Prices

Strong year-over-year gains in natural gas production contributed to a continued low-price environment in 2011 from the previous few years. Prices dropped at natural gas trading locations in all regions in 2011 from their levels the previous year. The spot price at the Henry Hub in Erath, Louisiana, fell about 9 percent, averaging $3.98 per MMBtu in 2011. Particularly large price declines occurred at the end of the year, as a warm start to winter reduced natural gas consumption and storage inventory levels were elevated. The December 2011 Henry Hub spot price averaged $3.17 per MMBtu, the lowest average monthly price since September 2009. Prices continued to fall in 2012, and hit 10-year lows in March and April, remaining below $2.00 per MMBtu.

Prices in the Northeast tend to average somewhat higher than prices in the rest of the lower-48 States, in part due to transportation constraints creating bottlenecks in times of high natural gas demand. In 2011, Northeast prices spiked both in the winter (due to cold weather pushing up demand for space heating) and in the summer (due to warm weather pushing up demand for electricity to power air conditioning). While the same pattern occurred in other areas of the country, Northeast spikes were much more pronounced (Figure 2).

In 2011, natural gas prices fell as other commodity prices rose. The price of coal delivered to the electric power plants rose year-over-year, from $2.27 per ton in 2010 to $2.40 per ton in 2011. The price of crude oil rose substantially in 2011, and as a result, the prices of petroleum products, including heating oil and residual fuel oil, also rose year over year.