Cost is a major consideration when comparing different ways of generating electricity. The Data Analysis section of this posting provides a way of calculating prices of electricity generated by natural gas. In doing the calculation, it is important to recognize that there are several gas prices:
The Wellhead price is received by the driller
The electrical price is paid by the utility
The price on the New York Mercantile Exchange (NYMEX) is called Henry Hub. It is useful because it is also the source offutures prices.
I am using the electrical price, unless otherwise
specified. Details on the calculation of electricity prices
from gas prices are given in the Data Analysis section below. Some
examples:
In April 2012 gas was $2.79 per 1000 cubic feet. Using the relations in the Data Analysis Section below, this translates to an estimated electrical price of $42 per thousand kilowatt-hours(about the average usage for an Ohio home). The price of electricity from wind, $55 for the same amount (Ref. 1), gave gas a $13 advantage.
By February 26, 2013, the Henry Hub price had raised to $3.427 per thousand cubic feet for an electrical price of $3.77 per thousand cubic feet(over a third higher than in April 2012) and a price of generation of about $51 per thousand kilowatt-hours. Since wind is sold on long-term contracts at a fixed price, the gas advantage has been sliced to $4, about one-third of what it was less than a year earlier. In fact, Ohio State has signed a contract for wind at $46.50 per thousand kilowatt-hours (Ref. 3), escalating by two percent per year. For them wind is currently cheaper than natural gas, and will continue to be so unless the cost of natural gas rises slowly.
References
(1) U.S. DOE, Energy Efficiency & Renewable Energy: 2011 Wind Energy Market Report: http://www1.eere.energy.gov/wind/pdfs/2011_wind_technologies_market_report.pdf
(3) OSU to save $1 million a year by buying wind power,
Columbus Dispatch, 28 Jan, 2013
Data Analysis
Data Analysis
Relations among the Various
Gas Prices Annual
data from 1997 through 2011 provided by EIA allows an estimate of the ratios of
the various gas prices:
Electrical = 1.10 Henry Hub (Refs A.1 and A.3), std. dev. = 0.08
Electrical = 1.19 Wellhead (Refs. A.1 and A.4), std. dev. = 0.06
Electrical = 1.10 Henry Hub (Refs A.1 and A.3), std. dev. = 0.08
Electrical = 1.19 Wellhead (Refs. A.1 and A.4), std. dev. = 0.06
Relation between Gas Cost and Electricity Price The
data in Table 1 comes from References A.1 and A.2. There is a close relation
between gas cost and electricity-generation price:
Expressing the relation:
Electricity price = 23.2 + 6.8x(gas price) --- (Equ. A.1)
where the gas price is that paid by utilities and prices are expressed in terms used in Figure 1.
Expressing Equ. A-1 in terms of Henry Hub spot price:
Electricity price = 23.2 + 7.5x(spot price) --- (Equ. A.2)
Electricity price = 23.2 + 6.8x(gas price) --- (Equ. A.1)
where the gas price is that paid by utilities and prices are expressed in terms used in Figure 1.
Expressing Equ. A-1 in terms of Henry Hub spot price:
Electricity price = 23.2 + 7.5x(spot price) --- (Equ. A.2)
Table 1. Relation between Gas Cost
And Electricity Generation Cost
Year
|
Gas Cost, $/Mcu.ft.
|
Electric Price, $/MWh
|
1999
|
2.62
|
46
|
2000
|
4.38
|
56
|
2001
|
4.61
|
50
|
2002
|
3.68
|
46
|
2003
|
5.57
|
63
|
2004
|
6.11
|
58
|
2005
|
8.47
|
57
|
2006
|
7.11
|
68
|
2007
|
7.31
|
73
|
2008
|
9.26
|
86
|
Calculated Electricity Prices Table 2 gives an estimate of how the
electricity price has changed over the past year. While the price appears to be
on a plateau, futures prices suggest that this is a lull.
Table 2. Estimated Electricity Prices
from Natural Gas
Date
|
Electrical Gas Price,$/Mcu.ft.
|
Electricity Price, $/Mwh,
(Eq
A.1)
|
Apr.
2012*
|
2.79**
|
42
|
Jun.
2012
|
3.20**
|
45
|
Aug.
2012
|
3.59**
|
47
|
Oct.
2012
|
3.98**
|
50
|
Dec.
2012
|
4.36**
|
53
|
Feb.
2013
|
3.77***
|
49
|
Apr.
2013
|
3.84****
|
49
|
Jun.
2013
|
3.94****
|
50
|
Aug.
2013
|
4.07****
|
51
|
* LWVO Senate testimony on 129-SB315 presented
** Ref. A.5
*** End of Month Henry Hub spot price (Ref. A.6) + 10%
**** Henry Hub futures (Ref. A.7) + 10%
References
A.1. EIA: U.S. Natural Gas Electric Power Price (annual data): http://www.eia.gov/dnav/ng/hist/n3045us3a.htm
A.2. Brian Bush, et al., Variance Analysis of Wind and Natural Gas under Different Market Structures: some Observations, NREL Report NREL/TP-6A20-52790 (Jan.2012): http://www.nrel.gov/docs/fy12osti/52790.pdf
A.3. EIA: Henry Hub Gulf Coast Natural Gas Spot Price: http://www.eia.gov/dnav/ng/hist/rngwhhdA.htm
A.4 EIA: U.S. Natural Gas Wellhead Price: http://www.eia.gov/dnav/ng/hist/n9190us3A.htm
A.5. EIA: U.S. Natural Gas Electric Power Price (monthly data): http://www.eia.gov/dnav/ng/hist/n3045us3M.htm
A.6. (2) WTRG Web Page: http://www.wtrg.com/
A.7 Henry Hub Natural Gas Futures:
http://www.cmegroup.com/trading/energy/natural-gas/natural-gas.html
http://www.cmegroup.com/trading/energy/natural-gas/natural-gas.html
