TROUBLE AHEAD, TROUBLE AHEAD, TROUBLE BEHINDTROUBLE BEHIND
SOME THOUGHTS ON THE ENERGY OULOOKSOME THOUGHTS ON THE ENERGY OULOOKAND THE LOW-INCOME CONSUMER AND THE LOW-INCOME CONSUMER
INTERESTINTEREST
NCAF LEVERAGING CONFERENCENCAF LEVERAGING CONFERENCE
ST. PETERSBURG, FLORIDAST. PETERSBURG, FLORIDA
OCTOBER 25, 2006OCTOBER 25, 2006
EIA Winter Outlook EIA Winter Outlook For 2006-2007For 2006-2007
Heating Oil Prices FlatHeating Oil Prices Flat Heating Oil at $2.46 per gallonHeating Oil at $2.46 per gallon Natural Gas Prices Down 16%, Propane Down 5%Natural Gas Prices Down 16%, Propane Down 5% Natural Gas at $12.23 per mcf, Propane at $1.85 per Natural Gas at $12.23 per mcf, Propane at $1.85 per
gallongallon Electricity Prices up 5 %Electricity Prices up 5 % National average of 10.1 cents per kwhNational average of 10.1 cents per kwh A Normal Winter Will Wash Away The Price DropA Normal Winter Will Wash Away The Price Drop Last Winter Was So Warm It Was Off The Charts!Last Winter Was So Warm It Was Off The Charts!
HISTORY OF MIDWINTER NATURAL GAS HISTORY OF MIDWINTER NATURAL GAS COMMODITY PRICECOMMODITY PRICE
Price Trend For January 07 Futures ContractPrice Trend For January 07 Futures Contract
Source: Wall Street Journal, 9/19/06
EXPECTED EXPENDITURES EXPECTED EXPENDITURES FOR 2006-2007FOR 2006-2007
Low-Income HouseholdsLow-Income Households
$806
$1,832
$1,034
$2,311
$1,289
$2,714
$520
$1,344
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
NaturalGas
Propane Fuel Oil Electricity
By Primary Heating Fuel
Heating/CoolingTotal Bill
Source: ORNL Tabulation from EIA STEO & RECS
SSHORT-TERM MARKET CONDITIONSHORT-TERM MARKET CONDITIONS
Inventories well above Inventories well above average levels for all average levels for all major fuelsmajor fuels
No repeats of No repeats of Hurricanes Katrina and Hurricanes Katrina and RitaRita
Most (but not all) Most (but not all) production losses from production losses from last year restoredlast year restored
Normal weather will Normal weather will increase demand increase demand
Consumers of fuel oil and Consumers of fuel oil and propane now compete propane now compete with European demandwith European demand
Natural gas demand is Natural gas demand is highly dependent on highly dependent on industrial and power industrial and power generation growthgeneration growth
SUPPLY DEMAND
RESIDENTIAL PRICE TRENDS SINCE 1997RESIDENTIAL PRICE TRENDS SINCE 1997EIA HISTORICAL DATAEIA HISTORICAL DATA
Home Heating Oil Home Heating Oil Prices have increased Prices have increased 138% since 1997138% since 1997
Natural Gas Prices Natural Gas Prices have increased 85% have increased 85% since 1997since 1997
Electricity Prices are Electricity Prices are up 26% since 1997up 26% since 1997
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Heating Oil Electricity
Natural Gas
AGGREGATE RESIDENTIAL ENERGY EXPENDITURES AGGREGATE RESIDENTIAL ENERGY EXPENDITURES BY LOW-INCOME HOUSEHOLDSBY LOW-INCOME HOUSEHOLDS
Eligible for LIHEAPEligible for LIHEAP
By Primary Heating Fuel
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
2001 2004 2005 2006 2007
Fuel OilNautral GasPropaneElectricity
SOURCE: ORNL TABULATION BASED ON EIA STEO AND RECS
Millions of Dollars
1970 1980 1990 2000 2010 20250
5
10
15
20
25
30
35History Projections
Production
NetImports
Consumption
Pipeline Liquefied Natural Gas0
1
2
3
4
5
6
2001
2025
Natural Gas Net Imports, 2001, 2025(trillion cubic feet)
Source: AEO 2003
1970 1980 1990 2000 2010 20250
5
10
15
20
25
30
35History Projections
Production
NetImports
Consumption
Pipeline Liquefied Natural Gas0
1
2
3
4
5
6
2001
2025
Natural Gas Net Imports, 2001, 2025(trillion cubic feet)
Source: AEO 2003
Natural Gas Supply, Consumption, and Imports Are Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025Projected to Expand Through 2025
(1970-2025, trillion cubic feet)(1970-2025, trillion cubic feet)
HOME HEATING OIL
NO PRICE CONTROLS
NO SIGNIFICANT PRICE REGULATION
LARGE COMPANIES AT TOP OF PRODUCTION CHAIN AND SMALL ONES AT THE BOTTOM
WELL DEVELOPED FUTURES MARKETS AND ESTABLISHED PRICE/VOLATILITY REDUCTION METHODS
JAWBONING
NATURAL GAS
DEREGULATED AT THE WELL HEAD, COMMODITIES TRADING MARKETS
FEDERAL PIPELINE REGULATION
LOCAL DISTRIBUTION COMPANY REGULATION
MAJOR CHANGES IN MARKET CONDITIONS
REGULATORY INTERVENTION OPPORTUNITIES IN PRICE VOLATILITY REDUCTION, RESOURCE ACQUISITION AND CONSUMER PROTECTION
ELECTRICITY
PARTIAL DEREGULATION OF WHOLESALE ELECTRICITY IN SOME PLACES AND COMPANY CONSOLIDATION, NEW MARKET MECHANISMS LIKE RTOs
CONTINUED REGULATION OF TRANSMISSION AT FEDERAL AND STATE LEVEL
STATE REGULATION OF LOCAL DISTRIBUTION
PUBLIC BENEFIT FUND PARADIGM, EFFICIENCY INVESTMENTS, RATE CASE PROCEEDINGS
TIGHT MARKETS MEAN MISCHIEFTIGHT MARKETS MEAN MISCHIEF
REMEMBER ENRON AND CALIFORNIA?REMEMBER ENRON AND CALIFORNIA?
