Council seeks comments on fuel-price forecasts

October 16, 2008

Predicting the future price of natural gas is a bit like predicting the weather — an important but essentially impossible task. For the Northwest Power and Conservation Council, however, the future price of natural gas is an important factor in long-term power planning because natural gas is the fuel for power plants that provide 16 percent of the region’s electricity.

Meeting this week in Missoula, Montana, the Council issued a paper for public comment that predicts future prices of natural gas — and also oil and coal. The range of predicted fuel prices will help inform the Council in deciding which power and energy-conservation resources — the type and amount — to recommend in the next version of its Northwest Power Plan. The Council revises the plan every five years and currently is working on the sixth revision of the plan since the first one was issued in 1983.

The Sixth Northwest Power Plan is scheduled for completion in mid-2009. The plan, which looks 20 years into the future, guides decisions by the federal Bonneville Power Administration, the region’s largest electricity supplier.

Since 2000, the trend of prices for natural gas and coal has been volatile. The price of natural gas at the wellhead in January 2000 was $2.37 per million Btu; in June 2008 it was $12.60. The price of coal from the Powder River Basin of Wyoming, which is the source of most of the coal used in the Northwest, has risen, as well, but not as dramatically.

“The Council doesn’t issue a single price forecast for each fuel, but a range of prices from low to high, depending on multiple scenarios of supply, demand, storage capacity, and transportation,” Council Chair Bill Booth said. “By assessing multiple scenarios, the Council deals with future uncertainty and minimizes the risk from price forecasts that might be wrong.”

In the draft forecast, the medium, or most likely, scenario shows prices declining to $7 per million Btu (in 2006 dollars) by 2015, and then increasing slowly to $7.65 (also in 2006 dollars) by 2030. The high price forecast is around $9 until 2025, and $10 by 2030. In the low forecast, prices stay below $6 for the length of the planning period.

The high-price scenario assumes that environmental concerns limit the use of alternative fuels, progress on renewable technologies is slow and the development of liquefied natural gas supplies and improvements in drilling and gas-exploration technologies are slow. Conversely, the low-price scenario assumes that liquefied natural gas is aggressively developed and contributes significantly to the world supply, unconventional sources of gas such as shale deposits are developed, deployment of renewable technologies is successful, and world oil prices are low.

Complicating the forecast is the fact that fuel prices generally have been volatile over the last decade as the result of multiple factors including rapid world economic growth, declining value of the dollar, slow response of conventional energy supplies to higher energy prices, continuing unrest in the Middle East, uncertainty over climate-change policy, and the dynamics of commodity markets. In the United States, the conventional supply of natural gas will be difficult to expand. New supplies increasingly will come from unconventional sources and from imports of liquefied natural gas.

Demand for natural gas is expected to increase in the future, but the potential for developing oil and coal resources is unclear. Interestingly, increased demand for electricity and natural gas could result from increasing use of technologies designed to reduce demand for fossil fuels — more electricity as the number of electric hybrid vehicles increases, more gas as the demand for biofuels, which require ammonia fertilizer produced with natural gas, increases. The price of natural gas also affects investments in energy conservation because higher prices for electricity make investments in energy conservation more attractive. Conversely, low prices for natural gas make electricity less expensive and investments in conservation less attractive.

Comments will be accepted through November 14.

The Council is an agency of the states of Idaho, Montana, Oregon and Washington and is directed by the Northwest Power Act of 1980 to prepare a program to protect, mitigate and enhance fish and wildlife of the Columbia River Basin affected by hydropower dams while also assuring the region an adequate, efficient, economical and reliable power supply though its Northwest Power Plan.

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