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California Gas Outlook Seen Flat, Except Power, NGVs

While the power generation and transportation fuel sectors could see substantial boosts in natural gas use, California's overall gas demand is expected to stay essentially flat in the next two decades, according to two recent companion gas reports released by the California Energy Commission (CEC).

As part of its work in updating the state's integrated energy policy report (IEPR) for 2012, CEC staff looked at high- and low-range gas demand and price scenarios for 2017, 2022 and 2030, and even in the high-demand case there is a decline in gas volumes going for electric generation in the 2017-2022 segment. However, for 2030, the high demand scenario called for 863 Bcf for power generation, compared to a low demand scenario of 543 Bcf. The base case would be 658.6 Bcf going to generation.

Overall, however, gas demand has stayed flat for the past 10 years -- nationally and in California -- the CEC report said. "Over the last decade, natural gas-fired generation has been a dominant source of electricity in California, accounting for as much as 59% of supplies in 2008." But residential and industrial sector use has declined.

"Only the power generation sector gas demand is increasing, although the recession's effect on electricity demand is also felt in demand for this generation fuel," the CEC reports said.

Even with the shale gas boom surging U.S. gas production from 50 Bcf/d in 2005 to 63 Bcf/d last year, the two CEC reports outlined various areas of uncertainty regarding the long-range prospects for shale, the development of liquefied natural gas exports of U.S. domestic supplies, wholesale natural gas prices and the long-range impact on the gas infrastructure sector from the aftermath of the San Bruno pipeline explosion and from the various shale plays that have sprung up around the nation.

Noting that since January 2009 through April this year Henry Hub spot prices decreased at an average of 19% annually, the CEC reports said it is "unclear how shale gas producers will respond to the current very low prices." And the CEC staff's analysis cited the "uncertainty for shale development in the long term," citing whether and to what extent the United States becomes an LNG exporter and the implications this has for domestic prices of natural gas.

In the report there are estimated weighted volume end-use prices for California power generators for all of the scenarios. For the base (reference) case that price was said to rise from $5.99/MMBtu in 2017 to $6.83/MMBtu in 2030; in a high-priced scenario the estimated prices are $6.41 (2017) and $7.52 (2030), but in the low-demand scenario they are $6.14 and $6.78, respectively. Even in a shale gas-constrained scenario the top price for power generators only rises to $7.20/MMBtu in 2030. These are all estimated in 2010 dollars, the CEC report said.

Because of "high complexity, many options for action, and deep uncertainty," the CEC reports present widely varying "conditional estimates" on the future gas supply-demand forecasts and what that impact may be on power generation and renewable energy development in the state. As always, the report qualified all the estimates with the assertion that hydroelectric levels and weather can greatly impact the state's gas and electricity supply-demand.

That underscores why another issue was added to the market trend reports: the increasing need to "harmonize" the natural gas and electricity markets and operations. Regulators at the federal and state level have called for closer collaboration among the nation's power line and gas pipeline operators.

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