The Sensitivity of U.S. Gas Supply Outlook to Changes in Price or Demand

Abstract

Abstract Strategic planning of Gas Research Institute's R and D program requires an appreciation of the outlook for program requires an appreciation of the outlook for U.S. energy supply and demand and an estimate of the role that natural gas will play within that outlook. The development of a consistent framework that establishes a likely projection of future energy supply and demand is critical to this planning process. This framework is called the GRI planning process. This framework is called the GRI Baseline Projection. Overall, the 1988 GRI Baseline Projection indicates that U.S. gas production can be held stable over the next 25 years as a result of incremental production of gas in the lower-48 using new technologies and production practices and the introduction of Alaskan production practices and the introduction of Alaskan gas into lower-48 markets. In the 1988 GRI Baseline Projection, detailed sensitivity analyses were made Projection, detailed sensitivity analyses were made of the effects on this gas supply outlook arising from significant changes in the outlook for oil prices or the demand for gas, such as might be prices or the demand for gas, such as might be expected should environmental policy decisions encourage gas consumption. These sensitivity analyses lead to some interesting observations. The linkage between oil and gas prices may not be as strong as past experience has prices may not be as strong as past experience has indicated. That is, while gas prices will follow oil prices down, they will not necessarily follow oil prices up. Return to gas demand levels comparable to the peak level of the early 1970s will require a substantial increase in gas imports. New gas supplies must be viewed from three perspectives: cost, location relative to gas demand, and the incremental unit size at which the new sources are introduced into the U.S. gas supply slate. Introduction Strategic planning of GRI's R and D program requires a consistent framework that establishes a likely projection of the outlook for U.S. energy supply and projection of the outlook for U.S. energy supply and demand and the role that natural gas will play within that outlook. The Gas Research Institute (GRI) Baseline Projection is the framework that forms the scenario and data base for this planning process. The Baseline Projection is a key element process. The Baseline Projection is a key element in planning the SRI R and D program. It provides the framework whereby GRI assesses the benefits and the market potential that would accrue from the successful development of each individual research project being evaluated for funding. project being evaluated for funding. The GRI Baseline Projection seeks to portray a supply/demand equilibrium for the United States in which the gas supply outlook is consistent with the competitive situation in end-use markets. The outlook developed in the baseline projection is consistent with the macro trends observed in energy markets and the economy. However, some uncertainty surrounds these macro trends, and new public policy initiatives could significantly affect these trends in the future. In the 1988 GRI Baseline Projection, GRI has assessed the effects of changes in some of the macro trends or new public policies on the outlook for gas supply and demand and their implications for GRI's R and D program. This paper describes the U.S. gas supply and price outlook developed for the 1988 GRI Baseline Projection and the sensitivity of that supply Projection and the sensitivity of that supply outlook to possible changes in the outlook for oil prices or gas demand. Specifically, the paper - prices or gas demand. Specifically, the paper - * Presents an overview of the U.S. gas supply outlook. * Presents the sensitivity of U.S. gas supply to changes in price or demand expectations. P. 101