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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