You Can’t Have Too Much Of A Good Thing

In the early 1900’s a familiar sight in New Jersey was a team of men delivering coal to basements throughout the state.  In winter, a member of each household had the duty of shoveling the coal into the furnace and tending to the fire.

Starting in the 40’s and accelerating after World War II, many residents – including my grandmother in the Chamberburg section of Trenton — shifted to oil, stored in tanks buried in the yard or replacing the coal bin in the basement.  It made sense.  Oil was more convenient (no more shoveling), it was cleaner (no more soot in the house or released in the air) and it was cheaper.

In the late 50’s pipeline companies began building natural gas transmission lines to New Jersey.  Prior, PSE&G had produced gas, mainly used for cooking, at plants located throughout the state.  With the new pipelines, PSE&G instead brought in cleaner more environmentally sensible supplies of natural gas from the country’s southwest.  I actually started my career in one of the gas facilities in the 1970’s working on its decommissioning as a young engineer.  Gradually, families across the state began to switch to natural gas. Natural gas burns cleaner than oil and the cost of gas made it an attractive fuel for heating homes.  It has been the leading source for heating homes in New Jersey since the 1980’s.

And today, gas remains a real bargain. A new technology, hydraulic fracturing or fracking, has enabled gas previously thought to be unreachable to be pulled from shale rock. Fracking came about as a market response to high gas prices and is one of the best examples of American ingenuity that is helping to push this country forward.  It has unleashed an abundant supply of gas in Pennsylvania. While there is some controversy about the safety of fracking, increased oversight by the state and federal government has lessened those risks, and the benefits are undeniable. In fact, cheap and plentiful energy supply is the bedrock of our economic growth and standard of living.

In 2008 gas prices were hovering just under $10.00 per mmbtu  (it takes about 120 mmbtu’s to heat the average NJ home for a year).   With the development of the Pennsylvania gas fields, we have seen prices plunge to just above $2.00 per mmbtu.  This entire decrease has been passed on to PSE&G’s residential customers, significantly lowering monthly bills.  These lower cost supplies of gas, located a couple of hours drive away, have helped lower costs to the consumers and reduce the country’s dependency on imported supplies of energy.

Back in the old days, customers learned that if they buy their coal in the summer it was cheaper than if they waited until the middle of a cold streak when prices shot up.  Gas prices fluctuate  in the same way.   And PSE&G is able to benefit from having large gas storage facilities near the Pennsylvania gas fields.  When there is an oversupply and prices drop, (in the summer) we can buy it and store it for later, when prices are higher (in the winter).   We pass these savings on to customers as well. (We recently announced a 30 percent price credit for gas supply charges for three months this winter).

The result?  Gas prices in New Jersey for our residential gas sales customers (customers who have not chosen to go with a third party supplier) are the lowest they have been for 15 years (that was when rates were unbundled and supply and distribution charges were determined separately).  I can’t think of too many items that are cheaper now than they were at the start of the millennium.

While there is a plenty of gas coming out of Pennsylvania, the country will need to invest in the gas infrastructure (new pipeline capacity) to make sure that the gas can get to customers – especially when temperatures drop and we experience a cold spell.  Our gas distribution system was designed to move gas from Louisiana and Texas up to other parts of the country, including New Jersey. Capacity is not as robust coming out of the new gas fields and moving to markets.  Low prices are encouraging more businesses to switch to gas and the construction of new gas powered electric generating plants.  Without infrastructure investment, this will put a real strain on the system.

We have gone through a number of transitions over the years in how New Jersey residents heat their homes but with ample supply and low costs, and just a little investment in infrastructure, gas will probably reign supreme for years to come.

John Scarlata, Vice President – Gas Supply Of Pseg Energy Resources And Trade