Some have wondered why gas prices haven't plunged while America's energy production booms. The simple answer is that oil is a global commodity and fairly easy to transport, so it's priced on the global market. Rising U.S. production has been mostly offset by Iranian sanctions. There's little net impact on price.
Natural gas is different. It's more difficult to transport, so prices tend to vary depending on location. America's energy boom has pushed natural gas prices down, hitting decade-lows last year. That has a big impact on home energy bills, as the Energy Information Administration noted this week:
Consumers spent 2.7% of their household income on home energy bills last year, the lowest percentage in 10 years. Aggregate home energy expenditures by U.S. households fell $12 billion in 2012 from the 2011 level. In 2012, prices for residential natural gas decreased 3% from the previous year, while household electricity prices stayed about the same.
Here's what it looks like over time:
The EIA goes on:
On average, households spent $1,945 on heating, cooling, appliances, electronics, and lighting in 2012. This total includes home use of electricity, natural gas, fuel oil, propane, kerosene, wood, and coal but excludes fuels used for transportation.
So, about $2,000 per year per household. Given the relative decline over time, this is a savings of about $1,000 per household per year compared with the early 1980s. The utility-bill savings also wipes out a portion of the rise in gasoline prices over the past decade.
Take a couple real-world example. Last year, a subsidiary of Northeast Utilities (NYSE:ES) "asked state regulators ... to approve a nearly 16 percent cut in power rates for its 1.1 million electricity customers," according to The Boston Globe. "That would bring the charge to its lowest in eight years and save the average customer about $6 a month." CenterPoint Energy (NYSE:CNP) announced that it was adjusting its gas supply rate for Arkansas customers' natural gas bills. "This means a bill that was $100.15 last November will be $91.58 next month," it wrote. "With natural gas prices much lower than last year, our customers will save even more on heating their home and water this winter."
How long will this last? That's anyone's guess. But analysts at Citigroup have an interesting theory. Commodity prices tend to move in drawn-out, decade-long cycles. The past decade has brought rising prices for virtually all commodities, from oil to gold. Now, driven by slowing economic growth among developing countries, we may be heading into a new commodity down cycle. "Citi expects 2013 to be the year in which the death bells ring for the commodity supercycle after its duly noted sunset," analyst Edward Morse wrote this month. Timing these cycles has humbled many analysts, but there's a clear trend right now toward rising energy output, slowing economic and population growth, and rising energy efficiently. Those three don't bode well for a continuation of the commodity supercycle. Lower energy bills might be here for a while.
Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.