High Gas Prices: The Edge Comes Off

High Gas Prices:

Conservation programs, plus an erosion in domestic manufacturing, will lead to a falloff in gas demand.

Although there may be surprises this upcoming heating season, current high prices and past fixed investments in conservation will contribute to a decline in expected demand for natural gas in all sectors over the next several years. For major consuming parts of the country, when the cost of gas relative to an indicator of consumer budgets increases by 50 percent, residential gas demand will decline 5 to 7.5 percent on a monthly basis. This price effect could even take some of the edge off of price when demand peaks this winter.

A newer type of conservation program also should influence expected demand. Such conservation programs were initiated in Oregon by Northwest Natural Gas in late 2002 and are likely to be initiated by other utilities throughout the United States in the future.¹ These programs allow utilities to receive a return for conservation gains. Utilities now have an incentive to make efficiency improvements to existing equipment and infrastructure and to work with customers to reduce usage. Previously, there could have been a cost to the utility from lost sales. The American Gas Association and the National Resources Defense Council endorsed such programs in July 2004.²