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PRICES AND SPENDING

Drilling deep into PPI indexes to 

understand regional variations in natural 

gas price movements

By Stephen York

The natural gas boom in the United States, driven primarily by shale gas, has greatly contributed to the decline in 

overall natural gas prices over the last decade.1 However, consumers of natural gas often do not experience price 

changes equally. Regional variations in pipeline access, storage facilities, production, weather, and consumption 

all influence the price of natural gas at a local level—meaning the cost of heating a home in Louisiana may be 

drastically different from the cost of heating a home in Massachusetts.

February 2018 | Vol. 7 / No. 1
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In October 2016, the Bureau of Labor Statistics (BLS) introduced regional detail for the Producer Price Index (PPI) 

for natural gas distribution (with historical data back to 2012). These indexes allow for a regional analysis of how 

the changing natural gas market is affecting prices for end users.2 This Beyond the Numbers article examines the 

PPI regional natural gas distribution indexes at the residential level to explore movements that would not be readily 

apparent in a national-level index. Studying the regional indexes unveils unique trends among the indexes caused 

by differences in pipeline infrastructure, weather patterns, and seasonal influences.

Industry background

Largely due to the shale revolution, the natural gas industry in the United States has grown rapidly over the last 

several years.3 Between 2005 and 2016, U.S. production of dry natural gas increased about 50 percent, making 

the United States the largest producer of natural gas in the world. (See chart 1.)4 This boom in production directly 

led to significant declines in natural gas prices. For example, the Henry Hub natural gas spot price, often used as a 

national benchmark for natural gas commodity prices, decreased from $8.69 per million British Thermal Units 

(BTU) in 2005, to only $2.52 per million BTU in 2016.5 Although only one factor in a customer’s monthly bill, 

natural gas commodity prices play a key role in determining the price for natural gas used in homes, businesses, 

industry, and electric power plants.

As natural gas production has increased, so has natural gas consumption, although at a slower rate. Natural gas 

consumption increased more than 17 percent between 2000 and 2016.6 Much of the increase is due to more 
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natural gas usage in electric power generation since 2009, as low prices help make natural gas more competitive 

with coal for use in power plants.7 Meanwhile, increases in appliance efficiency and population shifts toward 

warmer climates have resulted in less natural gas consumed by U.S. households since 2000.8

Regional indexes

With the growing importance of the natural gas market, additional detail in the form of regional indexes is helpful in 

analyzing this industry. The regional producer price indexes for natural gas distribution break out national PPIs into 

nine distinct sections that correspond to the U.S. Census regional divisions.9 There are four primary U.S. Census 

regions, which are further separated into the nine divisions: New England, Middle Atlantic, South Atlantic, East 

North Central, East South Central, West North Central, West South Central, Mountain, and Pacific. Figure 1 shows 

which states are contained in each section.
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How infrastructure and production create price variations for 

residential customers

As natural gas production and demand grow, the need for pipelines to transport natural gas from its extraction 

point or storage locations to consumers increases. A lack of pipelines creates difficulty in moving natural gas 

across different regions, and this constraint is a primary contributor to regional differences in natural gas prices.10

Certain areas have been the epicenters of the recent shale revolution that has helped to lower local natural gas 

prices. The state of Pennsylvania in particular witnessed a dramatic rise in natural gas production—increasing 

from only 200,000 million cubic feet (MCF) in 2008 to 5,200,000 MCF in 2016, or a 2,500-percent increase.11 The 

abundance of natural gas in the Middle Atlantic region, which includes Pennsylvania, directly contributes to lower 

natural gas prices for the region’s residential consumers. From June 2012 to March 2017, residential prices in the 

Middle Atlantic have declined about 9 percent, compared with a 13-percent increase nationwide. (See chart 2.) In 

fact, the Middle Atlantic is the only region in the country that has seen a decrease in residential natural gas 

distribution prices since June 2012, partly due to the abundance of natural gas in the area. (See table 1.)12
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Source: U.S. Bureau of Labor Statistics.

