A Citizen’s Guide

In presentation No. 3 before the Legislative Budget and Audit Committee on Wednesday, Econ One Reasearch, Inc. consultant Anthony Finizza asked the question, “What Natural Gas Prices Should Be Used?”

“Gas prices are the most important variable,” he said, “and also the most difficult to forecast… No one has a clean, great record,” he said.

He outlined three main “uncertainties” around the price of Alaska gas: the strength of the gas market, the influx of gas shipped as liquefied natural gas, and the competition against gas for the power generation market.

Gas supplies are tight in the United States, he said, but household and commercial use of gas isn’t expected to rise any faster than growth in income.

LNG will enter the market but will likely arrive at a lower cost and be priced at whatever the market will allow, he said.

“LNG will not be setting natural gas prices,” he said.

And demand to use gas in power plants will be diminished by high gas prices and competition from coal and new power-generating technologies.

“That should deflate anyone’s idea of having extremely high natural gas prices in the future,” he said.

Why does that matter?

The future cost of gas determines how much money the producers and the state stand to gain from the project.

At $6 per million British thermal units—the figure Econ One assumed as a baseline—the state would see $52.8 billion in revenue during the first 30 years of gas flowing down the pipeline, under the proposed contract.

That would mean an average of $1.76 billion per year for 30 years.

At $4, that revenue drops to $28.9 billion, or $960 million per year, and at $8, it climbs to $76.8 billion, or $2.56 billion per year, according to Econ One.

Natural gas closed at $6.08 per unit on Wednesday.