Saturday, March 13, 2010

Natural gas gets cheap with new technology

If you're a homeowner that uses a natural gas furnace to heat your home, you may have noticed your bills being a little lower this year (or at least offsetting the cost of this year's colder winter). Because of new technology to extract natural gas, there's now an overabundance of supply. So much so that all the surplus is difficult to store.

Surplus expected to continue

The expanded use of "fracking" to retrieve natural gas has caused a significant shift in the economics associated with the fuel. The huge finds of deposits already found in Texas and Louisiana have some predicting that natural gas supplies could easily last for 100 years and provide the means for reducing the need for importing energy resources - a strong national security argument.

Additional deposits are being targeted along the Marcellus shale from West Virginia to New York. While some concerns have been raised that the new extraction methods have uncertain environmental impact, there's no indications yet that they will halt this extraction process. Furthermore, since natural gas is cleaner burning than either coal or oil, many are suggesting its use as a "stepping stone" towards more advanced clean technologies.

Effect on homeowners

Those using natural gas furnaces, water heaters, and other gas appliances are likely to benefit in the near term from lower supply costs. However, we don't see the full extent of price drops due to additional "service fees" and other costs that get added onto our bills. Perhaps unfortunately, this is likely to reduce the incentive for homeowners to move towards more efficient appliances such as heat pumps and geothermal heating systems.

From a strictly cost saving standpoint, homeowners who have dual fuel furnace systems may be able to benefit a bit more by adjusting the temperature where the gas backup kicks in from the heat pump. I don't have any statistics to back this up, but my own experience did suggest I was able to reduce bills this year by selecting when to use the gas furnace during colder periods. If you have a hybrid system, you may want to check with your HVAC company about what temperature change point will work best for your home.

Lasting impact

If the supply continues as expected, you can probably expect power suppliers to look at it as an alternative to building coal-powered generation plants. Here in the Midwest, the use of coal is extremely cheap for electricity, but pending regulations and other factors could make use of natural gas an attractive alternative. Natural gas has also been touted as a possible fuel for cars and trucks in place of gasoline. (The well known oil magnate T. Boone Pickens has been stumping his plan to use natural gas for about a year).

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