Rising production in the Middle Atlantic is only part of the reason residential natural gas prices trended lower in that 

region since June 2012. The region’s relative lack of pipeline infrastructure also contributes to the area’s low price 

environment. According to analysis by the Energy Information Administration (EIA), pipeline infrastructure that 

delivers natural gas to consumers and export locations has not kept pace with the growth in natural gas production 

in the Middle Atlantic region. Due to limited pipeline capacity, producers are unable to move oversupplied gas out 

of the region or to the coast for export, causing relatively lower localized natural gas prices. However, many 

pipeline projects are currently under development in the region in an attempt to allow producers in the area to 

transport their natural gas outside of the Middle Atlantic region.13

How residential prices respond to weather and seasonal 

changes

Regional variations in weather can also play a major role in residential natural gas distribution prices. In early 

2014, a large cold wave, commonly known as the “2014 Polar Vortex,” affected large parts of the northern and 

eastern United States.14 The cold wave resulted in the 2013–2014 winter being one of the coldest on record in the 

upper Midwest.15 As temperatures decline, demand for natural gas increases as residential customers need more 

natural gas to heat their homes, resulting in higher natural gas costs, which are typically passed on to the 

consumer through a purchased gas adjustment in the customer’s bill.

In Michigan, the natural gas spot price for the Michcon Hub, which serves the greater Detroit area, central 

Michigan, and Michigan’s Upper Peninsula, rose over 85 percent between January 2014 and March 2014 as cold 

temperatures sent natural gas demand and spot prices soaring.16 Although the price of the natural gas commodity 

only makes up about one-third to one-half of a customer’s bill, the increase in local spot prices for natural gas in 

the region supplied by the Michcon Hub resulted in a significant rise in the East North Central regional index during 

that period.17 Chart 3 shows both the residential East North Central index and the Michcon Hub spot price spiking 

during the 2014 cold wave. By comparison, the cold wave had much less of an effect on the East South Central 

region, with the residential index rising only 3.2 percent between January 2014 and March 2014, compared with 

the East North Central residential index increase of 18.9 percent over the same period.

Region Percent growth

New England 18.4%

Middle Atlantic -9.4%

East North Central 10.7%

West North Central 10.6%

South Atlantic 7.3%

East South Central 8.9%

West South Central 41.0%

Mountain 11.3%

Pacific 13.6%

Table 1. Regional residential natural gas price change, June 2012–March 2017
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In addition to isolated weather events playing a role in regional price indexes, regular seasonal price movements 

also vary across regions. While essentially all regional indexes face upward pricing pressure during the winter 

heating season, the New England region exhibits the most extreme seasonal movements. This is due to a 

combination of high natural gas demand in the winter and relatively little capacity to transport natural gas into the 

region, despite a growing reliance on natural gas usage within the region.18 As chart 4 shows, the New England 

residential natural gas index regularly increases sharply each November and later retreats back to prices closer to 

prewinter levels in May.

While a lack of pipelines in the Middle Atlantic causes lower prices in the region because producers are unable to 

move the natural gas out of the region, causing oversupply, New England faces the opposite problem.19 New 

England produces almost no natural gas, which means the area relies on its limited interstate pipeline network for 

its natural gas supply.20 When winter arrives and natural gas demand increases, prices spike in order to balance 

the high demand and tight supply conditions caused by New England’s limited pipeline capacity.
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Table 2 shows how regional residential natural gas prices can vary significantly in response to seasonal changes. 

Residential natural gas prices for New England routinely increase from October, the month before the winter 

season starts, to February, a month in the middle of the heating season. Residential natural gas prices for New 

England increased 18.8 percent on average during the 2012–16 heating seasons.

Source: U.S. Bureau of Labor Statistics.

