The Price of Natural Gas

Natural gas has become extremely popular as a major source of energy in the United States, for both consumers and industry, in part because it burns so cleanly. Many utilities, for example, have shifted away from coal or oil to natural gas to produce electricity. As a result, demand for natural gas is expected to rise by about 40 percent by 2025.

Natural gas prices have risen sharply in recent years. Why? Broadly speaking, natural gas prices have increased because of the interaction of a number of factors:

Strong growth in demand.

Competing government policies that encourage use of natural gas but discourage new supplies by limiting access and development of domestic natural gas resources.

The lack of infrastructure necessary to bring more natural gas to market.

The declining productivity of older fields.

While higher prices have generally led to more drilling - signaling that market forces are working as they should - recent experience has shown that increased drilling does not necessarily yield a growth in supply that will be enough to meet growing demand. The reasons are varied:

There has to be access to where the natural gas is found. Government data show that government policies place more than 40 percent of the nation's natural gas off-limits or make it accessible only under highly restrictive conditions. The National Petroleum Council reviewed restrictions in leases and those imposed afterward and concluded that 125 trillion cubic feet (Tcf) of natural gas is affected. That is enough natural gas to heat 60 million homes for 30 years.

Where access is available, new natural gas supplies are becoming more challenging to develop because of their location and geologic structures. The largest and most easily developed resources have already been developed in areas that have been open to exploration and production. New areas need to be opened to responsible energy development.

How do we pay the bill?

Sharp increases in natural gas prices can hurt consumers. They have no choice but to pay the bill because households must be heated and cooled, and there must be a source of heat for cooking. Some gas utility companies attempt to ease sticker shock by allowing consumers to pay an average bill throughout the year to spread out the costs of heating over many months. But eventually homeowners pay for the higher costs of the gas they use. One way to ease the pain of higher prices is to conserve energy. A properly insulated house can save hundreds of dollars a year in heating bills. Keeping the thermostat set at a lower temperature can help, too. Low-income families can apply for government assistance from the federal Low Income Home Energy Assistance Program (LIHEAP) that is currently helping 4 million households.

What can be done about high prices?

The only way to lower natural gas costs is to increase supplies and/or lower demand. Because demand over the next two decades is expected to rise, increasing supply is essential to keep our economy growing.

Can supply be increased? There are known reserves throughout North America - both onshore and off the east, west and Gulf coasts. Significant untapped sources are in the Mountain West. Much of that gas is off limits because of concerns about the impact on the land and the environment. The misunderstood reality today, however, is that the new computer-driven technologies for finding and producing natural gas make responsible energy development possible. Domestic energy supplies can be produced while protecting the land and the environment.

Unlike oil, there is currently no quick way to increase imports of natural gas from abroad when production does not meet demand. Liquefied natural gas (LNG) can help us connect to global gas supplies from diverse sources. At present, LNG represents 1-2% percent of the gas we use. The natural gas is cooled, turning it into liquid form, allowing it to be carried by tankers from anywhere in the world and then turned back into gas to be put in pipelines for delivery to consumers. LNG technology used today is safe and practical. With more U.S. ports equipped to receive LNG, we can substantially increase our access to LNG from Alaska or abroad.