|
Alaska gas would have small effect on price Federal report says prices 4.5 percent higher in 2025 without Alaska gas line Larry Persily Petroleum News Government Affairs Editor
A Department of Energy report says failure to construct an Alaska natural gas pipeline to feed North American markets could push gas prices 4.5 percent higher in 2025 than they otherwise would be if the line is built in the next decade.
The lack of supply from Alaska also would mean more reliance on imported liquefied natural gas — but even more of the market demand would be picked up by increased production from U.S. and Canadian fields, aided by the slightly higher prices, the report said.
The Energy Information Administration report, released March 1, compares a no-Alaska pipeline scenario against the department’s Annual Energy Outlook 2004 released in January, which assumes North Slope natural gas deliveries start in 2018.
Rep. Barbara Cubin, R-Wyo., chair of the Energy and Mineral Resources Subcommittee of the House Resources Committee, requested the report Feb. 3.
Congress is stuck in a stalemate between House and Senate Republican leaders over the federal energy bill that contains key tax, loan guarantee and permitting incentives to promote construction of the Alaska gas line, along with billions of dollars of other incentives and tax breaks for domestic energy producers. Report looks at supply possibilities In addition to the no-pipeline possibility, the report also compared three other scenarios with the department’s 20-year outlook for U.S. natural gas production and consumption:
• No significant increase in tight-sands and other unconventional natural gas production.
• Failure to win permits for construction of more than three new LNG receiving terminals along the East and Gulf coasts to serve U.S. markets.
• A combination of all three: No Alaska gas line, little new domestic production, and too few new LNG receiving terminals.
The base case for the report — the department’s annual outlook from January — assumes natural gas prices and market conditions result in the final go-ahead for an Alaska pipeline in 2009, with deliveries starting in 2018. And under that base case, natural gas prices would average $4.40 per thousand cubic feet (2002 dollars) in 2025.
Without gas from Alaska, prices would be at $4.60 per mcf in 2025, the report said. “The lack of Alaska gas supplies to the Lower 48 raises gas prices, which reduces consumption and stimulates higher Lower 48 gas production.” Worst case gas at $5.61 in 2025 It gets worse if there is Alaska gas but limited LNG imports, with prices projected at $4.74 in 2025, and a bit worse than that if there is Alaska gas but little success in new, unconventional gas production. Under that scenario, the report foresees gas at $4.85 per mcf in 2025.
The worst of all combinations — no Alaska gas, limited LNG and little gain in unconventional production — would put 2025 prices at $5.61.
In addition to significantly higher prices, the supply shortage would cut deeply into electrical generation and industrial uses, pushing them toward other fuels or, in the case of gas-reliant manufacturing, to move out of the country.
Although the Department of Energy modeled the worst-of-everything scenario, it made certain to state it is unlikely such a possibility could ever occur. “The combined case is a severely restricted gas supply scenario that goes beyond what might be plausibly expected in the future.”
More plausible, the report continued, are possible constraints on constructing new LNG terminals or lower success rates in unconventional gas production, but not everything bad happening at once.
Under the reduced-LNG possibility, lack of new terminals would restrict imports to 5.75 billion cubic feet per day vs. the more than 13 bcf per day the department really expects in 2025.
The department’s base-case outlook assumes the Alaska gas line would carry almost 5.5 bcf per day to North American markets by 2025. Differing opinions from two reports The report also forecasts that the introduction of Alaska gas into the market in 2018 would knock down prices by just 10 cents per mcf the following year, as the market responds to the large, new supply.
That strongly contradicts a report issued in late October by an 18-member national commission that said an Alaska gas line could push down gas prices by an average of 56 cents per mcf during the first 10 years of operation.
Lower 48 and Canadian producers would quickly react to the new supply coming into the market, reducing their investments in production until consumer demand rose sufficiently to burn up the added supply, according to the report from the National Commission on Energy Policy, funded by a collection of nonprofit foundations.
A key difference between the commission’s 2003 report and the Energy Department report of February 2004 is each study’s projection of future gas prices. While the Energy Department predicts natural gas at $4.60 per mcf in 2025 without an Alaska gas line, the commission forecasts gas at between $5 and $5.50 through 2025 without Alaska. The higher the price without Alaska gas, the further it has to fall with an Alaska pipeline.
| 