AN INVITATION TO SPECULATION AND AN INVITATION TO SPECULATION AND MANIPULATIONMANIPULATION
WATCH OUT FOR THE ECONOMISTS!WATCH OUT FOR THE ECONOMISTS!
HISTORY OF MIDWINTER NATURAL GAS HISTORY OF MIDWINTER NATURAL GAS COMMODITY PRICECOMMODITY PRICE
Price Trend For January 07 Futures ContractPrice Trend For January 07 Futures Contract
Source: Wall Street Journal, 9/19/06
MARKET DANGERSMARKET DANGERSMISALLOCATIONMISALLOCATION
PROBLEMS COMMON TO ‘NETWORK’ PROBLEMS COMMON TO ‘NETWORK’ INDUSTRIESINDUSTRIES
SUPPLY IS PRICED AT THE MARGIN WHILE SUPPLY IS PRICED AT THE MARGIN WHILE CONSUMER PRICES DISCRIMINATECONSUMER PRICES DISCRIMINATE
BOOM AND BUST INVESTMENT CYCLES BOOM AND BUST INVESTMENT CYCLES CREATE INCENTIVES FOR PRODUCERS TO CREATE INCENTIVES FOR PRODUCERS TO TRY TO SHIFT RISKS TO CONSUMERSTRY TO SHIFT RISKS TO CONSUMERS
MARKET DANGERSMARKET DANGERSSPECULATIONSPECULATION
A GROWING PERCENTAGE OF TRADE A GROWING PERCENTAGE OF TRADE IN ENERGY MARKETS IS SPECULATIVEIN ENERGY MARKETS IS SPECULATIVE
THIS INCREASES PRICE VOLATILITY THIS INCREASES PRICE VOLATILITY AND PUSHES PRICES UP AND DOWN AND PUSHES PRICES UP AND DOWN MORE SHARPLYMORE SHARPLY
MUCH OF THE TRADE IS MUCH OF THE TRADE IS UNREGULATED WITH NO OVERSIGHTUNREGULATED WITH NO OVERSIGHT
MARKET DANGERSMARKET DANGERSMANIPULATIONMANIPULATION
WITH POOR REGULATION COMES LACK OF WITH POOR REGULATION COMES LACK OF INFORMATION NEEDED TO PREVENT INFORMATION NEEDED TO PREVENT PROFITEERINGPROFITEERING
PRICES CAN BE MOVED IN EITHER PRICES CAN BE MOVED IN EITHER DIRECTION!DIRECTION!
UNDER THE RIGHT CIRCUMSTANCES UNDER THE RIGHT CIRCUMSTANCES INDIVIDUAL ACTORS CAN CONTROL AND INDIVIDUAL ACTORS CAN CONTROL AND DIRECT PRICESDIRECT PRICES
WHAT CAN WE DO?WHAT CAN WE DO?
Don’t Drink The kool-AidDon’t Drink The kool-Aid Defend The Provider Of Least Resort With A Defend The Provider Of Least Resort With A
Balanced Supply/Price PortfolioBalanced Supply/Price Portfolio Pursue Supply SurplusPursue Supply Surplus Fight Monopoly Market PricingFight Monopoly Market Pricing Keep Public Benefits Together- Sustainability and Keep Public Benefits Together- Sustainability and
Affordability Hand In HandAffordability Hand In Hand Consumer Protection Regulation & Info VitalConsumer Protection Regulation & Info Vital When’s The Next Train?When’s The Next Train?