Californians can expect to pay higher prices for natural gas over the long haul despite an expected influx of liquefied natural gas and new gas from North America's Arctic region, the California Energy Commission concluded in a study presented July 14 at a 2005 Integrated Energy Policy Report gas assessment workshop. New LNG terminals and pipelines from the Arctic will temporarily reduce prices but will not stop the upward march of natural gas prices through 2016, commission staff said. The CEC staff modeled the outlook for gas prices according to known supply and infrastructure development information and found that residential gas prices are expected to rise by 2016 to $13.44\/MMBtu in constant dollars from $10.25\/MMBtu, the latest current California price point available from the Energy Information Administration. Prices for commercial and industrial customers and generators will follow suit, the CEC forecast said. "We've all had trouble with this issue of price," said CEC member James Boyd, looking for a glimmer of hope that policies could be developed to minimize gas prices. Underlying the projected upward march in gas prices is national growth in demand and a rising cost of producing gas in traditional well fields in the lower 48 states as energy companies seek to recover smaller pockets of gas in tight sandstone and coal bed formations. Production from the newer gas wells, consequently, declines faster than from the older wells that tapped larger reservoirs of gas. "U.S. supply growth is not going to be able to keep up with U.S. demand growth," said David Maul, CEC natural gas office manager. New supply influxes will temporarily lower the cost of gas, or at least temper its increase, the CEC said. \t The first price relief may come when Sempra's Cameron LNG terminal on the Gulf Coast opens in 2007 and reduces the local market for Permian Basin gas, which will be freed up to flow westward and reduce California prices. However, that relief will be only temporary. Much of the Permian gas is expected to be burned in Arizona power plants that are not used often now. Prices will rise again by 2008 until Sempra's Energ?a Costa Azul LNG terminal in Baja California opens, which will moderate the price increase, according to the commission. Sempra's Baja terminal will do less to reduce gas prices than the Cameron terminal because Pacific Rim LNG is typically more expensive than Atlantic Rim LNG. Because of higher production and transportation costs, the CEC found that West Coast LNG delivered commodity gas will cost from $3.23\/MMBtu to $5.15\/MMBtu. Gulf and East Coast deliveries, on the other hand, range from as low as $2.16\/MMBtu to as high as $5.20\/MMBtu. In 2010, the projected opening of the MacKenzie pipeline from northern Canada will continue to moderate prices. However, the commission expects prices to climb again as demand increases and western Canadian gas output declines. Prices will fall again temporarily in 2013, when the new Alaska Pipeline from the Beaufort Sea area is projected to open. However, prices then will zoom upward in 2015 and 2016 through the end of the CEC forecast period. The price increases assume a modest increase in demand for natural gas in California of 0.7 percent a year through 2016. Total state gas demand is expected to grow from 6.5 Bcf\/day in 2006 to a bit less than 7 Bcf\/day in 2016. Nationally, the demand for gas is supposed to increase in the U.S. at a rate of 1.7 percent a year and in Mexico at the rate of 2.9 percent a year through the 2016 forecast period. Joe Sparano, president of the Western States Petroleum Association, said that he believes that the CEC's gas demand projection may be too low. He urged the state to streamline permitting for new gas wells to increase in-state production. Unless controlled, the current price of gas alone could damage the state's economy, said Robert Howard, Pacific Gas & Electric vice-president. "We?re in a very tight supply-and-demand balance situation," said Howard, who added that he doubted that gas prices will decline temporarily in 2007 as forecast by the CEC because of both the very large demand for gas nationally and the production declines in existing domestic gas fields. To successfully control growth in demand and price increases for gas, Maul suggested that the state consider a number of steps, including:<ul><li>Increased emphasis on solar water heating and other energy-efficiency measures in both homes and businesses.<\/li> <li>Increased use of renewable energy to reduce overall gas demand.<\/li> <li>Development of biogas and other potential alternative supplies.<\/li> <li>Increasing storage capacity, including around Phoenix, Arizona, with an eye toward how it could mitigate the economic impacts of high-priced gas, as well as maintaining a reliable supply of gas.<\/li> <li>A return to dual-fuel capability at selected power plants, which could switch from gas to clean liquid fuel in the event of a gas shortfall.<\/li> <li>A revision of gas quality standards, without compromising clean-air requirements, so that the state can burn a wider variety of gas.<\/li><\/ul>The CEC's final 2005 Integrated Energy Policy Report is expected to be completed in November.