United States
                    Environmental Protection
                    Agency 	   	
Air and Energy
Engineering Research Laboratory
Research Triangle Park NC 27711
                    Research and Development
 EPA/600/S8-88/104  Jan. 1989
&EPA         Project  Summary
                    Projections  of Regional  Fuel
                    Oil  and  Natural  Gas Prices
                    Tim Hogan
                      This report presents  delivered
                    regional oil  and natural  gas price
                    forecasts for the  industrial  and
                    electric utility  sectors.  Delivered
                    energy price projections by Federal
                    region through the year 2045  are
                    provided  for distillate fuel  oil,
                    residual fuel oil and natural gas.
                    Methodology and major assumptions
                    are also described.
                      Jhis Project Summary  was devel-
                    oped by  EPA's Air  and  Energy
                    Engineering Research Laboratory,
                    Research  Triangle  Park,  NC,   to
                    announce key findings  of  the
                    research  project  that  is  fully
                    documented in a separate report of
                    the same  title (see Project  Report
                    ordering information at back).

                    Scope and Objectives
                      This report presents oil and natural gas
                    price  forecasts prepared  during  the
                    summer of 1986. The focus  is  on
                    projections of delivered regional prices to
                    industrial  and electric utility  sector
                    energy users. Specifically  the  report
                    provides   delivered  energy  price
                    projections by Federal region through the
                    year  2045 for distillate fuel oil, residual
                    fuel oil, and natural gas.
                      The need to prepare these price
                    forecasts occurs in a period of unusually
                    high  uncertainty in oil and natural  gas
                    markets. Although oil  and gas markets
                    have  been notoriously  difficult to predict
                    in  the last 15  years, the  present
                    environment is unusually unstable  due
                    to:

                     The sharp drop in crude oil prices from
                      $26-27 per barrel in 1985 to $12-15
                      in early 1986.
  The  evolution  of  a more  market-
  oriented  institutional environment  in
  natural gas  markets combined  with
  sharply declining prices during 1983-
  1986.

  This report  addresses these un-
 certainties by  generating alternative
 scenarios to reflect the potential impact
 of these issues on the range of future  oil
 and gas prices. With respect to oil prices,
 the scenarios reflect:

  High, middle  and  low  scenarios for
  world crude oil prices.
  That no attempt was made to prepare a
  "best guess"  scenario  due to current
  uncertainty.
  That an attempt was made to generate
  "plausible" (but not extreme) scenarios
  with the high and low oil price forecasts
  expected to bracket future outcomes.

 The middle oil price scenario is not  an
 EPA,  National  Acid  Precipitation
 Assessment Program  (NAPAP),  or
 contractor best guess;  it  is  only a
 projection which is halfway between the
 low and high oil price forecasts.
  With respect to  delivered natural gas
 prices, the  scenarios reflect estimates of
 the price for gas sold in the new transport
 (or  carriage)  market.  It should  be
 emphasized that  not  all natural gas
 customers  will  have  ready  access  to
 carriage market gas.

 Projected Crude Oil Prices
  Table 1  summarizes  the  projected
 crude  oil prices. Since these high and
 low scenarios are intended to  provide
 plausible bounding cases for future  oil
 price trends, the themes or  underlying

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characteristics of the  two  scenarios
should be highlighted. The low  oil  price
scenario could be characterized by:

 Continued  high  Organization  of
  Petroleum Exporting Countries (OPEC)
  crude  oil production caused  from
  revenue needs  and lack of agreement
  among key countries.
 Moderate economic  growth  rate
  reflecting poorer performance  than
  historical experience.
 Minimal response of  oil  demand and
  supply elements  to  lower crude  oil
  prices.
  In contrast, the high oil price scenario
could be characterized by:

 A stronger economic growth rate.
 A greater  response  of  supply  and
  demand  for  oil to lower  crude  oil
  prices.
 A return  to historic  OPEC behavior
  patterns.

  The  development of projections of
crude  oil prices  considered  a  wide
variety of factors.  For  this  study the
emphasis  was  placed on  the following
issues:
Assumptions  regarding  economic
growth.
Impact of world  crude oil price on  oi
and  gas  production  outside OPEC
especially  U.S., the  North Sea  am
Canada.
Degree  of fuel switching  in  U.S
industrial and electric utility sectors.
Degree of energy demand response t(
lower fuel prices.
Potential  utilization of gas and coal ii
less developed countries.
Efficiency gains in  the transportatioi
sector.
Outlook for nuclear power.
                      Table 1. Crude Oil Price Projections3 (1985 $/bblb)
Year
1985 (actual)
1988
1990
1995
2000
2010
2020
2030
2040
Low
26.76
13.34
14.47
20.08
24.61
33.37
40.68
49.59
60.45
Middle0
26.76
17.25
19.17
23.55
27.61
38.73
49.29
62.89
80.42
High
26.76
21.16
23.87
27.02
30.61
44.08
59.24
79.61
106.99
                      aAverage U.S. refiner acquisition cost of crude oil. Energy and Environmental Analysis. Inc.
                       Summer 1986.
                      b 1 bbl = 159L
                      c Halfway between the low and high oil price scenarios; not an EPA, NAPAP,  or contractor
                       best guess.

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Tim Hogan is with Energy and Environmental Analysis, Inc., Arlington, VA 22209.
Larry G. Jones ;s the EPA Project Officer (see below).
The complete report, entitled, "Projections of Regional Fuel Oil and Natural Gas
  Prices," (Order No. PB 89-127 4761 AS; Cost: $15.95, subject to change) will
  be  available only from:
    National Technical Information Service
    5285 Port Royal Road
    Springfield, VA22161
    Telephone:  703-487-4650
The EPA Project Officer can be contacted at:
    Air and Energy Engineering Research Laboratory
    U.S. Environmental Protection Agency
    Research Triangle Park, NC 27711
United States
Environmental Protection
Agency
Center for Environmental Research
Information
Cincinnati OH 45268
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