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2007 Integrated Energy Policy Report
Adopted December 5, 2007
http://www.energy.ca.gov/2007_energypolicy/index.html
Natural Gas Market Assessment - Draft Staff Report
Published December 2007
http://www.energy.ca.gov/publications/displayOneReport.php?pubNum=CEC-200-2007-009-SF
Energy Information Administration Study
Two recent studies conducted by the Energy Information Administration (EIA), a research arm of the U.S. Department of Energy, and the National Petroleum Council (NPC), illustrate America’s growing demand for natural gas and the important role LNG must play in meeting this demand.
Natural gas, which is increasingly becoming the energy source of choice for the nation’s power plants, is abundant in overseas countries, but in limited supply here in the United States. Like California, much of the United States has turned to natural gas for electricity generation because it is 50 percent cleaner than coal and reduces our emissions of global warming gases. This means that our demand for natural gas is quickly outpacing the available supplies here in the United States and creating upward pressure on prices.
According to the National Petroleum Council’s study, American families and businesses will needlessly pay $1 trillion more for energy in the years ahead, unless aggressive steps, including the building of more LNG terminals, are taken. California, which relies on natural gas for 40 percent of our electricity, would be forced to shoulder an acceptable share of these staggering costs.
To learn more about the important role that natural gas and LNG will play in the future, please see the NPC Study “Balancing Natural Gas Policy – Fueling the Demands of a Growing Economy (2003)”. The EIA studies and reports can be found here.
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High Natural Gas Prices Need Not Cook California's Economy: The Case For Liquefied Natural Gas
Philip J. Romero
Lundquist College of Business, University of Oregon
Executive Summary
California is in the paradoxical position of being more economically dependent on natural gas than virtually any other state or nation, yet it faces limitations on available imports (restricted by transmission infrastructure capacity). The gap between growing demand and constrained supply has led to escalating prices. Since natural gas is fundamental to the production process of many products, these price increases have reduced output and employment.
Increasing the amount of natural gas delivered to California would thus stimulate the economy, particularly in several basic, high value added industries (which typically pay wages well above the state average). The most cost-effective way to achieve this is to create the necessary infrastructure to import natural gas shipped from foreign countries—where it exists in abundance--by sea. As several observers have suggested, California—and the nation—needs one or more West Coast terminals to receive Liquefied Natural Gas (LNG).
California imports 85% of its natural gas through a pipeline infrastructure that is being used to near-capacity. (The U.S. currently imports about 15%.) The West Coast is the area of the Continental U.S. most distant from the main North American natural gas deposits in Canada, the Rockies, and the Texas/Louisiana basin, meaning that transportation costs are at a maximum. For these reasons, California, Oregon, and Washington would have the most to gain from natural gas shipped by sea to a West Coast port.
The world has plentiful supplies of natural gas, which can be transported across oceans readily in liquefied form (LNG). All that is missing is a terminal that can receive the LNG, convert it back into gas, and transport it through existing pipelines to end-users. There are four such terminals on the U.S.’ East Coast, but none on the West Coast. Eight proposed terminals (four in California) are undergoing regulatory review. Any of them would increase available gas supplies by between 7% and 22%, depending on capacity. Such a capacity increase would likely reduce gas prices by 10% to 20%.
The economic benefits of increased natural gas supplies were estimated using two different methods: (a) a “top down” macroeconomic method that used estimates of the economy’s elasticity to oil price changes; and (b) a “bottom up” method that estimated the increase in disposable incomes form the price reductions that would be caused by increased supplies. The two different methods produced similar results, giving added credence to these estimates.
The top-down estimate suggested that a 10% reduction in natural gas prices would increase California gross state product (GSP) by $960 million to $3.45 billion. California employment would increase by 11,500 to 41,500 per year—roughly equivalent to two weeks to two months of growth for the entire state economy. Households’ income would grow by $380 million to $1.38 billion, or roughly $43 to $160 per family of four, and state tax revenues would grow by $64 to $229 million per year.
The “bottom up” approach produced similar results: Gross state product would be increased by $2.3 to 4.6 billion. Corresponding gains in jobs would be between 27,700 and 55,300. A typical family of four would see an increase in income of between $102 and $204 per year. State revenues would grow by between $153 and $306 million.
In addition, to the degree that high natural gas prices contribute to California’s above-average electricity prices (because the state is more dependent on natural gas for electricity production than the national average), they become an issue of interstate competitiveness. Throughout the past 15 years there have been many examples of firms which have emigrated out of the state, or located expansions elsewhere, because of high electricity rates. Natural gas price reductions would reduce this incentive to migrate away, and produce additional economic benefits not included here.
In a state economy of over $1.5 trillion with over 15 million workers, the numbers provided in this report may sound small, but they amount to between two weeks and three months of economic growth, every year for as long as an LNG terminal operates. As a recent Stanford University report notes, “the cost to California of delaying action on this issue is very high.” A terminal to receive LNG is in the state’s economic interest, and overdue.
For the full report,
click here.
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