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IHS CERA | Fueling the Future with Natural Gas: Bringing It Home

Executive Summary:

It is called a revolution for a reason. In the span of less than five years, unconventional technologies for natural gas development have changed the outlook for US natural gas supply from scarcity to abundance, from high cost to moderate cost, from import dependence to self-sufficiency. Turning this revolution to best advantage requires both vision and understanding on the part of gas local distribution companies, their customers and regulators. Business models, fuel choices, regulation, and energy policy must be re-evaluated in light of the new opportunities presented by the unconventional natural gas revolution.

These opportunities are both immediate and far-reaching, as evidenced by the current natural gas surplus and the new understanding that the domestic natural gas resource base will be sufficient for domestic needs for many decades. A visionary response to these opportunities must therefore encompass both the near- and long-term perspectives. This report begins that process by evaluating the opportunities to leverage customer-based knowledge, critical infrastructure, regulatory and policy relationships, and the extraordinary natural gas resource availability to realize the benefits of natural gas for gas LDC customers and the nation as a whole:

  • Technology, efficient applications and economic opportunity have dramatically altered the outlook for domestic natural gas for decades to come. Once considered in imminent danger of depletion, the US natural gas resource base is now widely accepted to be robust and recoverable at a lower cost than could have been imagined even five years ago.
  • Extensive volumes of natural gas can be economically developed in the United States with prices of less than $4-5 per million British thermal units (MMBtu), making supply responses to demand increases highly elastic. Domestic and international oil prices are expected to remain three to four times higher than the British thermal units (Btu) equivalent price of natural gas for many years into the future. Also new high-efficiency natural gas technologies and a widening gap between retail prices of electricity and natural gas in many US regions give natural gas the competitive edge for many residential and commercial applications.
  • This reality opens many doors for efficient use of natural gas resources and infrastructure in critical areas of the US economy and quality of life, including cleaner electricity generation and direct use in businesses, homes, transportation and manufacturing.
  • Increased use of natural gas in the national energy economy will help achieve national goals of energy efficiency, environmental protection and energy security.
  • Unconventional oil and gas activity and energy-related chemical manufacturing, directly or indirectly, are expected to contribute 3.9 million jobs, $533 billion (constant 2012 $) in value added to gross domestic product (GDP), and $138 billion (constant 2012 $) in government revenues by 2025.
  • Growing natural gas use in the United States is not just about using more. The efficient use of natural gas and other forms of energy should continue to be a policy imperative. Cost-effectively increasing overall energy efficiency throughout the economy will require that energy policy, regulation, and consumer fuel choice be grounded in a full fuel-cycle analysis of energy requirements and costs. In many cases, increased use of natural gas to displace less efficient sources of energy may improve the overall energy efficiency of the economy.
  • For many decades natural gas regulation was based on assumptions of resource scarcity. These regulations need to be re-evaluated in light of new realities. An opportunity now exists to redefine business models, regulatory policies, financial outreach and technology innovation from a position of strong supply and expectations of long-term market price stability.
  • Significant regional diversity across US energy markets precludes a “one-size-fits-all” approach to energy policy, regulation, and business models. Opportunities to increase natural gas’ market share will vary by region and by state.
  • Bringing the benefits of natural gas to new markets will require investment by gas LDCs and their customers. In some cases, significant up front costs may be required in order to realize fuel cost savings over many years into the future. New policies and regulations may be required to assure that gas LDCs recover their prudent investment costs.

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