133 Historical Gas Market Projections Lessons from the Past

For the last two decades, virtually all of the participants in the North American natural gas market made major corporate decisions based on erroneous forecasts about future gas prices. Figure 13.1 compares forecasted average U.S. wellhead gas prices taken from the Annual Energy Outlook of the Energy Information Administration (EIA) in 1985, 1990, 1995, and 1999. As shown, in just the last 14 years, the EIA's forecast of gas prices has declined dramatically. During the last nine years, the decline was considerable, from a 1990 forecast of average wellhead gas prices in the year 2010 (in 1996 dollars) of $6.64/Mcf to its most recent forecast of wellhead prices in 2010 of approximately $2.45/Mcf (U.S. Department of Energy, 1998).

The EIA was by no means alone in its early 1990s' forecasts being so different from today's forecasts. A look at the predictions of any organization forecasting gas prices for the year 2010 in 1990 and today shows a similar trend.

FIGURE 13.1

Natural gas future price estimates from 15 years of EIA reports.

FIGURE 13.1

Natural gas future price estimates from 15 years of EIA reports.

This represents a fairly dramatic change in our collective view of the future for natural gas prices, and this change has occurred in just the last decade. In fact, today most forecasters predict gas prices in the year 2015 to be in the $2.20 to $2.70/Mcf range, i.e., not much different from today's prices (U.S. Department of Energy, 1998). (Transmission and distribution add $1.50 to $4.50 to the price of natural gas, creating delivered prices of $3.50 to $6.50 to consumers, given a wholesale price of $2.00.)

Why were historical forecasts about the future of U.S. gas markets wrong? What has caused this dramatic change in the perception of the future for natural gas? Many factors have been advanced as explanations. Several stand out:

• Our perceptions about the size of the North American gas resource base, which have evolved considerably from one of impending supply shortage to today's view of an enormous resource base

• Our increasing experience and optimism concerning the important role of technology and the ability of technology to advance rapidly and efficiently to ensure stable, reliable gas supplies in the future, despite relatively low gas prices

• Our understanding of the importance of the fundamental changes in the nature of the government's role in overseeing and regulating the U.S. energy industry; the dramatic impact that increased competition has had and will continue to have on driving greater efficiencies and continuous innovation in the marketplace

Solar Stirling Engine Basics Explained

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The solar Stirling engine is progressively becoming a viable alternative to solar panels for its higher efficiency. Stirling engines might be the best way to harvest the power provided by the sun. This is an easy-to-understand explanation of how Stirling engines work, the different types, and why they are more efficient than steam engines.

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