There have been a lot of news stories lately about rising gasoline prices, including this one recently from the Department of Energy, which reported that “Gasoline expenditures in 2012 for the average US household reached $2,912, or just under 4% of income before taxes. This was the highest estimated percentage of household income spent on gasoline in nearly three decades, with the exception of 2008.”
On the other hand, we don’t hear a lot of news about falling natural gas prices for residential consumers, probably because the prices we pay for natural gas aren’t as obvious and visible as the prices we pay for gasoline, which are prominently displayed at every gas station in America. But there’s a great unreported story here – US residential consumers saved billions of dollars last year from falling natural gas prices, which will at least partially offset some of the higher household spending on gasoline in 2012.
The top chart above displays the monthly CPI series for gasoline (blue line) and natural gas (red line), with both series set equal to 100 in January 2004, and shows the dramatic divergence in the two prices. While gasoline prices have roughly doubled over the last nine years (100% increase), the prices consumers paid for natural gas have fallen significantly since 2008, and were about the same last year as in 2004. Because the overall CPI has increased by about 24% since 2004, the real price of natural gas paid by consumers has fallen by 24% over the last nine years.
According to data from the Department of Energy, the US price of natural gas delivered to residential consumers in November 2012 was $9.97 per 1,000 cubic feet (most recent month available). Adjusted for inflation, that’s the lowest residential price of natural gas for the month of November in 13 years, since 1999, which further supports the BLS data on falling real natural gas prices. Likewise, the $8.01 price per 1,000 cubic feet paid by commercial consumers in November was the lowest inflation-adjusted price for November since 1999.
The bottom chart above shows the inflation-adjusted annual spending by residential consumers on natural gas since 1999, based on data from the Department of Energy on residential consumption of natural gas and the prices paid by residential consumers of natural gas. In 2012 (based on data available through November), the estimated annual household spending on natural gas of roughly $46 billion will be 14%, and $7.4 billion less, than spending in 2011. Compared to 2008, when natural gas prices peaked at $13.89 per 1,000 cubic feet for residential consumers ($14.81 in 2012 dollars) and annual spending topped $72 billion (in 2012 dollars), US households last year saved almost $27 billion and 37% in annual gas bills. Further, US households spent less on natural gas last year to heat their homes and water than in any year since 1999, more than a decade ago.
Bottom Line: US households continue to reap huge benefits from the shale gas revolution that has lowered inflation-adjusted prices for consumers by 24% over the last nine years, according to the BLS. Based on the estimated natural gas purchased by residential consumers in 2012, American households last year saved about $17 billion in lower natural gas bills, compared to the residential gas prices that prevailed in 2008 before the shale revolution got started. Those savings will bring the cumulative total for residential gas customers to more than $50 billion in savings since 2009 (see previous estimate by the American Gas Association of $35 billion in savings for 2009, 2010 and 2011). While higher prices at the pump and increased household expenditures on gasoline get all of the media attention, falling natural gas prices continue to bring billions of dollars in savings to American households year after year.