Bloomberg: US Consumer Savings Tied to Natural Gas Could Hit $113 billion by 2015

FLASHBACK: Then-Federal Reserve Chairman Alan Greenspan in 2003: “We are not apt to return to earlier periods of relative abundance and low prices anytime soon. … Increased marginal supplies from abroad, while likely to notably damp the levels and volatility of American natural gas prices, would expose us to possibly insecure sources of foreign supply, as it has for oil. … Markets need to be able to effectively adjust to unexpected shortfalls in domestic supply. … As the technology of LNG liquefaction and shipping has improved, and as safety considerations have lessened, a major expansion of U.S. import capability appears to be under way. These movements bode well for widespread natural gas availability in North America in the years ahead.” (U.S. Senate Energy and Natural Resources Committee testimony, 7/10/03)

Shale Gas $100 Billion Savings to U.S. Exceed Tax Cuts

January 26, 2012

Natural gas prices that slumped to a 10-year low this month could save U.S. consumers $16.5 billion on home energy bills over the course of a year, according to a senior economist at the U.S. Federal Reserve.

U.S. households might see total savings from lower gas prices of as much as $113 billion a year through 2015, including tack-on effects such as lower product prices and higher wages generated by cheaper fuel, according to energy industry consultants IHS Inc.

The projected savings is “an unbelievable amount of money,” said Greg Ebel, chief executive of Spectra Energy Corp., during a Jan. 17 interview. “That’s better than any tax cut you’ve seen out there, better than any government handout.”

If consumers end up pocketing more than $100 billion due to low gas prices, it could add a “significant” piece to U.S. gross domestic product growth for 2012 or 2013, said Robert Solow, professor emeritus at the Massachusetts Institute of Technology in Cambridge, who won the 1987 Nobel Prize in economics. “If that figure is right, it’s a substantial amount,” Solow said in a telephone interview yesterday.

The savings realized by the nation’s 113 million households will vary depending on location and how much gas makes up the home’s total energy bill. Gas utilities are passing along the lower prices they’re paying for the fuel because of a glut of new domestic production from hydraulic fracturing and horizontal drilling in shale formations.

Consumers will likely spend about 95 percent of the direct savings they see from their gas bills, said Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University in Dallas. While that amount is a fraction of the $10.245 trillion in consumer spending for 2010, “it’s a step in the right direction,” Solow said.

Typical Household Savings

The typical U.S. household gas bill this year would drop to $323.50 from $468.80 in the previous year at an average gas price of $2.50 per million British thermal units — a savings of $145.30, said Mine Yucel, vice president and senior economist at the Federal Reserve Bank of Dallas.

Residents are forecast to pay about 25 percent less this winter for gas used in stoves, furnaces and fireplaces than they did in 2008, when the fuel last touched highs of more than $13.50, according to the U.S. Energy Information Administration.

“I think of shale gas as a real game-changer for consumers of natural gas,” said Hank Linginfelter, executive vice president of Atlanta-based AGL Resources Inc., in a telephone interview. “It’s having a significant impact on prices.”

AGL Resources, the largest standalone local U.S. gas distribution owner, said December bills have fallen on average 25 percent from a year ago at its utilities in seven states.

40 Percent Bill Trim

Iowa gas bills fell about 19 percent in December compared to the same month a year ago on lower demand and prices, MidAmerican Energy Co., owned by Warren Buffett’s Berkshire Hathaway Inc., said. Piedmont Natural Gas Co., based in Charlotte, North Carolina, has proposed cutting rates next month that would bring the average bill down by 40 percent since 2008.

The decline in gas has pushed average wholesale electricity prices paid by utilities down 50 percent since fourth quarter 2008, according to a Jan. 11 report from Standard & Poor’s. Meanwhile, retail rates paid by consumers have risen about 5 percent over a similar period, according to data from the Energy Department compiled by Bloomberg .

Between 2012 and 2015, lower gas prices may result in total average annual household savings of $926, in part due to lower gas heating and electricity bills, according to a December report by the consultants IHS.