Lowest Natural Gas and Electricity Prices Since 2001 a Testament to Market Forces

Last week’s regular meeting of the Federal Energy Regulatory Commission featured a staff assessment of the outlook for energy markets this winter, including the “exciting” development that natural gas and electricity prices have fallen to their lowest levels since 2001. Forward prices for natural gas this winter are significantly lower than at this time last year, and gas was placed into storage earlier this year for consumption during peak demand winter months at an average price of $3.45, nearly a third of the $9.40 average cost last year, FERC staff reported.

Commissioner Marc Spitzer hailed the good news for consumers as a success story for FERC’s consistently pro-market regulatory policies over the years. He described the phenomenon of unconventional shale gas discoveries, which are responsible for driving natural gas costs (and indirectly electricity prices) to historic lows, as a testament to market forces driving innovation and technological development. Maintaining competition in electricity markets promises similar market-driven innovation and technology development, Spitzer said.

Commissioner Philip Moeller cited the experience over the past several years, in which natural gas prices spiked to historic highs, only to plummet in the face of increasing shale gas production, as a lesson for policymakers – whether regulators or legislators – to not “overly prescribe the future” in setting policies and plans. As Commissioner Moeller observed, “These are markets, and we’ve seen them go up and we’ve seen them go down, and we as a nation and as consumers are benefiting from that.”

Joel Malina | November 24, 2009