A gas procurement incentive mechanism that provides strong incentives for a broad range of procurement-related costs and revenues, using a benchmark that is both exogenous and adaptive to external...
Focus on LNG Siting: A State Perspective
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A major objective of the Energy Policy Act of 2005 (EPACT) is to counter the worsened conditions in the natural-gas market that began in 2000 and are expected to continue over the next several years—namely, tight natural-gas supplies and high, volatile gas prices caused by a distinct shift in the supply-demand balance. The current quagmire assumes that the gap between U.S. demand for gas and supplies from traditional supply sources will grow continuously over the next 20 years.
According to the latest Energy Information Administration forecasts from the Department of Energy, the demand for natural gas in the United States will grow by 40 percent from 2005 to 2025, with domestic gas supplies projected to increase by only 15 percent over the same period. This translates to an increased gap of 5.9 trillion cubic feet (Tcf) by 2025, or about 15 percent of current consumption. Additional foreign supply sources—Canadian gas and liquefied natural gas (LNG)—will be required to serve the U.S. market.
Most industry observers now see the changed post-1999 market conditions as structural, rather than cyclical in nature, with long-lasting effects. In contrast, price spikes experienced in the 1990s were short-lived, caused mainly by brief periods of unusually cold weather or regional pipeline bottlenecks.
A corollary to this perception is the urgency for a package of major initiatives, affecting both the supply and demand sides of the gas market, to be implemented in the shortest possible time. EPACT closely reflects such a course of action.
However, proponents of an aggressive policy to increase gas supplies are most disappointed by the failure of the act to open up new areas (such as the Outer Continental Shelf) for natural gas exploration, development, and production. A vigorous debate in Congress over the expansion of gas exploration, development, and production, both in the Rocky Mountains and restricted offshore areas, is likely to ensue, especially if gas prices continue to remain high.
EPACT addresses these concerns through a variety of supply-side and demand-side measures, several of which are designed to eliminate or alleviate existing governmental barriers. The primary intent is to moderate the future price of natural gas in the United States, with industry experts advocating a two-pronged attack from both the demand and supply sides of the market.
A policy of coping with the recent trend in the gas-market environment cannot be tolerated, and EPACT reflects this. Some analysts argue that the most effective tactic for controlling gas prices over the next few years is to reduce demand growth by promoting energy efficiency and other measures (for example, encouraging fuel-switching capability for new vintage gas-fired generating facilities), but most industry analysts do not expect the act to have an immediate, or even short-term effect on natural gas prices.
Any noticeable reductions in gas prices that might be effectuated by the act will have little impact on natural-gas prices for a number of years: industry and regulatory inertia, in addition to the expected market