Figure 2-6. Average Retail Electricity Price by State (cents/kWh), 2011 

2.8 Natural Gas Market 

The natural gas market in the United States has historically experienced significant 

price volatility from year to year, between seasons within a year, and can undergo 

major price swings during short-lived weather events (such as cold snaps leading 

to short-run spikes in heating demand). Over the last decade, gas prices (both 

Henry Hub prices and delivered prices to the power sector) have ranged from 

below $3 to nearly $10/mmBtu on an annual average basis (see Figure 2-7). 

During that time, the daily price of natural gas reached as high as $15/mmBtu. 2-

23 

Recent forecasts of natural gas availability have also experienced considerable 

revision as new sources of gas have been discovered and have come to market, 

although there continues to be some uncertainty surrounding the precise quantity of 

the resource base. 

Current and projected natural gas prices are considerably lower than the prices 

observed over the past decade, largely due to advances in hydraulic fracturing and 

horizontal drilling techniques that have opened up new shale gas resources and 

substantially increased the supply of economically recoverable natural gas. 

According to an EIA “Energy in Brief” (EIA 2012b): 

“Shale gas refers to natural gas that is trapped within shale formations. Shales are 

fine-grained sedimentary rocks that can be rich sources of petroleum and natural 

gas. Over the past decade, the combination of horizontal drilling and hydraulic 

fracturing has allowed access to large volumes of shale gas that were previously 

uneconomical to produce. The production of natural gas from shale formations has 

rejuvenated the natural gas industry in the United States.” 

The U.S. Energy Information Administration's Annual Energy Outlook 2012 

(Early Release) estimates that the United States possessed 2,214 trillion cubic feet 

(Tcf) of technically recoverable natural gas resources as of January 1, 2010. 

Natural gas from proven and unproven shale resources accounts for 542 Tcf of this 

resource estimate. The AEO 2012 (Early Release) notes that many shale 

formations, especially the Marcellus, are so large that only small portions of the 

entire formations have been intensively production-tested. Consequently, the 

estimate of technically recoverable resources is highly uncertain, and is regularly 

updated as more information is gained through drilling and production. At the 2010 

rate of U.S. consumption (about 24.1 Tcf per year), 2,214 Tcf of natural gas is 

enough to supply over 90 years of use. Although the estimate of the shale gas 

resource base is lower than in the prior edition of the Outlook, shale gas production 

estimates increased between the 2011 and 2012 Outlooks, driven by lower drilling 

costs and continued drilling in shale plays with high concentrations of natural gas 
liquids and crude oil, which have a higher value in energy equivalent terms than 

dry natural 

2-24 gas. 17

For more information, see:

17 http://www.eia.gov/forecasts/archive/aeo11/IF_all.cfm#prospectshale; 

http://www.eia.gov/energy_in_brief/about_shale_gas.cfm 

18 http://www.eia.gov/dnav/ng/hist/n9010us2a.htm 

19 http://www.eia.gov/dnav/ng/hist/n3045us3A.htm; Assumes that 1 TCF = 1.023 

MMBtu natural gas (http://www.eia.gov/tools/faqs/faq.cfm?id=45&t=8) 

20 EIA 2010b.

EIA’s projections of natural gas conditions did not change substantially in AEO 

2014 from the AEO 2013, and EIA is still forecasting abundant reserves consistent 

with the above findings. Recent historical data reported to EIA is also consistent 

with these trends, with 2013 being the highest year on record for domestic natural 

gas production.18 The average delivered natural gas price to the power sector was 

$4.49 per MMBtu in 2013, higher than in 2012 ($3.54/MMBtu), but still down 

from $4.89/MMBtu in 2011.19 

EIA projections of future natural gas prices assume trends that are consistent with 

historical and current market behavior, technological and demographic changes, 

and current laws and regulations.20 Depending on actual conditions, there may be 

significant variation from the price projected in the reference case and the price 

observed. To address this uncertainty, EIA issues a range of alternative cases, 

including cases with higher and lower economic growth, which address many of 

the uncertainties inherent in the long-term projections.