[This document replaced by final version 2008-14]
The Council is seeking comments on its preliminary draft forecast of fuel prices for the Sixth Power Plan. The forecast includes a range of future prices for natural gas, oil, and coal. The forecasts are substantially higher than those used in the Council’s Fifth Power Plan due to significant changes in the world economy and energy markets since 2002.
Complicating the forecast is the fact that fuel prices have been volatile over the last decade as the result of factors including rapid world economic growth, declining value of the dollar, slow response of conventional energy supplies to higher energy prices, continuing unrest in the Middle East, uncertainty over climate-change policy, and the dynamics of commodity markets. Natural gas prices have the greatest effect on the power plan. In the United States, the conventional supply of natural gas will be difficult to expand. New supplies increasingly will come from unconventional sources such as shale deposits and imports of liquefied natural gas.
Different assumptions about world demand growth, new fuel sources and their costs, carbon regulations, the response of demand to higher prices, and the success of renewable sources of energy in replacing conventional supplies result in varying long-term fuel price trends.
However, in most cases the forecasts assume a reduction in the near term from recent high prices followed by increasing prices later in the 20-year forecast. The basic assumption is that prices will increase over long periods of time, but will do so in a cyclical fashion. Each high point or low point in the price cycles will tend to increase over time. This is consistent with depletable natural resources as increasingly expensive sources are developed to meet growing demand.
Thanks for your interest and comments on this issue.
Sincerely,
Steve Crow, Executive Director
