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Report Sees Gas Prices Surging without Improved Land Access, LNG and Alaska Pipeline

Prices for natural gas by 2020 could more than double to $13.76 depending on whether policy makers enact bold measures to expand the U.S. gas supply in the upcoming years, according to a new report to be released by the American Gas Foundation (AGF) later this month.

The upcoming report to be issued Feb. 14, "The Natural Gas Outlook to 2020," takes a hard look at three alternative public policy scenarios (expected, expanded and existing) and the potential impact that those choices could have manufacturers, electric power generators, homeowners and other natural gas customers over the next 15 years, the AGF said.

"These scenarios...describe potential market conditions and...emphasize the key policy variables that will have an impact on markets through 2020. They were not constructed in an attempt to present the 'best' and 'worst' possible cases," the study's executive summary noted. "The results of the study point to the need for public policy makers and industry decision makers to immediately address critical issues that will have a significant impact on the availability and prices of natural gas for decades to come," it said.

"Under none of these scenarios does the natural gas market return to the conditions that prevailed in most of the 1980s and 1990s -- surplus supply and relatively low, stable prices. Therefore, failure to act swiftly, decisively and positively on issues such as constructing liquefied natural gas [LNG] receiving terminals and an Alaskan gas pipeline, diversifying our electricity generating mix and increasing access to domestic supplies of natural gas would prolong and exacerbate problems affecting natural gas markets and all consumers of natural gas."

The AGF sees gas prices staying in the $5-6 /MMBtu range for most of the study period under the "expected" scenario, but rising to $8.15 by 2020. The scenario assumes that the moratoria on exploration and production in the eastern Gulf of Mexico and off the East and West Coasts will continue, drilling in the Intermountain West will remain partially restricted, an Alaska natural pipeline will be operational by 2014, LNG import capacity will be 18 Bcf/d by 2020 and that natural gas will fuel 40% of new electric generation.

"This [expected] scenario projects much greater supply diversity in the future, including major contributions in the form of Alaskan natural gas and LNG. Delays or denials of these sources will shift supply to more expensive marginal sources of domestic natural gas," the study said.

In contrast, the AGF projects that gas prices will drop to an average of $5.50 over the entire 15-year period under the "expanded" scenario. "This price is 33% lower than the 'expected' scenario and results in a savings of roughly $80 billion...for consumers in 2020."

The "expanded" scenario is undoubtedly the most favorable forecast for the industry. It assumes that the drilling moratoria in the eastern Gulf and off the East Coast (but not the West Coast) will be lifted, access in the Intermountain West is less restricted, the Alaskan pipeline will be in service by 2014, LNG import capacity will reach 23 Bcf/d by 2020 and that new generation capacity fueled by gas will fall to 20% of the total fuel mix, according to the AGF study.

"The higher level of LNG imports under this [expanded] scenario acts to reduce exploration for higher cost sources of gas in a lower price environment."

Lastly, the "existing" scenario predicts that gas prices will average $9.43 over the study period and hit $13.76 by 2020. "Average natural gas prices are nearly 70% higher in 2020 under the 'existing' scenario. This represents over $120 additional natural gas costs to the U.S. consumer in 2020 versus the 'expected' scenario, and $200 billion versus the 'expanded' scenario."

According to the AGF, the "extreme prices of the 'existing' scenario are the result of not expanding the natural gas infrastructure much beyond that which is in place today."

The "existing" or status quo policy scenario assumes that the moratoria in the Gulf, East Coast and West Coast continues, Intermountain West is partially restricted, the Alaskan gas pipeline is not operational by 2020, no new LNG terminals are built (but expansions occur), LNG import capacity is only 5.3 Bcf/d by 2020, and gas fuels 40% of new electricity generation.

"The outlook for significant natural gas-fired demand growth by electricity generators is unlikely to be altered, particularly prior to 2015, due to increasing use of the vast number of gas units completed over the past five years and the difficulty in siting and constructing coal or nuclear generating units in less than 10 years," the report said.

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