The industry almost assuredly will see $4/Mcf gas later thisyear, and on a cold day in Chicago next winter it may even see gasprices “momentarily spike” to as much as $30 or $40 due to anever-tightening supply situation, says a University of Houstonprofessor.

“As far as the $4/Mcf gas, we think that it’s going to take justa few cold days to show how shallow our current supply of gas is,”Michael Economides, co-author of “The Color of Oil, said in aninterview with NGI. “We are unassailably moving” in the directionof $4 gas, which he noted was a conservative estimate.

Both Economides and his co-author, Ronald Oligney, have a prettygood track record when it comes to forecasting energy prices. Theypredicted crude oil would hit $30 a barrel this year when it waslanguishing at $11.

“…[W]e are really in for a huge increase in [gas] demand overthe next three to five years, and we don’t see any mechanism toprovide the necessary supply to meet this demand. So the price forgas is going to continue to go up and up and up. We are in for areal [price] struggle with natural gas over the next severalyears,” he warns. When this happens, the worst thing Congress coulddo is set a price ceiling. This would lead to “dramatic problems,”such as a return to the supply shortages of the 1970s.

“There [has been] little thought to supply for what I call thenext generation in gas. Gas is going to become the new fuel.” Infact, while the Department of Energy (DOE) predicts natural gaswill account for 29% of the worldwide fuel mix by 2020, Economidesand Oligney forecast it will make up as much as 47.5% of the energymix by then due to higher demand brought on by electricderegulation and fuels cells. “It’s going to be the gas century.”

While industry has set its sights on a 30 Tcf demand market by2010-2015, Economides, whose area of expertise is in production,believes “demand is going to be much larger than that,” faroutstripping available supply. “I really would like to see a lotmore debate on where we’re going to be getting the gas thateverybody thinks we’re going to have” by then.

Granted, Alliance Pipeline, Northern Border Pipeline and othersare building new pipelines or have expanded their systems to bringin gas supply from Canada, but “that is not really new supply,” hesaid. “We would like to see the Alaska pipeline being built” toaddress demand for natural gas in the long term.

While Canada is moving “aggressively” to build up its pipelineinfrastructure within its boundaries and across the border, hebelieves the U.S. is lagging far behind. This lack of a sufficientpipe infrastructure could be the “largest physical hurdle” tomeeting the anticipated growth in gas demand.

There are a number of “very telling” factors that suggestgreater gas consumption and a strain on supply, Economides said.”No. 1 is that right now there is a three-year backlog forgas-fired turbines for [power generation] production at GeneralElectric…..This means that natural gas is going to be the fuel ofchoice for electric power generation.” Also, he estimates threetimes more power generation capacity currently is planned than isrequired under anticipated demand projections.

Moreover, “we think that fuel cells using natural gas fortransportation are coming sooner than people think,” Economidesnoted. All of these factors will combine “to put an enormouspressure on natural gas supply.”

This heightened demand for gas in generation is going to createsummer and winter peaks, putting further stress on storage, wheregas additions already “are the lowest they have been in about 20years now..We also think that when electric power generation comeson line…..in a year and a half from now, there’s going to be ahuge competition” between the heating and power generation loads.”And the electric power guys are going to win all the time in anybidding war.” So eventually, Economides believes there will have tobe two price schedules for gas – one for power generation andanother for heating customers.

What can be done to alleviate a future supply crunch? First, thefederal government could provide incentives to promote theconstruction of “necessary but missing elements” of the U.S. gasdistribution system, as well as to “facilitate the permittingprocess and…..streamline environmental compliance” for newpipeline construction, said Economides and two co-authors in arecent paper on electric restructuring and gas demand.

Additionally, “small but focused investments in deepwatertechnology will ensure ready access to natural gas reserves…..Abolstered LNG infrastructure can provide natural gas swing capacityand alleviate supply concerns,” he noted.

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