FERC reports on 2012 electricity, natural gas markets

The Federal Energy Regulatory Commission has released its 2012 State of the Markets Report. The 77-page document reviews developments and trends in U.S. electricity and natural gas markets. Trends highlighted in this year's report include the replacement of coal for electric power generation with natural gas, decreased prices for natural gas and electricity, and reduced demand for electricity.

The report's findings include:

  • Record natural gas pricing led to lower natural gas prices. In 2012, driven by the increase in shale gas production, domestic production of natural gas reached a new record. As a result, natural gas prices reached 10-year lows throughout most the nation. For example, the spot price at Louisiana’s Henry Hub averaged $2.74/MMBtu for 2012, a 31 percent decrease from 2011.
  • Electric generators relied on natural gas instead of coal. As a result of the low natural gas prices, combined with tighter environmental regulations, natural gas's share of electricity production rose to 31 percent in 2012. Meanwhile coal-fired power generation fell to its lowest level in 30 years -- just 39 percent of total generation.
  • Electricity demand fell. The nation consumed 1.7 percent less electricity in 2012 than 2011. This reduction amounted to 62.9 TWh in 2012. The report attributes the decrease in demand to three primary factors: a decrease in residential demand, lack of demand growth in the commercial and industrial sectors, and increased energy efficiency.
  • Electricity prices declined due to lower-cost natural gas and reduced demand. Because natural gas typically represents the marginal fuel in electric generation, reducing the price of natural gas usually reduces the wholesale price in electricity markets. Generally speaking, Eastern prices were between 1 percent and 31 percent lower than in 2011 while Western prices fell between 6 percent and 23 percent. Likewise, reductions in the demand for electricity due to a relatively warm winter, economic trends and increased energy efficiency contributed to lower electricity prices in 2012.