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Title: Comparison of AEO 2008 Natural Gas Price Forecast to NYMEX Futures Prices

Abstract

On December 12, 2007, the reference-case projections from Annual Energy Outlook 2008 (AEO 2008) were posted on the Energy Information Administration's (EIA) web site. We at LBNL have, in the past, compared the EIA's reference-case long-term natural gas price forecasts from the AEO series to contemporaneous natural gas prices that can be locked in through the forward market, with the goal of better understanding fuel price risk and the role that renewables can play in mitigating such risk. As such, we were curious to see how the latest AEO reference-case gas price forecast compares to the NYMEX natural gas futures strip. This brief memo presents our findings. Note that this memo pertains only to natural gas fuel price risk (i.e., the risk that natural gas prices might differ over the life of a gas-fired generation asset from what was expected when the decision to build the gas-fired unit was made). We do not take into consideration any of the other distinct attributes of gas-fired and renewable generation, such as dispatchability (or lack thereof) or environmental externalities. A comprehensive comparison of different resource types--which is well beyond the scope of this memo--would need to account for differences in all such attributes,more » including fuel price risk. Furthermore, our analysis focuses solely on natural-gas-fired generation (as opposed to coal-fired generation, for example), for several reasons: (1) price volatility has been more of a concern for natural gas than for other fuels used to generate power; (2) for environmental and other reasons, natural gas has, in recent years, been the fuel of choice among power plant developers (though its appeal has diminished somewhat as prices have increased); and (3) natural gas-fired generators often set the market clearing price in competitive wholesale power markets throughout the United States. That said, a more-complete analysis of how renewables mitigate fuel price risk would also need to consider coal and other fuel prices. Finally, we caution readers about drawing inferences or conclusions based solely on this memo in isolation: to place the information contained herein within its proper context, we strongly encourage readers interested in this issue to read through our previous, more-detailed studies, available at http://eetd.lbl.gov/ea/EMS/reports/53587.pdf or http://eetd.lbl.gov/ea/ems/reports/54751.pdf.« less

Authors:
; ;
Publication Date:
Research Org.:
Lawrence Berkeley National Lab. (LBNL), Berkeley, CA (United States)
Sponsoring Org.:
Environmental Energy Technologies Division
OSTI Identifier:
934726
Report Number(s):
LBNL-458E
TRN: US200814%%517
DOE Contract Number:  
DE-AC02-05CH11231
Resource Type:
Technical Report
Country of Publication:
United States
Language:
English
Subject:
29; 03; COAL; EXTERNAL COST; MARKET; NATURAL GAS; POWER PLANTS; PRICES; VOLATILITY

Citation Formats

Bolinger, Mark A, Bolinger, Mark, and Wiser, Ryan. Comparison of AEO 2008 Natural Gas Price Forecast to NYMEX Futures Prices. United States: N. p., 2008. Web. doi:10.2172/934726.
Bolinger, Mark A, Bolinger, Mark, & Wiser, Ryan. Comparison of AEO 2008 Natural Gas Price Forecast to NYMEX Futures Prices. United States. https://doi.org/10.2172/934726
Bolinger, Mark A, Bolinger, Mark, and Wiser, Ryan. 2008. "Comparison of AEO 2008 Natural Gas Price Forecast to NYMEX Futures Prices". United States. https://doi.org/10.2172/934726. https://www.osti.gov/servlets/purl/934726.
@article{osti_934726,
title = {Comparison of AEO 2008 Natural Gas Price Forecast to NYMEX Futures Prices},
author = {Bolinger, Mark A and Bolinger, Mark and Wiser, Ryan},
abstractNote = {On December 12, 2007, the reference-case projections from Annual Energy Outlook 2008 (AEO 2008) were posted on the Energy Information Administration's (EIA) web site. We at LBNL have, in the past, compared the EIA's reference-case long-term natural gas price forecasts from the AEO series to contemporaneous natural gas prices that can be locked in through the forward market, with the goal of better understanding fuel price risk and the role that renewables can play in mitigating such risk. As such, we were curious to see how the latest AEO reference-case gas price forecast compares to the NYMEX natural gas futures strip. This brief memo presents our findings. Note that this memo pertains only to natural gas fuel price risk (i.e., the risk that natural gas prices might differ over the life of a gas-fired generation asset from what was expected when the decision to build the gas-fired unit was made). We do not take into consideration any of the other distinct attributes of gas-fired and renewable generation, such as dispatchability (or lack thereof) or environmental externalities. A comprehensive comparison of different resource types--which is well beyond the scope of this memo--would need to account for differences in all such attributes, including fuel price risk. Furthermore, our analysis focuses solely on natural-gas-fired generation (as opposed to coal-fired generation, for example), for several reasons: (1) price volatility has been more of a concern for natural gas than for other fuels used to generate power; (2) for environmental and other reasons, natural gas has, in recent years, been the fuel of choice among power plant developers (though its appeal has diminished somewhat as prices have increased); and (3) natural gas-fired generators often set the market clearing price in competitive wholesale power markets throughout the United States. That said, a more-complete analysis of how renewables mitigate fuel price risk would also need to consider coal and other fuel prices. Finally, we caution readers about drawing inferences or conclusions based solely on this memo in isolation: to place the information contained herein within its proper context, we strongly encourage readers interested in this issue to read through our previous, more-detailed studies, available at http://eetd.lbl.gov/ea/EMS/reports/53587.pdf or http://eetd.lbl.gov/ea/ems/reports/54751.pdf.},
doi = {10.2172/934726},
url = {https://www.osti.gov/biblio/934726}, journal = {},
number = ,
volume = ,
place = {United States},
year = {Mon Jan 07 00:00:00 EST 2008},
month = {Mon Jan 07 00:00:00 EST 2008}
}