Although it wasn’t in most people’s business plans, the price of natural gas has dropped dramatically in recent months, making gas-fired power generation more competitive. Bloomberg reported on March 9 that “Natural gas fell to the lowest level in more than six years on concern demand will decline further as the cold-weather season ends and industrial consumption slows with the recession.”
Although demand for gas will probably return when the recession is over, the more serious economic conditions in the US will likely help to soften demand across the continent and keep prices relatively low for Canadians. The trend could last for a while: Bloomberg also reported that gas futures have declined 31 percent this year.
Relatively high gas prices in recent years had spurred a significant amount of exploration and development of gas resources, all of which now seem to be contributing to the abundant supplies. The New York Times described current conditions as “the first global gas glut in history.” Several facilities for cooling and shipping huge amounts of liquefied natural gas from the Middle East, Russia and Indonesia are scheduled to come into service just when their supplies seem least needed. This means that when demand for gas does recover, price increases are likely to be moderated by the availability of internationally-sourced gas in combination with the normal supplies from North American sources.
The New York Times reports that, “Natural gas in the United States costs a little over $4 per thousand cubic feet, down from a peak of more than $13 last year. … On average, world spot prices for liquefied natural gas cargoes have come down by more than two-thirds since last summer.”
In Ontario, most of the new contracts for gas-fired power generation are adjusted based on market prices of the fuel. As a result, Ontario consumers may see more gas in their electricity mix than previously expected, and save some money in the process.