Monday, August 31, 2009

Last Year's Spiking Natural Gas and Electric Prices

Last year, natural gas prices spiked to unprecedented levels. Some have argued that the price spikes were due to speculation in the insufficiently regulated commodities markets. Paul Cicio, President of the Industrial Energy Consumers of America, stated recently in testimony to Congress that
Excessive speculation in the natural gas market is real. From January to August of 2008 the price of natural gas more than doubled because of excessive speculation, not supply and demand fundamentals. During that same time period, U.S. production of natural gas rose about 8 percent, national inventories were well within the 5 year average and demand was essentially unchanged from the same period of the previous year. As a result of excessive speculation, consumers paid over $40 billion in higher natural gas costs.
In states like New York where the PSC embraced electric industry deregulation, allowing all sellers to get the same price, this meant that sky-high prices demanded for the output of natural gas-fired power plants were paid to other producers whose costs were much lower. That is still the case this summer, but the gap between the low cost hydro and non-fossil fueled power plants and the higher priced power from natural gas-fired plants has narrowed.

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