Originally posted – Dec 09, 2014
The Energy Information Administration, which is part of the U.S. Department of Energy, is a principal agency of the U.S. Federal Statistical System responsible for collecting, analyzing and disseminating energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment. EIA programs cover data on coal, petroleum, natural gas, electric, renewable and nuclear energy.
Katherine Teller is an industry economist with the EIA. She works on forecasting natural gas prices, consumption and production, as well as on weekly observational analysis. Ms. Teller has been with the EIA since 2009 and holds a bachelor’s degree and a master’s degree in economics.
Please describe the natural gas system that supplies today’s coin laundries.
Coin laundries that use natural gas are among many commercial natural gas consumers. In fact, commercial consumption makes up about 14 percent of delivered volumes of natural gas, and consumers are supplied by utilities that distribute gas. Commercial consumption is seasonal, with peaks in the winter representing heating demand. Of course, beyond self-service laundry, natural gas also is used in the commercial sector for hot-water heating and cooking.
What main factors drive the natural gas supply?
There are a few main sources of supply: domestic production and imports. Increasing domestic production from shale formations over the past several years, driven by more efficient drilling technology, has led to greater onshore production. Imports have declined as a result, but still serve as an important marginal source of supply.
What are the short-term and long-term outlooks for the natural gas supply in the U.S.?
The EIA projects growth in production in both its Short-Term Energy Outlook through 2015 and its long-term Annual Energy Outlook through 2040. Both project continued growth in domestic production.
The following graph shows growth in shale production since 2000. Shale now makes up about 50 percent of total natural gas production, and much of the growth has come from the Marcellus Shale in Pennsylvania and West Virginia, as well as the Eagle Ford Shale in Texas.
Which key factors are expected to impact natural gas within the next 12 months?
The biggest wildcard is always the weather. Extreme cold can result in higher demand from residential and commercial sectors for heating, and can lead to temporary decreases in production, known as well freeze-offs. In the summer, hot weather can lead to greater demand from electric generators that use natural gas to meet air-conditioning demand.
The winter of 2013-14 was bitterly cold east of the Rockies, and this drove up prices to six-year highs, and drew down inventories of natural gas in underground storage. The National Oceanic and Atmospheric Administration is projecting a near-normal winter this year – much warmer than last year’s cold, prolonged winter. The EIA bases its forecast for residential and commercial use on the NOAA forecast, but clearly weather forecasts are highly uncertain.
What factors affect natural gas prices?
Over the past several years, prices have remained relatively low, despite some ups and downs, as domestic supply has grown. In the short term, weather can cause large day-to-day fluctuations in natural gas prices. Utility prices paid by residential and commercial customers are somewhat insulated from the day-to-day fluctuations in spot prices, since utilities buy gas in advance and prices are dependent on various state and municipal regulations.
How are natural gas prices looking for the near future for self-service laundries?
The EIA’s Short-Term Energy Outlook projects average commercial natural prices of $9.03 per thousand cubic feet (Mcf) in 2014 and $9.07/Mcf in 2015. These are utility prices, and do not directly correlate with wholesale spot prices. The EIA projects declining spot prices in 2015, but utility prices somewhat lag spot prices.
Along the same lines, what factors determine electric prices?
Beyond taxes, fees, and other charges, there are two main components of electricity bills: the generation component, which reflects the costs of generating the electricity, and the delivery portion, which reflects the costs of transmitting and distributing that electricity.
The following graph shows costs of inputs since 2003 and the forecast through 2015. Distillate fuel oil and residual fuel oil correlated closely with crude oil prices. Natural gas prices mirrored oil prices in the past; however, since around 2008 natural gas prices have separated as the strong growth in shale production has resulted in lower domestic natural gas prices.
How are electricity prices looking for the near future for laundries?
Electricity prices in the commercial sector are projected at 10.70 cents per kilowatt hour (kwh) in 2014 and 10.87 cents per kwh in 2015.
What are some of the leading trends in the natural gas and electricity markets?
Natural gas fired power generation has been increasing over the past several years. Relatively low natural gas prices, as well as abundant U.S. production, has led to natural gas gaining market share in the electric power sector. Natural gas, along with wind and solar, led power plant capacity additions in the first half of 2014. As more coal-fired power generating units are set to retire in the next few years, natural gas generation will continue to grow.
What’s new in your industry that laundry owners would benefit from knowing about?
The EIA offers several tools and features that consumers can use, including Today in Energy, which are short daily articles about a variety of topics in the energy industry, searchable by tag. Additionally, our Short-Term Energy Outlook custom table builder is a useful way to see our short-term forecast.
What do the next 12 months look like for natural gas and electricity?
The EIA is projecting continued growth in natural gas production and moderate prices. We expect wholesale natural gas prices to drop 14 percent in 2015 from 2014 levels – partly because the extreme cold in early 2014 drove up prices. The EIA also projects natural gas will gain market share in electricity generation in 2015.
