Comprehensive Policy Essential to Meet Long Term Needs

“The 60 million households that heat with natural gas will spend an average of almost $1,400 for natural gas this winter,” Dr. Mark Cooper, CFA’s Director of Research said, “and for low income households the natural gas heating bills will eat up 10 percent of their income. Policymakers can no longer ignore the urgent need to adopt a comprehensive natural gas policy.”

“Natural gas wellhead prices have doubled in the past half decade and gas markets have moved into a permanent state of turmoil, with wild spikes around an upward spiral,” Cooper added. “A hint of bad news sends prices skyrocketing, but good news does little to reduce the pressure.”

The report, entitled Responding to Turmoil in Natural Gas Markets: The Consumer Case for Aggressive Policies to Balance Supply and Demand, points out that natural gas is a vital source of energy –

· * used for heat by 57% of all households,

· * the fuel of choice in 90% new electricity generation plants,

·* raises prices for all goods and services throughout the economy, and

·* the cleanest burning of the fossil fuels.

The report concludes that a business-as-usual approach to natural gas markets will not work because it will lead to a huge shortfall over the next two decades that would cause price increases and place a severe burden on household budgets and industries that rely heavily on natural gas.

“The key to vigorous policy action is to acknowledge the need to reduce pressures on the market and build a consensus around the direction of policy action,” Cooper said. “A balanced solution must include policies that address short, mid and long term needs and affect both the structure of the market as well as the conduct of market participants.”

The report evaluates policy alternatives in terms of their economic, environmental and security impacts.

Strong measures to ensure transparency of market pricing and to dampen volatility through storage and fuel switching are needed to ensure that markets are free of manipulation and to establish the credibility of claims that there is a “hard” problem in the imbalance of supply and demand.

ncreasing energy efficiency is superior to supply-side alternatives across all the criteria specified for policy evaluation and can fill a significant part of the need, but is insufficient to provide the entire solution.

Supply-side alternatives that rely on non-traditional domestic natural gas sources should play an important role. These include coal gasification and the construction of the Alaska natural gas pipeline, which will bring a substantial new resource to market.

Expansion of liquefied natural gas imports poses environmental challenges and is likely to come from foreign sources that are controlled by members of the OPEC cartel or suppliers with market power.

Drilling in sensitive environmental wilderness and offshore areas ranks lowest in priority because it can, at best, be considered to address the mid-term term transition to other sources and may have potentially large environmental costs.

“The energy policy season has started early this year, with think tanks and Senators calling for action, but if they do not recognize that this a pocketbook issue and balance the needs of consumers and producers, they will never build the base of popular support needed to move ahead,” Cooper concluded.