A fundamental shift in the North American natural gas outlook, driven by the shale boom, promises to keep wholesale prices low for a long time to come, according to revised forecasts released on Wednesday by the Portland, OR-based Northwest Power and Conservation Council (NPCC).
In less than a year since NPCC revised its long-term power plan significant changes have occurred that the council’s staff thinks can “fundamentally alter” an array of expectations in the gas and power sectors.
“Changes in the outlook for natural gas supplies in the last year appear to qualify as a fundamental shift in expectations about future gas supplies,” said Terry Morlan, NPCC power planning division director. “The development of technologies to cost-effectively develop natural gas trapped in shale formations has changed the view of natural gas supplies.”
NPCC’s latest electricity plan assumed gas supplies were “declining and constrained,” but in less than two years’ time that outlook has been turned upside down, Morlan told council and committee members at a monthly meeting. The sixth plan recognized shale gas potential, but it did not foresee production costs being driven down as much or as fast as has occurred, Morlan said.
Thus the NPCC is revising its gas price forecasts to reflect the prospects for continuing dampened prices for some time to come. Morlan said the “range of gas prices has been narrowed and lowered significantly” from near-term forecasts in the sixth plan.
“The rapid development of shale gas has created a glut of natural gas that is likely to last for several years and depress prices,” Morlan said. The forecast horizon goes until 2030 and shows the possibility for “long-term equilibrium” of prices.
From the NPCC perspective as the regional four-state energy and conservation planner, the revised gas forecasts mean the forecast for electricity prices in the region also must be lowered. Morlan said the council staff does not think this means significant impacts on the resource strategy in the latest power plan.
“Natural gas generation is already the fallback resource in the plan; renewables are limited by renewable portfolio standard [RPS] requirements, and efficiency was constrained by assumed rates of penetration and development,” Morlan said.
For the other fossil fuels, Morlan said oil and coal do not have as direct an impact on the council’s power plan, so revision for both oil and coal prices will be minimal compared to natural gas. “Coal prices [like oil] can affect electricity wholesale prices in relatively few hours, and they affect the operating costs of existing coal-fired plants,” he said. “Unlike natural gas price forecasts, neither the oil nor the coal price forecasts are used extensively in the region.”
While local news reports of the NPCC gas price forecast revisions touted the chances for lower electricity bills, NPCC staff and local utilities cautioned that many other factors combine to influence retail power rates. One possible counter force is the fact that sustained low gas prices may make it harder for the utilities to buy additional renewable-based electricity supplies.
Several of the gas utilities in the region already have announced further lowering of their retail charges, however. Intermountain Gas Co. in Idaho said it will be reducing rates overall by $14.4 million in October. It is not clear whether electric utilities also will follow with retail rate cuts.
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