But thanks to a steady surge in domestic oil and gas production, energy experts say consumers could enjoy inexpensive gasoline and natural gas for years to come.
“The outlook is for a low-cost energy economy in the U.S.,” said Daniel Fine, associate director of the New Mexico Center for Energy Policy, which is run by the New Mexico Institute of Mining and Technology in Socorro. “This is a long-term trend, not an isolated event, and it’s something almost revolutionary.”
The country’s newfound oil and gas boom, made possible by modern drilling technologies, has helped keep gasoline prices well below the $4-per-gallon peaks that consumers faced just a few years ago. It’s also driven home-heating bills to record lows since 2009.
Now, with production still climbing fast, Fine and others say natural-gas prices will remain moderately low for another five to 10 years at least. And gasoline prices likely will continue to fall into 2014, before stabilizing at somewhere above $2 per gallon for the foreseeable future.
“I believe gasoline will reach $2.35 a gallon or less quite soon, within a year at most,” Fine said.
Gregg Laskoski, a senior policy analyst with the online price-tracking service Gas Buddy, agreed.
“That may seem shocking, but it’s not as outlandish as it sounds,” he said. “The potential is certainly there.”
Gasoline prices falling
Pump prices already have been trending downward since early 2013, but since September, the declines have become sharper and more steady.
The average national price for regular unleaded gasoline reached $3.19 per gallon Nov. 14, or about 25 cents less than the same time last year, according to AAA.
In New Mexico, the average statewide price dropped to $3.03 as of Nov. 14, although many gas stations are selling at below $3 per gallon. In general, New Mexico consumers are enjoying lower prices than most other states because demand is lower here than in places with larger populations and more crowded urban centers, said AAA Texas/New Mexico representative Doug Shupe.
“New Mexico is among the top 10 least-expensive states for average gasoline prices right now,” he said.
Accelerated price declines since September reflect seasonal influences, plus geopolitical factors over the last few months, Laskoski said.
For one thing, refineries began switching to winter gasoline blends in September, which require fewer additives and less time to mix, making them cheaper to produce. In addition, demand typically recedes in early fall, before the holiday travel season begins.
Crude-oil prices also fell from more than $100 per barrel over the summer to $96 by late October. That reflects improving confidence in world financial markets after the threat of U.S. intervention in Syria went away and as tensions between the U.S. and Iran have eased.
Finally, the weather is relatively quiet compared with last year, when Hurricane Sandy struck the East Coast.
Price declines could slow when holiday travel picks up after Thanksgiving, but the overall downward trend likely will continue, Laskoski said.
“I wouldn’t be surprised to see gasoline fall another 10 to 15 cents nationally before the end of the year,” he said.
Still, while the short-term price trend is good news for consumers, it’s the emerging, long-term prospect for a stable, low-cost energy economy that constitutes a groundbreaking shift in the nation’s outlook, according to the New Mexico Center for Energy Policy.
“We’ve already achieved what we call natural-gas energy security in the U.S., and I believe we’ll achieve national energy security in oil as well by 2020 or 2021,” Fine said.
“That will fundamentally change U.S. policy and national security, because our foreign policy with respect to the Mideast will no longer take into effect or consider oil dependency. That means, for the first time since the 1970s, that the U.S. will have leverage to set oil prices detached from foreign policy, and that’s a major, revolutionary change.”
To be sure, other factors also are influencing the long-term trend in fuel prices, such as declining demand in the U.S. as consumers become more energy conscious, sluggish economic growth here and in other countries, efforts to increase the fuel efficiency of cars, and the introduction of more vehicles that run on electricity and natural gas.
But it’s the boom in domestic oil and gas production that has changed underlying market fundamentals, Fine said. The modern techniques of hydraulic fracturing and horizontal drilling have allowed producers to crack open hard-rock shale beds that they couldn’t economically permeate in the past, opening up vast new domestic deposits of natural gas and oil.
Oil, gas production up
Since 2008, when domestic oil production dropped to a low of 1.83 billion barrels, output has climbed 30 percent, reaching nearly 2.38 billion barrels last year, according to the U.S. Energy Information Administration.
Those trends have continued in 2013, with average daily oil production reaching 7.5 million barrels in July. That’s up from 6.4 million per day in July 2012, and it’s the highest average daily level since January 1991.
“We’re moving rapidly to daily output of above 10 million barrels per day,” Fine said. “We haven’t seen that since the early 1970s.”
Natural-gas production has grown 34 percent in the last seven years, from 18.93 trillion cubic feet to 25.32 trillion, according to the EIA. That’s the highest annual output in U.S. history, and it’s cut the bottom out of prices.
“The price (for producers) was below $3 per 1,000 cubic feet last winter,” Fine said. “That’s a 30- to 40-year low in natural-gas prices.”
As a result, New Mexicans paid the lowest price in a decade to heat their homes last year, according to New Mexico Gas Co., which provides natural gas to more than 500,000 local consumers.
The price per therm for consumers fell to an annual average of 38 cents in 2012, or less than half the cost in 2008, when prices peaked at an annual average of 88 cents.
This year, New Mexico consumers are paying an average of about 44 cents per therm, said company spokeswoman Teala Kail. That’s because cooler temperatures last spring, combined with projections for a colder winter this year, have driven prices up slightly.
“Winters in the past couple of years have been warmer, but projections are that we’ll see colder temperatures this year,” she said. “The average residential customer can expect their winter bills to increase by about $2 per month.”
In a few years, as current market oversupply begins to decline, producer prices could increase somewhat, from about $3.50 per 1,000 cubic feet now to about $5 or $5.50, Fine said. But that’s still substantially lower than before the shale-gas boom began.
“For natural gas, consumers can expect a low-cost energy economy for at least the next five to 10 years,” he said, “thanks to the abundance of available shale gas now in the U.S.”