A 2,800% increase in Pennsylvania’s natural gas production between 2007 and 2016 has dramatically decreased the price all consumers in the state pay for the fuel, according to a study released by the University of Pennsylvania’s Kleinman Center for Energy Policy.
Driven by unconventional natural gas production, natural gas prices in the state have dropped faster than national prices. Pennsylvania gas consumers saw significant cuts over the 10-year study period, with the electric power sector experiencing the most significant reduction of 79%. The 82-page report, “Pennsylvania’s Gas Decade,” was funded entirely by the center and authored by its Director of Policy and External Affairs Christina Simeone.
The drop in prices has attracted dozens of gas-fired power plant projects to the state in recent years. In Pennsylvania, the study found, natural gas demand from the power sector increased by nearly 250% from 2007-2016. During that time, the study said, electric power grew from the state’s smallest to its largest sector of natural gas demand. U.S. average electric power sector demand grew by 46% during the report period, surpassing other sectors to become the nation’s highest natural gas user.
Residential retail gas prices over the 10-year period declined by 40% in Pennsylvania. That’s compared to a 34% reduction for U.S. residential customers. Natural gas supply costs, however, generally represent a small portion of a customer's bill. Utilities in the state purchase their gas on the wholesale market and under state law must pass those costs onto customers without a mark-up. Distribution costs in the state have continued to increase as utilities make upgrades to their aging systems.
Even still, the study found that lower commodity prices helped reduce service terminations and customer debt across the state. Comparing 2007 levels to 2016, the number of customers in debt fell by nearly 79,000 people, while overall debt was reduced by almost $49 million. Service terminations dropped by more than 4,000.
Natural gas demand, which local policymakers have continued to focus heavily on, also increased in the state by 50.5% last year, compared to the 2007 baseline. U.S. demand grew by 18.5% during that time. Producers operating in the state have been forced to focus on in-basin demand for years on a lack of takeaway capacity. The study anticipates that prices are likely to increase as more and more pipeline projects come online to tap different markets, but by how much is unclear.
It’s no secret that pipeline development has not kept pace with production in Pennsylvania and other parts of the basin. But from 2007-2016, the study said, Pennsylvania saw more project proposals (53 applications) filed at FERC than any other state in the nation. The 53 approved projects added more than 12.9 Bcf/d of pipeline capacity. Another 7.2 Bcf/d of capacity was approved by the Federal Regulatory Energy Commission in the first few months of this year. More is under review.
Shale production alone stood at 5.1 Tcf in Pennsylvania last year, second only to Texas. The study notes that in 2007, Pennsylvania produced less than 1% of the nation’s natural gas supply. But by 2016, its share had increased to more than 16%.