We have come to the energy crossroad once again. How we choose to research and dialogue on solutions to meet our energy needs will affect what we choose to believe. As James Robertson, author of American Myth, the American Reality, once wrote: "Myths are "the way things are" as people in a particular society believe them to be; and they are the models people refer to when they try to understand their world and its behavior"[1]. Make no mistake that the American energy myth has a significant influence on how we choose to comprehend the unknowable future of our energy situation.

According to a recent statement by the Metals Treating Institute (MTI), "The worst-case scenario for natural gas has played itself out." MTI confirms what a number of natural gas price predicting models have already shown. The cost of natural gas is expected to be up over 100% from the same time last year. This places tremendous economic pressure on industry and society regardless if you successfully hedged the market.

The Fix

There are a number of things the residential and commercial markets can do to minimize the effects of such a significant increase, but few are substantial enough to stop the bleeding. The "fix" is long term and means a national commitment. This is not the first time the U.S. has faced this situation. In 1973, the world faced similar energy challenges. The Japanese realized that the world of inexpensive energy was no longer a reality and made a national commitment to be the most energy-efficient economy in less than three years. This meant a severe recession in the Japanese economy while rebuilding their capital structure. However, by 1976, their energy-efficiency had improved dramatically.

The United States reacted differently. At that time, corporate leaders and politicians refused to believe that the energy crisis was more than a temporary shift. As a result, and not unlike today, it was up to individual Americans to make change. We first reacted with anger and then went about separately making our lives more energy-efficient, and by doing so demanding the attention of those who refused to believe otherwise. Arguably, both the Japanese and American approaches were effective. Yet, one could argue that an opportunity to develop a long-term sustainable energy plan was missed.

Recent Study

In a study completed by the Berkely National Laboratory, and heard earlier this year by the Senate Committee on Energy and Natural Resources, a compelling argument was made for increasing the deployment of renewable energy and energy-efficient technologies to hedge natural gas price risk. The study was structured to look at the current price of natural gas, which had risen from around $2/MMBtu in the 1990s to $5.40/MMBtu by the end of 2004. Currently, the 6-year NYMEX forward curve shows that the gas market expects prices at the Henry Hub to remain in the $5 to $8/MMBtu range for at least the next six years.

The Energy Information Administration's (EIA) latest forecast projected that wellhead prices will average more than $5/MMBtu over the next 20 years. Though both market and government forecasts of long-term prices have been notoriously inaccurate, the U.S. appears to be at a point where demand for natural gas is beginning to exceed our ability to economically extract the fuel from domestic reserves [2]. The study ran a number of energy supply and demand scenarios and found that the Net Present Value of gas savings through 2025 for all energy scenarios, realized a 7% real discount when renewable energy and energy efficiency are deployed.

The Berkeley Lab report confirms what 13 independent studies representing 20 different energy models have shown; that renewable energy and energy efficiency deployment will reduce natural gas demand, thereby putting downward pressure on gas prices [3]. Furthermore, results would be more effective near term rather than long term, and the net economic welfare would represent a shift of resources from natural gas producers to natural gas consumers [3]. Myth or reality? You decide. IH