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Trends in Energy Production and Prices

Natural gas and oil production has been increasing in the United States since 2009, while coal production has been falling. Contributing to these national trends are the four states of the Federal Reserve’s Fourth District—Kentucky, Ohio, Pennsylvania, and West Virginia—which together produce 14 percent of the nation’s natural gas and 28 percent of its coal. Changes in production have coincided with falling prices in residential natural gas and, more recently, gasoline prices. Some of these movements in production and prices have the potential to benefit various sectors of the Fourth District economy.

Between 2009 and 2014, US natural gas production expanded by 21 percent. The Fourth District played a significant role in this increase, with Pennsylvania’s output rising from 274 billion cubic feet in 2009 to 3,259 billion cubic feet in 2013 (the most recent data available). Ohio and West Virginia also more than doubled their natural gas output. In contrast, US coal production was down from 2009 to 2014, and Kentucky, Ohio, and West Virginia’s production levels all declined. The most extreme change in production has been seen in oil drilling, with total US output rising 59 percent from 2009 to 2014. Oil production in the Fourth District states jumped up by 158 percent but represents just 1 percent of the national total.

Production of Natural Gas, Coal, and Oil in Fourth District States

Ohio Pennsylvania Kentucky West Virginia
2009 2013 2009 2013 2009 2013 2009 2013
Natural gas 88.8 186.2 273.9 3,259.0 113.3 94.7 264.4 717.9
Coal 27.7 23.3 59.1 59.9 107.8 79.0 137.2 112.2
Oil 4.9 14.0 3.0 6.2 2.6 3.3 1.5 7.5

Units: Natural gas: billions of cubic feet; Coal: millions of short tons; Oil: millions of barrels.
Source: US Energy Information Administration.

Total US Production of Natural Gas, Coal, and Oil

  2009 2013 2014
Natural gas 26,056.9 30,005.3 31,562.1
Coal 1,073.0 982.7 987.3
Oil 1,952.7 2,718.6 987.3

Units: Natural gas: billions of cubic feet; Coal: millions of short tons; Oil: millions of barrels.
Note: 2014 values are for December 2013–November 2014.
Source: US Energy Information Administration.

Turning from quantities to prices, oil, natural gas, and coal prices have taken disparate paths since 2009, according to the three commonly cited national price measures for these commodities. Wholesale natural gas prices declined during 2011, rose in 2012 and 2013, and fell in 2014. Coal prices have trended down since late 2010. Oil prices held steady after climbing out of their recession lows. All three prices declined during the last two quarters of 2014. The decline has been the most pronounced for oil, at 54 percent between June and January. Natural gas prices have fallen by 34 percent in these two quarters, and coal prices by 24 percent.

Oil, Coal, and Gas Prices

We would expect movements in natural gas, oil, and coal prices to impact households through multiple channels including electric and natural gas bills and gasoline prices at the pump. However, residential natural gas prices have not followed the same down-up-up-down trend seen in the wholesale price. Rather, households have experienced price declines over the course of the 2009-2014 period. Nationally, residential prices during the heating season (the troughs on the chart below) declined by 19 percent between 2009 and January 2013, dropping from $11.02 to $8.93 per thousand cubic feet. In Ohio the decrease was 35 percent over the four years, while in Pennsylvania it was 25 percent. However, in every month of 2014, average residential prices were slightly above those in 2013 for customers in Ohio, Pennsylvania, and the nation.

Residential Natural Gas Prices

Industrial customers have seen declining natural gas prices in Ohio but rising prices in Pennsylvania. The average price during 2014 in Ohio was 25 percent lower than the average price during 2009. The Pennsylvania average in 2014 was 2 percent higher than the 2009 average. The national average price for industrial natural gas has followed the wholesale price.

Industrial Natural Gas Prices

The decline in residential natural gas prices from 2009 to 2013 could reflect the increase in supply. Utilities customers are not seeing similar savings in their electricity rates. Despite falling prices for coal, electricity rates have changed only slightly since 2009. Residential electricity rates were up 2 to 6 percent year-over-year during every month in 2014.

Consumer Energy Prices

Gasoline prices have followed oil prices in their recent steep decline. The national average gasoline price plummeted 43 percent from a recent peak of $3.69 per gallon in June 2014 to a low of $2.11 in January 2015.

We have seen that coal production and prices have both fallen, while natural gas production has risen and its price movements have been mixed. Although many factors impact energy markets, substitution between the two fuels is very likely part of the explanation for these trends. Approximately 94 percent of coal and 30 percent of natural gas are used for electrical generation. Between 2009 and 2014, the megawatts generated with coal dropped by 150 million, an 8.6 percent decline. At the same, the megawatts generated with natural gas increased by 196 million, a 21 percent increase. If this substitution is driven by technological improvements in drilling that have made natural gas less expensive to extract, the savings should eventually appear in electricity rates.

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