After a re-examination of its prior forecasts in light of the upheaval in the energy markets last year, the American Gas Association has concluded that its prior gas demand projection may have been a little on the high side and its price forecast quite a bit too low. In an update of its February 2000 report “Fueling the Futures: Natural Gas and New Technologies for a Cleaner 21st Century,” AGA said demand now is projected to grow 53% (up 33.6 quadrillion Btus) by 2020 rather than the 60% (35 quads) it projected earlier and prices should reach $5.60 in 2020.

AGA noted that in its prior forecast it expected gas prices to average in the mid $2/MMBtu with only modest price fluctuations over the next 20 years. Shortly after that forecast was made gas prices went through the roof. Spot prices averaged about $3.60 in 2000 but by December had soared to $10. They have come back down since then but remain nearly double AGA’s prior forecast. Crude oil prices also defied most predictions last year by reaching $30/bbl a year after being near $10/bbl. Other energy prices also followed suit.

“Most analysts believe that energy prices will retreat from the peaks witnessed in late 2000 but there is little agreement on how far they will retreat, when they will reach a new equilibrium point and what changes we should expect as a result of the long-term price outlook,” AGA said. “In light of this uncertainty, this update re-examines the results of “Fueling the Future” within the context of higher energy prices.”

AGA now assumes gas prices will be 36% higher than its prior forecast of $2.65 in 2020. It expects wellhead prices to average about $3.25 in the near term and rise to $3.60 in 2020. When the impact of inflation is included, prices are expected to reach $5.60 in 2020. In comparison, EIA is expecting prices to average (before considering inflation) about $3.13 in 2020.

AGA assumes oil prices will be 25% higher than its prior forecasts of $18.45/bbl, reaching $23 (1999 dollars) in 2020, or $40.17/bbl considering the effects of inflation. It still sees coal prices at $1.22/MMBtu, but it raised its forecast on power by 10% to 7/3 cents/kWh, or 11.5 cents after inflation.

Even with higher wholesale gas prices, demand is still forecast to grow to 33.6 quads (roughly 33 Tcf) from 22 quads today. But a slower growth rate is expected in particular in the industrial and power generation sectors, which can substitute fuels more readily than other sectors such as residential and commercial. Industrial consumption is 1 quad lower in AGA’s new forecast.

AGA also has a somewhat different perspective now on gas supply. It predicts there will be less reliance on Lower 48 production and a new turn toward Alaskan reserves, liquefied natural gas and frontier Canadian prospects. Its update doesn’t indicate any lessening of confidence in the lower 48, but higher prices make the frontier areas and LNG more economic sources of supply, AGA said. It sees 26.6 quads of production coming from domestic basins in 2020 rather than 29.5 quads, with the remainder coming from Alaska (1 quad) and Canadian and LNG imports (6 quads).

“The higher prices and market volatility of 2000 suggest a more fragile market than we believed existed a year ago. But the future presented in ‘Fueling the Future’ remains attainable, and the potential benefits are highly desirable… The results of this updated study clearly demonstrate that to avoid higher consumer energy prices and a less reliable energy supply, a national energy policy is needed now — not just for natural gas, but for all forms of energy, including renewables.”

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.