The seasonal residential price changes in New England contrast with the price movements in other regions and 

nationally. The Pacific region saw tepid price growth during the 2012–16 winter periods, averaging a residential 

natural gas increase of only 0.8 percent with only small changes outside the 2013–14 winter, which saw residential 

natural gas prices increase 7.5 percent. Residential prices in the West North Central region, though facing cold 

winters like New England, only saw an average increase of 4.2 percent during the 2012–16 heating seasons. This 

Season New England West North Central Pacific Middle Atlantic National

Oct 2012–Feb 2013 17.8% 7.1% -0.6% -6.6% 3.7%

Oct 2013–Feb 2014 21.3% 29.7% 7.5% 2.3% 10.1%

Oct 2014–Feb 2015 17.9% -15.5% -0.8% -1.1% -4.5%

Oct 2015–Feb 2016 18.3% -4.4% -2.8% -3.9% -1.2%

Average 18.8% 4.2% 0.8% -2.3% 2.0%

Table 2. PPI residential natural gas price change between October and February, 2012–16
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is in large part due to a more robust natural gas pipeline network and regional production of natural gas in North 

Dakota and Kansas. (See figure 2.) This map of the United States interstate and intrastate pipeline network 

illustrates the large concentration of pipelines around the U.S. Gulf Coast and Oklahoma, while other areas, such 

as New England and much of the West Coast, are shown to have relatively few natural gas pipelines.21

Nationally, residential natural gas prices grew 2.0 percent on average between October and February of each 

season. While there is upward pressure on prices during the winter due to natural gas utilities usually increasing 

their distribution rates (the part of the bill not affected by the natural gas commodity price), the price of the natural 

gas itself can still decline enough to cause decreases in overall bills during the winter. This happened in the 2014–

15 and 2015–16 heating seasons, where overall residential natural gas bills steadily declined throughout those 2 

years.

Conclusion

The publication of the regional PPIs for natural gas distribution allows data users to gain a better understanding of 

regional trends in natural gas distribution. While the national index for gas distribution contains valuable 

information about the price at an aggregate level, the regional indexes demonstrate that factors such as localized 

levels of natural gas production, pipeline infrastructure, response to rare weather phenomena, and seasonality 
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•

•

influence prices regionally. Analysis of these factors reveals unique stories about the price of natural gas delivered 

to homes in different regions of the United States.

This Beyond the Numbers article was prepared by Stephen York, economist in the Office of Prices and Living Conditions, 

U.S. Bureau of Labor Statistics. Email: york.stephen@bls.gov, telephone: (202) 691-7939

Upon request, the information in this article will be made available to individuals who are sensory impaired. Voice phone: 

(202) 691-5200. Federal Relay Service: 1-800-877-8339. This article is in the public domain and may be reproduced 

without permission.

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ARTICLES

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NOTES

1 PPI Energy and Chemicals Team, “The effects of shale gas production on natural gas prices,” Beyond the Numbers: Prices and 

Spending, vol. 2, no.13 (U.S. Bureau of Labor Statistics, May 2013), https://www.bls.gov/opub/btn/volume-2/the-effects-of-shale-gasproduction-on-natural-gas-prices.htm.

2 Addition of Regional Detail for Natural Gas Distribution Producer Price Indexes, 2016 (U.S. Bureau of Labor Statistics, November 

2016), https://www.bls.gov/ppi/regionalnaturalgas.htm.

3 “Annual Energy Outlook with Projections to 2050,” U.S. Energy Information Administration (U.S. Department of Energy, September 

2017), p. 58, https://www.eia.gov/outlooks/aeo/pdf/0383(2017).pdf.

4 U.S. Natural Gas Marketed Production, U.S. Energy Information Administration (U.S. Department of Energy, August 2017), https://

www.eia.gov/dnav/ng/hist/n9050us2a.htm. Also, see Linda Doman, United States remains largest producer of petroleum and natural 

gas hydrocarbons (U.S. Department of Energy, Energy Information Administration, May 2016), https://www.eia.gov/todayinenergy/

detail.php?id=26352. EIA defines dry natural gas as the natural gas that remains after: 1) the liquefiable hydrocarbon portion has 

been removed from the gas stream (i.e., gas after lease, field, and/or plant separation); and 2) any volumes of nonhydrocarbon gases 

have been removed where they occur in sufficient quantity to render the gas unmarketable. Dry natural gas also is known as 

consumer-grade natural gas. Refer to the EIA glossary at https://www.eia.gov/tools/glossary/.

