The Price of Natural Gas in the Context of the North American Natural Gas Market Place

In today's changing world, natural gas is an important energy resource. Natural gas is the cleanest-burning fossil fuel and is exceptionally energy efficient. These qualities make natural gas an attractive energy alternative to address concerns about air pollution, acid rain and reduction of greenhouse gas emissions. In recent years a significant amount of new electrical generation capacity built in the United States has relied upon natural gas because of its efficiency, cleanliness and reliability.

Natural gas is abundant in North America. The Energy Information Administration (referred to as the EIA), estimates that there are 1,190.62 Trillion Cubic Feet of technically recoverable natural gas in the United States, with additional resources available in Canada. However, estimates such as EIA's include natural gas resources that will present increasing technological challenges to drill and to produce. These resources will come from areas that are more remote, like Alaska, deeper and more expensive to reach (like many of the new gas "plays" in areas like the Rockies or the Gulf and Southeastern U.S.), or more difficult to extract because of the characteristics of the geological formations where natural gas is found. However, with demand increasing for this clean and efficient fuel, wise policy choices will need to be made that include:

• increased conservation and fuel efficiency in both home and industrial uses,
• increased access to natural gas resources that are currently off limits,
• improvements in production technology,
• expansion of pipeline infrastructure to deliver natural gas to consumers and markets (including pipelines to bring natural gas from Alaska and "frontier" areas, and
• imports of natural gas from Canada and in the form of liquefied natural gas (LNG) from overseas.

In its landmark 2003 study "Balancing Natural Gas Policy", the National Petroleum Council estimated that increased access to U.S. natural gas resources (not including lands set aside for wilderness areas or national parks) could save $300 billion in natural gas costs over the next 15-20 years.

Natural gas prices have risen sharply in recent years because of the interaction of a number of factors:

• Continued growth in demand.
• Competing government policies that have encouraged use of natural gas but that discouraged new supplies by limiting access and development of domestic natural gas resources.
• The lack of infrastructure necessary to bring more natural gas to market.
• The declining productivity of many existing producing fields.

There is no single easy solution to providing reliable and affordable energy to heat our homes and to sustain our businesses and industries. Consumers, business leaders and policy makers have asked what has led to the increase in the price for natural gas, and what may be done to address it.

We hope that accompanying booklet "Understanding Natural Gas Markets" will explain the interaction between natural gas supply and increasing demand along with some of the features of the highly competitive market for this important source of the energy we need...