Today’s WSJ: Rex Tillerson says Exxon is making no money on natural gas because prices have fallen below their cost of production. Increased fracking, together with a supply glut coming off a mild winter and reduced business demand have left prices are at their lowest levels in a decade.
There was some increase in demand from electric utilities that switched from more expensive coal to natural gas, but because most of the generating stations that can convert have done so, we should expect to see that demand curve flatten out.
Not everybody is happy with low natural gas prices. In markets such as Illinois that are open to retail competition and where natural gas sets electricity prices at the margin, suppliers are getting squeezed. And before putting iron in the ground, renewable energy developers have to figure the price at which they’ll be able to sell their juice. A lot of ground will probably remain undisturbed until prices start to tick up.
Electricity end-users in open access states should be looking at locking in long-term electricity supply contracts. Prices won’t stay low forever.
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