Update to Forecast of Fuel Prices

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The Council monitors its power planning assumptions on a regular basis to identify any significant changes that might affect its power plan. Because various organizations also use the Council’s price forecasts for their own purposes, the Council provides the revised forecast to the region.

This report modifies the Council’s fuel price forecast for 2012-2015. The rapid unprecedented development of shale gas has created a glut of natural gas that is likely to last for several years and depress prices. The price of natural gas in 2011 and first two quarters of 2012 were the lowest since 2002. However, it’s important to note the market’s volatility. Recently, forward market for natural gas prices have tightened up, due in part to higher demand from electric utilities, analysts are now expecting prices in the $3.75-$4.75 per mmBTU range for 2013-2014.

It’s often difficult to distinguish short-term variations in fuel prices (which are expected and modeled in the Council’s planning) from significant long-term changes that fundamentally alter the range of future expectations. The changes in natural gas supplies represent such a shift. Although the potential of shale gas was addressed in the Sixth Power Plan, new technologies to access cost-effective natural gas trapped in shale formations has improved the supply outlook from constrained to plentiful for decades to come.

Last year, after working with the Natural Gas Advisory Committee, the Council proposed a downward revision of its range of fuel price forecasts. A range of forecasts recognizes continued uncertainty about the development of shale gas and its costs and environmental effects, as well as the speed of economic recovery.

In this year’s update, the Council polled the committee members for their range of price expectations for 2012-2015. Council staff has used results of this poll, as well as information from the Energy Information Administration’s Annual Energy Outlook 2012, to make another downward adjustment in the range of prices for 2012-2015. For the post 2015 period, the Council expects natural gas markets to return to their expected long-term trajectories.

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