The U.S. has seen a glut of natural gas as production from unconventional resources like the Marcellus shale continues to rise. The boom has many producers worried about the potential for continuing depressed natural gas prices, but the U.S. Energy Information Administration reports there are some strong signs that gas is finding major new uses, notably in power generation.
The Northeast has long been one of the most important markets for natural gas because of the huge swings in consumption between summer and winter.
The bitter cold temperatures in the region throughout the winter are a major part of the reason behind this differential. But another important factor is that the region relies more heavily on sources of energy like coal and nuclear power.
Monthly consumption data from the EIA illustrate that, while industrial gas consumption remains relatively stable, residential and electricity demand tend to spike inversely – homeowners burn more gas when temperatures fall in the winter and power plants are running strongest when power demand peaks in the summer.
By limiting the power aspect of this equation, the Northeast makes a highly unbalanced market that tends to dictate the flow of natural gas around the country.
With environmental regulations growing stricter and natural gas prices declining, however, utilities and generators in the region have begun to make the switch to gas.
The EIA highlights the impact this shift is having on the market by looking at the critical Algonquin Transmission pipeline, which carries gas from southern New Jersey to eastern Massachusetts.
In years past, that pipeline has ranged from higher than 80 percent utilization from November to December to around 10 percent usage in some summers. Through September 2012, this pipeline has fallen below 80 percent utilization for only two months – May and June – sometimes reaching nearly 90 percent.
On average, from June to August, the pipeline used around 83 percent of its full capacity, compared to only 62 percent the year before and 32 percent for the six years prior.
As more power plants convert from coal to natural gas, the region could continue to see greater utilization through the summer months, a situation would help the country make use of its glut of natural gas without the need for significant added infrastructure.