Energy Efficiency: Critical First Responder to Rising Natural Gas Prices

April 28, 2005

Media Contact(s):

Wendy Koch, 202-507-4753, Senior Director, Marketing & Communications

WASHINGTON, D.C. — Energy efficiency provides a critical first response to rising natural gas prices according to a report released today by the American Council for an Energy-Efficient Economy (ACEEE). Impacts of Energy Efficiency and Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis analyzes the impacts of expanded energy efficiency and renewable energy investments on natural gas prices and updates ACEEE's seminal December 2003 analysis that demonstrated the price effect from reducing natural gas demand (http://aceee.org/energy/efnatgas-study.htm).

"Energy efficiency is more important than ever if we are to rebalance gas markets in the near term," said Dr. Neal Elliott, ACEEE Industrial Program Director. "Natural gas markets have gotten significantly tighter in the past two years. While the current focus has been on oil prices, which are still not at record high levels in real terms, natural gas prices continue at record real levels, over $1.50 per million Btu higher than they were just a year ago. Unless we take serious action on gas demand, natural gas prices are likely to remain high and volatile for the next few years because new supply resources are years away at best."

The study finds that expanded energy efficiency and renewable energy could reduce wholesale natural gas prices by 37% in the next 12 months, based on total consumption reductions of about 1%. By 2010, wholesale gas prices would be 20% lower, based on gas savings of over 4%. Energy efficiency alone could reduce prices by 25% in the next 12 months, based on savings of about 0.6%; in 2010, wholesale prices would be10% lower, based on energy savings of about 1.3%.

"These dramatic price effects result from very tight markets," said Anna Shipley, ACEEE Research Associate and principal modeler of the analysis. "Because we are in a supply- constrained market, small changes in demand can result in large changes in price." According to the analysis, the reduced consumption and price effects could result in over $33 billion in savings to natural gas consumers in 2010, with a total investment of about $11 billion.

"The energy efficiency measures proposed in the study are cost effective in their own right, so the price-reduction effects are all a windfall to the consumer," said Elliott. "In addition, savings from regional efforts could by themselves result in national price reductions, because of the integrated nature of the North American natural gas market." The report analyzes the effects of energy efficiency investments in eight Midwestern states and finds that they would reduce demand nationally by only 0.03% in 2010, but would reduce wholesale prices by over 6% nationally, demonstrating that even modest savings in key gas-consuming regions could have a significant impact.

"Congress and states need to take bold action on energy efficiency, not move backward as the U.S. House did last week," said Bill Prindle, ACEEE Deputy Director. Our report outlines a portfolio of eight key state and federal policies that could achieve the gas savings. "While energy is finally getting attention from Congress and the President, the proposed policies focus on longer-term supply strategies while largely ignoring the importance of demand-reducing measures. The longer improving energy efficiency is delayed, the higher the cost and the greater the economic damage high energy prices will have."

For other key natural gas research results and references, model programs, and a more expanded discussion of the policy options, visit ACEEE's natural gas page on the Web at http://aceee.org/energy/natlgas.htm.