5 Adila Mchich, “Henry Hub Natural Gas Futures: Global Benchmark,” CME Group, April 2017, http://www.cmegroup.com/education/

henry-hub-natural-gas-futures-global-benchmark.html. Also, see Henry Hub Natural Gas Spot Price, U.S. Energy Information 

Administration (U.S. Department of Energy, September 2017), https://www.eia.gov/dnav/ng/hist/rngwhhdA.htm.

6 Natural Gas Consumption by End Use, U.S. Energy Information Administration (U.S. Department of Energy, September 2017), 

https://www.eia.gov/dnav/ng/ng_cons_sum_dcu_nus_a.htm.
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7 Tyler Hodge, “Wholesale power prices in 2016 fell, reflecting lower natural gas prices,” U.S. Energy Information Administration (U.S. 

Department of Energy, September 2017), https://www.eia.gov/todayinenergy/detail.php?id=29512.

8 “Annual Energy Outlook with Projections to 2050,” U.S. Energy Information Administration (U.S. Department of Energy, September 

2017), https://www.eia.gov/outlooks/aeo/pdf/0383(2017).pdf.

9 Geographic Terms and Concepts – Census Divisions and Census Regions (U.S. Census, August 2017), https://www2.census.gov/

geo/pdfs/maps-data/maps/reference/us_regdiv.pdf

10 Stephen Brown and Mine Yücel, Deliverability and Regional Pricing in U.S. Natural Gas Market, Research Department Working 

Paper 0802, (Federal Reserve Bank of Dallas, 2008), https://www.dallasfed.org/assets/documents/research/papers/2008/wp0802.pdf.

11 Pennsylvania Natural Gas Marketed Production, U.S. Energy Information Administration (U.S. Department of Energy, September 

2017), https://www.eia.gov/dnav/ng/hist/n9050pa2a.htm.

12 “Producer Price Index: Natural gas distribution, Middle Atlantic residential natural gas” (U.S. Bureau of Labor Statistics, September 

2017), https://data.bls.gov/timeseries/pcu2212102212101122.

13 Naser Ameen and Terry Yen, “Natural gas pipeline projects lead to smaller price discounts in Appalachian Region.” (U.S. 

Department of Energy, August 2017), https://www.eia.gov/todayinenergy/detail.php?id=32512.

14 Rob Gutro, “Polar Vortex Enters Northern U.S.,” (National Aeronautics and Space Administration, January 2014) https://

www.nasa.gov/content/goddard/polar-vortex-enters-northern-us/#.WW9rHYQrJ6t.

15 Nick Wiltgen, “Deep Freeze Recap: Coldest Temperatures of the Century for Some,” The Weather Channel, January 10, 2014, 

https://weather.com/storms/winter/news/coldest-arctic-outbreak-1990s-midwest-south-east-20140103.

16 Data used with permission of Bloomberg Finance L.P.

17 Rob Nikolewski, “With natural gas prices spiking, will you feel the pain?” San Diego Union Tribune, October 17, 2016, http://

www.sandiegouniontribune.com/business/energy-green/sd-fi-natgas-prices-20161014-story.html.

18 John Clemente, “New England’s Known Need For More Natural Gas Pipelines”, June 26, 2016, https://www.forbes.com/sites/

judeclemente/2016/06/26/new-englands-known-need-for-more-natural-gas-pipelines/#2ac4469130a0.

19 Ibid.

20 Natural Gas Withdrawals and Production, U.S. Energy Information Administration (U.S. Department of Energy, September 2017) 

https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_FPD_mmcf_a.htm.

21 U.S. Natural Gas Pipeline Network, 2009 (U.S. Department of Energy, 2009), https://www.eia.gov/naturalgas/archive/

analysis_publications/ngpipeline/ngpipelines_map.html.

SUGGESTED 

CITATION

Stephen York, “Drilling deep into PPI indexes to understand regional variations in natural gas price movements,” Beyond the 

Numbers: Prices and Spending, vol. 7, no. 1 (U.S. Bureau of Labor Statistics, February 2018), https://www.bls.gov/opub/btn/volume-7/

drilling-deep-into-ppi-indexes-to-understand-regional-variations-in-natural-gas-price-movements.htm