After the Natural Gas Bubble: An Economic Evaluation of the Recent U.S. National Petroleum Council Study

Abstract

This perspective paper reviews and critiques the policy analysis and modeling of future natural gas markets in the National Petroleum Council’s 2003 natural gas study (NPC Study). The NPC Study provided an important and timely review of long-term natural gas supply, demand and potential policies to increase supply or suppress demand. However, its long-term scenarios used assumptions and simplifications that led to understating likely longer-term market reactions to higher natural gas prices, which results in exaggeration of the potential benefits of the policies recommended by the NPC. In addition, the narrow scope of the NPC Study did not address many important considerations in natural gas policy, such as the costs of recommended policies, or their impacts on taxpayers, resource owners, or the environment. Overall, the study does not provide the evidence needed to justify major natural gas policies, especially in view of the current uncertain market environment.