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Study: Impact of Renewable Energy on Gas Demand, Prices Similar to Alaskan Pipeline, LNG

The rapid growth of renewable energy through state renewable portfolio standards and other actions nationwide will have a substantial negative impact on natural gas demand and prices, according to a new report by scientists at the Lawrence Berkeley National Laboratory.

The report, titled "Easing the Natural Gas Crisis: Reducing Natural Gas Prices Through Increased Deployment of Renewable Energy and Energy Efficiency," examined 13 separate studies (five by the Energy Information Administration) containing 20 difference modeling runs.

Increased diversification of electricity supplies "holds the prospect of directly reducing our dependence on a fuel whose costs are highly uncertain," Lawrence Berkeley scientist Ryan Wiser told the Senate Energy and Natural Resource Committee at a hearing on power generation diversity this week. "By reducing natural gas demand, increased diversification away from gas-fired generation can indirectly suppress natural gas prices."

Wiser said that of the 13 studies examined in the Lawrence Berkeley report, the ones that reviewed the impact of aggressive renewable energy deployment showed a gas demand decline of as much as 4 quadrillion (quads) Btus (or about 3.9 Tcf) by 2020, a gas wellhead price drop of 50 cents/MMBtu (17% below projected prices) and an overall gas savings for consumers of about $15 billion. Some savings estimates went as high as $40 billion on a national net present value basis, he said.

The studies that examined less aggressive renewables deployment predicted that the gas demand reduction would be about 0.7-2 quads (2-7%) by 2020 and that gas prices would be about 15-30 cents lower than projected.

"On the high end at least, these price reductions are similar in magnitude to those estimated to come from increased access to Alaskan gas and/or liquefied natural gas imports...," said Wiser.

Of the 20 modeling runs reviewed by the lab, 13 show that "each 1% reduction in national gas demand is expected to lead to a long-term average reduction in wellhead gas prices of 0.8-2%," he said. "Some studies predict even larger impacts, especially in the near term. In fact, of the remaining seven modeling runs, five show even more significant price reductions -- up to a 4% price reduction for each 1% drop in demand."

Wiser said the lab's report did not examine the impact on power prices from greater reliance on renewable energy. But he said the studies reviewed "often show that any predicted increase in the price of electricity caused by greater use of renewable energy or energy efficiency is largely or completely offset by the predicted natural gas price savings.

"We conclude that policies to encourage fuel diversification within the electricity sector should consider the potentially beneficial cross-sector impact of that diversification on natural gas prices," he said.

Results from the studies examined suggest that each megawatt-hour of renewable energy provides about $10-20/MWh in average national consumer benefits (in the form of natural gas bill savings). "Even at the lower end of this range, these savings are significant relative to the current cost of supplying electricity from renewable resources, which averages perhaps $30-70/MWh," he said.

He said that although the Lawrence Berkeley lab's report focuses on renewable energy and energy efficiency, greater reliance on other non-natural-gas resources, such as coal and nuclear power, "would likely have a similar effect" on gas demand and prices.

"These consumer gas bill savings are clearly significant," Wiser told the committee. "But what level of confidence should be placed on these modeling results? After all, most of these results derive from a single energy model: [EIA's National Energy Modeling System]. To answer this question, we sought to compare the results of the various modeling studies to each other, to the results of other national energy models, and to the empirical economics literature...

"We conclude that there remains significant uncertainty about the exact magnitude of the natural gas price reduction. However, we also find that each comparison provides reason to believe that the price-suppression effect is real, and that the studies reviewed above have characterized this effect within reason, given the state of current knowledge."

Wiser said an energy model from Arlington, VA-based consulting firm Energy and Environmental Analysis, Inc. (EEA), which was used by the National Petroleum Council and the National Commission on Energy Policy in recent work, suggests that the long-term impact of demand reductions on natural gas prices will be "at least double that reported earlier (i.e., a 1% decline in demand will result in a 4%+ drop in natural gas prices, compared to the 0.8-2% drop reported earlier)."

In conclusion, he said that "most agree that both supply-side and demand-side actions will likely be necessary to moderate [natural gas] prices. Focusing on just the demand side, our study has found that increased diversification of energy supplies should help to alleviate the threat of high natural gas prices over the short and long term, thereby reducing consumer natural gas bills.

"The 13 studies and 20 specific modeling analyses reviewed in our report consistently show that increased use of renewable energy and energy efficiency can begin to reduce natural gas prices." He also noted that "any non-natural-gas resource that displaces gas use is expected to provide similar consumer benefits."

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