Efficiency, Renewables Could Help Ease Natural Gas Prices

By J.R. Pegg

September 8, 2003 (ENS) - Concern over natural gas prices has many U.S. political leaders determined to increase domestic supplies, but some believe policymakers are focusing on the wrong side of the equation. Even the most aggressive efforts to increase the supply of natural gas will take years to affect prices, energy experts say, yet reducing demand could have an immediate impact.

This is the core sentiment of a report released today by the American Council for an Energy Efficient Economy. It finds that policymakers - and perhaps more importantly, consumers - have ready alternatives that could help bring prices down.

The report details that enacting state and federal policies to expand renewable power generation and to help consumers install more efficient electric and gas appliances, and heating and cooling systems is "the fastest, surest way to give gas and electricity consumers relief from spiking energy prices," said David Wooley, vice president of the nonprofit San Francisco based Energy Foundation, which commissioned the report.

The study, titled "Impacts of Energy Efficiency and Renewable Energy on Natural Gas Markets," says nationwide efforts to increase energy efficiency and renewable energy could reduce wholesale natural gas prices by 10 to 20 percent within a year and save consumers some $15 billion annually in retail gas and electric power costs. offshore

Many are pushing for increased domestic production, but conservationists and some energy experts believe short term price relief can be achieved by increased efficiency and renewable energy development. (Photo courtesy U.S. Minerals Management Service)
The study determines that even small changes in demand can have a significant effect on price because the natural gas market is extraordinarily tight.

"Very large price movements occur with relatively small changes because there is no reserve capacity on the production side," said Bruce Henning, director of regulatory and market analysis for the private consulting firm Energy and Environment Analysis, which helped ACEEE with the report.

Specific policy solutions outlined in the study include updating state and federal appliance efficiency standards, requiring electric utilities to use more renewable power generation as well as establishing tax credits for efficiency and renewable energy investments.

The study also recommends the expansion of rebates and grants to consumers to improve equipment efficiency and to install clean onsite power generation, and additional federal research and development support for emerging efficiency and renewable generation technologies.

Consumers can do simple things such as getting furnaces tuned and making sure windows and doors can be tightly sealed to trap heat in the winter and cool air in the summer, according to the report.

"This does not require heroic efforts. These are things that are readily achievable," says study author Neal Elliot, industry program director for ACEEE.

Reducing the demand for electricity is critical to cutting demand for natural gas, the report says, because much of the recent demand growth for natural gas has come from the electricity generation sector. This sector has embraced natural gas as a clean burning and cost effective fuel, a true reversal of fortune for a fuel that was for many years discarded as worthless.

Oil companies used to get rid of natural gas by burning it off in giant flares, but today it provides one fifth of all the energy used in the United States.

The increasing demand has been bubbling for years and this year led to historic shortages and to the doubling of domestic gas prices. And the U.S. Energy Information Administration (EIA) estimates 50 percent of the demand growth for natural gas by 2015 will be due to electricity.

Renewable energy resources have a similar effect to efficiency and conservation measures, Wooley explained, because they displace electric power production from gas fired generators.

The analysis shows increased efficiency and renewables could shrink natural gas expenditures by electric power generators by $6.2 billion in 2004 and by as much as $10.4 billion by 2008. This reduction in natural gas expenditures would reduce electricity rates in these regions, according to ACEEE, an additional benefit for electric power consumers.

Wooley adds there is yet another benefit to reducing peak electricity demand from these generators.

Lower peak demand reduces the risk of system failure, he said, and makes the nation's electric supply "more secure without increasing our dependence on fossil fuel imports."

The report examines another important part of the natural gas picture - the impact of higher prices on industrial users, such as manufacturers of fertilizer, plastics, chemicals, and steel. These industries use natural gas as a fuel and raw material, and the price spikes over the past year have been costly and have forced some businesses to lay off workers and move operations abroad. lng

Importing liquefied natural gas is seen as a good longterm solution by some to the natural gas price crunch, but it is an expensive proposition that will take years to develop. (Photo courtesy Energy Department)
The study shows that higher levels of energy efficiency and renewable energy would stem this decline.

Elliot says the benefits extend beyond the preservation of manufacturing jobs within industries that rely heavily on natural gas, and could help create "substantial numbers of jobs in construction, installation, and component manufacturing."

The report recommends that U.S. lawmakers and political leaders issue a call to action by the people and businesses of America to take steps to improve their energy efficiency and encourage investment in renewables.

"Affordable and available natural gas is critical to the health of American industry, our economy, and the environment," said Peter Molinaro, vice president of government affairs for Dow Chemical. "Leaders in the public and private sector need to do everything they can to spur investment in more efficient insulation, appliances, motors, heating and cooling systems, lighting, and clean on site generation."

The U.S. Energy Department launched a public awareness campaign to encourage efficiency this summer, but the Bush administration has focused much of its energy on efforts to increase domestic supply of natural gas.

The United States is the world's largest consumer and producer of natural gas - some 84 percent of natural gas consumed in the United States is produced domestically.

New technologies are allowing companies to increase drilling success rates and reach deeper stocks, but have also increased the depletion rate of newly discovered gas reservoirs.

About 15 percent is imported from Canada and one percent is obtained via imports of liquefied natural gas (LNG) imports.

The EIA estimates natural gas consumption will increase 60 percent by 2020, but increasing domestic supply is a controversial proposition.

Much of the nation's natural gas reserves are on public land or offshore and there is opposition by conservationists and others to opening many of these reserves to production.

Other regions - in particular Russia and the Middle East - have much larger reserves of natural gas, but the fuel is not easily transported. It must be cooled into a liquid for transport and then changed back into a gas once it reaches U.S. shores.

Increasing LNG capacity or domestic supply will take years, contends Wooley, and this report is clear ammunition that efficiency and rewewables can help ease the price crunch that consumers - and businesses - have been hit by.

"The era of inexpensive natural gas in the United States is coming to a close and there are no short term supply options that can make a difference in price or supply," Wooley said. "Contrary to what many are saying, there is something we can do about natural gas prices right now - increased efficiency and renewable energy can reduce natural gas prices quickly and affordably."