation,” Leslie Preston and James Marple write in the report.

“Going forward, the likelihood of continued favourable prices relative to alternative fuels will shape the US power mix; improve the economics in certain industries and for natural gas as a transportation fuel.”

A growing switch from coal to natural gas in power generation will also have environmental benefits, since natural gas burns more cleanly and emits less carbon dioxide than coal, they added.

American residential consumers can expect to save around $75 billion in utility costs in 2013—equivalent to about $650 per household—assuming prices average $3.75 over the next year.

Just over half of US homes are heated with natural gas, which is also used to run appliances like stoves and water heaters.

However, TD doesn’t see a whole lot of demand growth from residential and commercial users as efficiency improves. While some consumers in the US Northeast may switch from heating oil to natural gas, growing populations in warmer regions will continue to use electric heat.

Across the entire manufacturing sector, TD says $50 billion can be shaved off energy input costs annually.

That’s not a huge amount for the whole industry, but the effect will be concentrated among heavy users such as chemicals, petroleum and coal, food and beverage, paper and primary metals.

Coal has traditionally been the dominant fuel source for power generation, but that’s changing. Over the past 10 to 12 years, 82% of new plants have been natural gas-fired.

The economics of natural gas versus coal-fired power plants are looking increasingly favourable. Though their prices are about “neck and neck” on an energy equivalent basis, gas-fired combined cycle generators tend to be more efficient than coal-fired steam units.

“As natural gas displaces coal, (greenhouse gas) emissions will be reduced and consumers will see lower electricity prices,” the TD economists said, adding real electricity prices in the US have fallen 7.6% since 2009.

A report by the International Energy Agency earlier this week predicted natural gas will overtake oil to become the largest fuel in the US energy mix around 2030, thanks to low prices and abundant supply.

The group said about half of the increase in global gas production will come from unconventional sources, such as shale, until 2035, mainly from the US, China and Australia.

Meanwhile, the National Energy Board, Canada’s energy watchdog, said that consumers on this side of the border can expect to pay more to heat their homes this year.

Despite abundant supply, a seasonally normal winter weather forecast and a slow growing North American economy, natural gas prices are expected to be higher this winter as demand grows.

Heating oil prices are also expected to rise as refinery outages in the U.S. have reduced inventories, the NEB said. The average heating oil price in Canada, including taxes, is expected to average between $1.15 and $1.35 per litre this winter.

©The Canadian Press