With most of Texas under burn bans and wildfires carving up the state like an Easter ham, some people are dreading what the summer weather might be like. After all, if its going to be dry and hot, then youll probably run your air conditioner nearly all the time. And if thats so and gas prices are rising, then youre probably worried youll spend a fortune on Texas electricity rates.
Whoa! Not so fast. Lets have a look at some facts and market data.
The National Weather Service predicts that the current La Nina pattern in the Pacific will gradually diminish in the Pacific Ocean reaching a neutral effect by June. What that all means is that conditions will stay about the same. Texas will probably continue to have warm dry weather through the summer. These will likely moderate gradually through August into the autumn with normal conditions re-emerging by October and November. Unfortunately, that means the risk of wildfires will continue through the summer due to dry soil and little rain.
So, the summers going to be hot and dry. Yes, you will run your air conditioner a lot.
Electricity prices, on the other hand, dont look to be as grim.
Its no secret that Texas energy rates are tied to natural gas. Nearly one half of all Texas electricity is generated by burning natural gas. Back in 2008, you might recall when speculation in petroleum futures helped drive gasoline prices to $4.00/gallon and above. Natural gas prices shot up, too, dragging Texas electricity rates up with them. Natural gas peaked at $13.69 mmBtu in July 2008 and some consumers were paying over 20¢/kWh to less scrupulous Texas energy providers.
But since then, natural gas prices have de-coupled from petroleum prices for three big reasons:
1. Only recently has liquified natural gas (LNG) been shipped world wide in bulk, but now the US is importing less.
2. Highly productive shale gas plays in late 2008 have removed natural gas from being a product of just the oil industry.
3. The rush to make those shale gas plays profitable glutted the US natural gas market.
That huge supply and storage surplus plunged natural gas prices into a free fall. By September, 2009, natural gas cratered at $2.409 mmBtu. Many Texas electricity providers lowered their electricity rates.
As of April 29, 2011, the US Energy Information Agencys Short Term Outlook puts US working natural gas in storage at 1,579 billion cubic feet (bcf). Despite supply problems stemming from freezing wellheads in Texas this winter, this amount is within the average range but continues the trend of being on the highside for the past three years. The EIA says in its STEO that it expects that inventories, though somewhat below their 2010 levels for the first half of the year, will remain robust. In other words, even though gas companies are in the process of drawing down inventory to boost the commodity prices, they still need to produce gas to pay for the wells and licenses they currently own. The surplus may contract (as expected) but plenty of natural gas will remain in storage.
Looking at usage, one of the ongoing developments is the nationwide expansion of natural gas powering electric generation plants by 2.9% through 2012. Part of this is due to the rising cost of coal on the global market (China imported 164.83 million tons of coal in 2010, up 30.99 percent on the previous year and will import more than 200 million tons in 2011). At a price of around $120/ton, many US coal producers are eager to increase their exports to China and the rest of Asia. Even with the possibility of new gas generators firing up in the near future, producers are reigning in production to get control of their costs. The number of rigs drilling for natural gas, as reported by Baker Hughes Inc., has fallen from 973 in April 2010 to 889 as of April 8, 2011.
Fracking Fluid Situation
The drawback, meanwhile is that shale gas plays are lately attracting disaster. An April 20 spill from catastrophic well causing failure in western Pennsylvania forced Chesapeake Energy Corp. to suspend all its drilling operations in the state. The accident spilled thousands of gallons of frack fluid over containment walls and into local creeks. In addition, Pennsylvania also ordered that fracking fluid would no longer be processed at water treatment plants on May 19. Bromide salt, a component of fracking fluid, reacts with chlorine used in municipal treatment systems and creates trihalomethanes. These have been linked to cancer and these are being discharged into waterways that supply municipal water systems. Meanwhile, injecting spent fluid has shaken both Arkansas and West Virginia with unforeseen consequences. Though controversial, there is evidence in Arkansas that waste frack fluid injection is linked to earthquakes ranging from 1.2 to 3.0 occurring in one week including one large quake on February 27 of 4.7.
While its still too early to see how the outcome of any studies, or even those yet to be proposed, in any of these states, shale gas fracking faces more technical and environmental obstacles that may add to the cost of producing natural gas, reduce supplies, and increase its commodity price.
Another event in the offing is whether New York State will let its current ban on fracking expire on July 1. Raising the ban will open another segment of the Marcellus shale to drilling, add to the supply, and lower the price. With the problems of fracking fluid spills and disposal at large in Pennsylvania and other states, the New York legislature will be watching and debating very carefully.
Summer Electricity Rates Outlook in Texas
So far, this years earlier predictions are on track. Over the summer months, from May through August, prices for natural gas are averaging $4.29 mmBtu (the Henry Hub price on May 2011 price on April 20 closed at $4.379. Because natural gas prices expected to remain flat, electricity in Texas should also remain stable. Sure, there might be some seasonal spikes when consumer usage overtakes reserve generating capacity especially due to the weather. Last years usage peaks set new a record in Texas topping out at 65,776 mega watts (MW).
On April 19, the Electricity Reliability Council of Texas (ERCOT) released its 2011 summer assessment. In it, ERCOT anticipates peak usage of 64,964 MW. However, it raised its reserve generation margin from 12.5% to 14.3%. While not seeming a whole lot, this is an increase in existing certain generation to carry a peak load of 72,255 MW. Much of the existing certain generation comes from renewables, such as wind and bio mass. Another full gigawatt (gW) will be brought online over the course of the summer and will include both coal and natural gas generators. This enhanced reserve capacity should cushion against demand and price spikes. Cost reduction will also come from improved transmission lines. East Texas contains several transmission bottle necks that cause delays. The report includes information on transmission line project completions which add capacity so more power can be sent to where it is needed.
Nothing about natural gas is ever written in stone, however. Over the long run into next year, a growing economy, gradual rise in the global price for coal, and natural gas stocks settling down to average levels will all see a gradual increase in energy prices. Prices will rise as economic conditions improve and raises demand for more energy. Unless the gas industry over-shoots its drilling and gluts the market again, electricity rates in Texas will gradually increase, too.
The good news for electricity consumers in Texas has right now is the power to choose. Bounce Energys fixed rate plans lock in a low price with 3, 6, 9, 12, 18, and 24 month options. You can save a little or a lot. You can lock in the current low spring 2011 rate all the way through summer. Or, if you sign on to a two year (24 month) plan now, you could save hundreds of dollars over the next two years.
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