ACEEE'S GRAPEVINE ONLINE

May 16, 2005

NATURAL GAS: ACEEE KEEPS ITS EYE ON THE "OTHER" ENERGY CRISIS

With prices falling at the gas pump, you'd think our energy problems were over. But ACEEE keeps its eye on the ball in a new report on the continuing problems we face in natural gas markets. Gasoline prices, while the highest in years this spring, were still short of late-70s record levels in real dollars. But natural gas prices have broken into record territory and are staying high. Gas futures prices are above more than triple historic levels, and are expected to stay at least that high for at least the next four years.

We are tracking this trend by updating our 2003 analysis of the effects efficiency investments can have in bringing down these high market prices. Two years ago, we showed that a strong policy commitment to efficiency could bring down wholesale gas prices about 20% over five years. The new report, Impacts of Energy Efficiency and Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis, shows the potential to drop prices up to 37% within 12 months through an aggressive focus on energy efficiency and renewable energy. This report and more on natural gas markets and the role of energy efficiency is available at http://aceee.org/energy/efnatgas-study.htm.

These efficiency investments would produce over $33 billion in savings to natural gas consumers in 2010, with a total investment of about $11 billion. These benefits stem from both direct savings to customers who invest in efficiency, and from gas price reductions to all customers.

Given that the federal government has been slow to act on energy policy, we also assess the effect of state and regional action. Because we are in a North American market, any reductions in demand will result in national price reductions. In one scenario involving eight Midwestern states, demand would be reduced by only 0.03% in 2010, but this would be enough to reduce wholesale prices by over 6% nationally.

Realizing these benefits requires policy action, because market barriers continue to limit many consumers' ability to make the necessary investments. Congress, the Administration, and the states need to take bold action on energy efficiency. The report outlines a portfolio of eight key state and federal policies that could deliver the price reductions we need to help the economy rebound. Most of what we see in the current energy bills in Congress focuses too much on long-term supplies, overlooking what can be achieved on the demand side in the near term. The energy efficiency recommendations in our report can begin reducing consumer energy bills this year. What are we waiting for?

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