Senators Warn Energy Prices Could Triple In 10 Years

If projections that overall demand for oil, natural gas and electricity will jump by 21% over the next decade are on target, U.S. energy prices could come close to tripling in just 10 years based on current supply levels, according to an analysis issued recently by Sens. Charles E. Schumer (D-NY) and Susan Collins (R-ME).

The bipartisan report, "The Perfect Storm: How Convergence Of Shortages In the Three Major Energy Markets -- Oil, Natural Gas and Electricity -- Could Threaten the American Economy," was unveiled by Schumer and Collins on April 26. The report's findings were culled from several sources, including the Department of Energy, the Energy Information Administration, FIMAT Energy Risk Management Group and the President's budget.

Among other things, the report predicts that wholesale natural gas prices will spike by 271% from $5.33/Mcf to $19.75 in 2010, with demand climbing 24%. According to the report, demand for natural gas will grow the most of the three major energy commodities over the next decade, driven primarily by the escalating demand for gas by new electricity generators.

The report goes on to predict that crude oil prices will rise by almost 125% from $27.08/bbl to $60.50/bbl in 2010, with demand increasing 17%. These increases would force the wholesale price of heating oil to bounce 134% and the wholesale price of gasoline to vault 155%.

Turning to electricity, the report sees demand in this area growing by at least 22%. That scenario could in turn lead to unusually high wholesale prices approaching those seen on the West Coast in recent months, unless extra capacity is brought on line. The report said that 700 new power plants are needed by 2010 to meet surging demand.

"If this report doesn't underscore the need for a bipartisan, comprehensive plan of attack to address our energy problems, I don't know what does," Schumer said. "The price spikes that we've seen in the price of oil and natural gas, the rolling blackouts in California, electricity shortages in New York City --- these are just the tip of the iceberg."

Schumer and Collins went on to note that the supply, demand and price realities detailed in the report underscore the need for a bipartisan agenda that focuses both on increasing domestic supplies and reducing demand. To that end, the report offers up a series of recommendations on three fronts: reducing demand and improving efficiency, improving distribution and increasing development.

The bulk of the report's recommendations fall in the area of how to lower demand and bolster efficiency. Specifically, the report calls for the encouragement of local utilities to aggressively implement innovative demand management techniques such as real-time pricing to reduce industrial power usage during peak hours. Furthermore, the report presses for the restoration of proposed budget cuts to alternative energy research money.

On the distribution front, the report recommends the use of new superconducting technology to increase electricity transmission capacity, therefore minimizing the need for building new transmission lines. Also, the report urges that the siting process for new power plant construction, natural gas pipelines and transmission lines be streamlined.

As far as increasing development goes, the report proposes reducing the backlog of applications for development rights on federal lands already approved for oil and gas exploration and expanding incentives for exploration and drilling on federal lands, such as areas in the Rocky Mountains and the Gulf of Mexico. Construction of a new natural gas pipeline from Alaska that would bring trillions of cubic feet of natural gas to the Lower 48 could also boost development, the report adds.

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