Compared to the rest of the nation, we in Colorado have long had access to cheap natural gas (methane) from Xcel Energy, with rates ranging from $3-4 per thousand cubic feet. Compare this price range with the current trading price of natural gas on the New York Mercantile Exchange (NYMEX), which sits at $5.90 as of today, and you begin to see how lucky we’ve been!

However, it appears Colorado’s relationship with cheap natural gas is about to come to an end. With the upcoming completion of the first phase of the $4.5 billion Rockies Express pipeline (REX), natural gas will begin to be shipped to eastern states as soon as January, 2008. The result of the natural gas shipments eastward will undoubtedly decrease the supply available to Colorado.

As the Denver Post reports :

“The problem for natural-gas companies is they’ve been too productive for their own good. Since the gas drilling boom began earlier this decade, energy firms have produced more gas than consumers in the Rockies can use, too much even for pipelines to export all of the surplus gas.”

REX’s capacity is pegged at 1.8 billion cubic feet per day, equivalent to 2x Colorado’s daily consumption of natural gas. The new pipeline will add roughly 30% to the Rockies’ existing pipeline export capabilities.

With increased exporting of natural gas and anticipated price increases in the Rockies comes an incentive for local energy producers to invest more money into exploration and drilling.

However, covering the gap on the anticipated supply reduction will not save Colorado from increasing prices.

Speaking with the Denver Post on the subject, Tim Carter, Xcel’s director of gas supply said, “We expect our prices to move up next year”.

All of this should be music to the ears of solar installers and manufacturers. One of the primary arguments against solar installations in the Colorado area concerns the reality that electricity in the state (roughly 35% of which is created through natural gas generators) has been relatively cheap, especially relative to other states such as California ($0.07/kwh compared to $0.12/kwh, respectively). Cheap electricity makes it difficult to justify the capital outlay in many solar installations where electricity derived from utility companies is more cost competitive.

Of course, rising electricity costs (whether the result of increasing coal or natural gas prices) will bring solar installations to the forefront of choices Colorado energy consumers have on the table.