Good medicine for
gas price fever
Mark Spurr, IDEA Legislative Director
Sweden and other European countries,
biomass already has become an important
energy source for district energy systems.
Increasing interest in biomass is driven
by advances in technology, environmental
benefits, energy supply and price stability,
and the potential for significant spin-off
employment in fuel procurement and processing. Using certain types of biomass for
energy also can eliminate a disposal problem and create income. Residues from wood
processors can be diverted from landfills or
incineration. Municipal solid waste can be
diverted from landfills, and landfill gas can
be tapped for energy. Manure from livestock
operations can become an energy source
instead of a disposal problem.
After more than 20 years of relative
stability, natural gas prices have
risen spectacularly during the past
five years. As illustrated in figure 1, wellhead
gas prices have been highly volatile, with a
strong overall upward trend that is a dramatic departure from long-term history. Even
disregarding the recent impacts of Hurricane
Katrina on natural gas prices, the price trend
is strongly up.
The U.S. Energy Information Administration (EIA) continues to sing a happy song
about future gas prices, projecting wellhead
prices at $5 or less through 2020 (“Annual
Energy Outlook 2006,” early release version.)
This forecast is consistent with EIA’s annual
pattern of misforecasting, in which it
acknowledges the unanticipated increases
which occurred in the previous year and
then forecasts that prices will drop from
current levels and stabilize. The next year’s
forecast starts higher, bowing to reality,
but then once again assumes a comfortable drop.
I believe that EIA will prove to be wrong
again, and that natural gas prices will continue their volatile path strongly upward.
EIA is counting on new gas from Alaska and
from liquefied natural gas (LNG), despite
substantial political and economic hurdles.
The political hurdles occur at all levels:
international, national, state and local. If
those hurdles are overcome, the economic
costs of accessing these new sources will
be high and will push prices up. If those
new supplies are not realized, the supply/
demand imbalance will drive prices higher.
What to do? There are a variety of
policy responses that make sense, including
effective energy-efficiency and renewable
energy policies and programs. Biomass is a
particularly promising renewable energy
source, both in the overall energy policy
context and particularly for district energy
‘Biomass’ is any organic material and
can include forest industry mill residues,
forest harvesting residues, agricultural
residues, energy crops, the organic portion
of municipal solid waste or other materials.
Communities, universities and other
energy users in North America have been
investigating and implementing biomass as
a local source of sustainable energy. In
Biomass is greenhouse gas (GHG)
neutral. Biomass emits the GHG carbon
dioxide (and sometimes methane, a very
powerful GHG) when it decays or is combusted. During its growth, however, living
biomass absorbs carbon dioxide (CO2) from
the atmosphere by photosynthesis, so the
net GHG effect of the biomass is neutral.
The big benefit is that by using biomass,
GHG and air pollution emissions from fossil
fuel are eliminated.
Although the U.S. is not a party to the
Kyoto Protocol, there is significant momentum for the U.S. to seriously address GHG
emissions, and emissions trading will almost
certainly be the centerpiece of a U.S. GHG
Figure 1. Historical Wellhead Gas Prices.
Source: Data from U.S. Energy Information Administration Web site www.eia.doe.gov