RDI'S NEW STUDY, THE CONVERGENCE OF GAS AND POWER: Causes and Consequences, projects gas consumption in the United States will grow 2.4 percent per year, or a 26.8-percent increase from 1998 to 2007.
Overall, demand is expected to grow from 20.5 trillion cubic feet in 1998 to 26 Tcf in 2007. More than half of this projected growth will come from electric industry demand for gas, which will increase from 4.1 Tcf in 1998 to 6.9 Tcf in 2007, or 5.3 percent per year.
The jump in gas consumption is linked to the electric industry's limited range of choices for new capacity. Since an increase in nuclear capacity is unlikely and environmental concerns limit coal's potential, gas remains the industry's only alternative. This demand for gas will continue to press the market even after pending supply and infrastructure projects come on line. (See figure "Wellhead Capacity and Production.")
During the near term, existing wellhead production capacity should prove adequate to meet demand. Much of the required development in the Gulf of Mexico and at Sable Island are already under way, as are projects aiming to de-bottleneck Alberta supplies. To meet this projected long-term growth in gas demand, however, wellhead production capacity will have to increase.
Gas remained inexpensive for the last decade due to a surplus in wellhead capacity (em the "gas bubble." Thus, servicing the increased demand of the late 80s and early 90s while keeping prices low was possible. But this surplus is dwindling. Figures from the Energy Information Administration (see figure "Wellhead Capacity and Production") show a decline in capacity throughout the 1980s.
In a tighter market, significant increases in demand can be expected to affect prices. RDI projects that the average real city gate price will rise from $3.11 per Mcf in 1998 to $3.57 per Mcf in 2007. Electric energy prices also are expected to increase, reaching $31.98 per megawatt-hour in 2007, up from $27.51 per MWh in 1998. Increases in demand and prices could be even more dramatic if more stringent environmental policy is passed and more nuclear generators opt for early retirement. F
Robert Ineson is principal of the Gas Consulting Group at Resource Data International Inc.
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