The Council’s Fifth Power Plan fuel price forecast was developed in the summer of 2004. At that time the higher natural gas prices experienced in 2000 through early 2004 were widely considered to be a cyclical event, partly related to the West Coast electricity crisis of 2000 and 2001. Oil prices had increased in 2003 and 2004 but remained around $30 a barrel in the first half of 2004. Coal prices had shown little response to the increases in natural gas and oil prices by the middle of 2004.
At the time the Council’s forecast was done, most forecasts of energy prices showed an expected decline in prices from those of the recent past. The futures market also showed declining natural gas prices through 2008 and early 2009. The Council’s forecasts that showed declines in most fuel prices from the early 2000s levels were in line with most other forecasts at the time.
Although oil and natural gas prices were forecast to decline in the early years of the medium forecast, they remained far above the low prices experienced during the 1990s. Expressed in 2006 dollars, oil prices during the 1990s averaged just under $23 compared to $31 forecast for 2011 and beyond. Similarly, natural gas prices were forecast to average $4.50 per million Btu after 2011 compared to the 1990s average of $2.50. Coal prices were forecast to remain flat in 2006 dollars, ending a historical decline in real coal prices over the previous two decades.
In focusing on the medium price forecasts above, it is important to remember that the Council’s Power Plan depends on a wide range of fuel price trends, as well as a high level of expected volatility in prices. These uncertainties and volatilities are embedded in the risks addressed by the Fifth Power Plan.
