ICF Consulting Forecasts that U.S. Natural Gas and Coal Prices Will Fall, but SO(2) Allowance Prices Will Rise
U.S. Emission and Fuel Markets Outlook Provides Fundamentals View to Guide Energy Producers and Users through Volatile Markets
FAIRFAX, Va.,
Sept. 19 /PRNewswire/ --
Coal and natural gas spot prices
will fall from their recent record levels over the next several years. While
sulfur dioxide (SO(2)) allowance prices are more likely to decline in the near
term -- they will eventually escalate to more than double their current price
-- according to a new study released by ICF Consulting. ICF Consulting's U.S.
Emission and Fuel Markets Outlook 2005 provides a comprehensive, integrated
view to enable energy market participants to capitalize on opportunities and
help mitigate risks. ICF Consulting, one of the nation's leading energy and
environmental analysis firms, has been accurately forecasting allowance market
trends since the 1980s.
The recent unprecedented price increases for natural gas, oil, and coal
have brought into question long held core energy market views. In this
rudderless market, prices for many energy commodities have risen above values
supported by market fundamentals.
In coal markets, the elevated price of natural gas and oil, low coal
stockpiles at utilities, and production and transportation problems have
created a volatile market situation in which coal prices have risen well above
production costs. "Our analysis indicates that as new coal mines come on-line
and supply increases,
coal prices will fall ," says John Blaney, a Senior Vice
President at ICF Consulting. In natural gas markets, electric power will be
the key demand driver. In the long-term, prices above $6/MMBtu would price
natural gas out of the new generation market in many regions.
On the supply side, domestic gas supply will remain tight, as more
production comes from unconventional sources (coal bed methane, deep water),
which are remote and cost more to produce than conventional resources. "The
key incremental supply will be liquefied natural gas (LNG), linking the U.S.
gas market to world gas markets. Over time, LNG prices will be set by oil
prices," says Leonard Crook, a Vice President at ICF Consulting.
ICF Consulting's analysis indicates that 2005 SO(2) allowance prices are
currently overvalued by approximately 40 percent. "Allowance prices will
likely decline in the near- to mid-term," says Chris MacCracken, an ICF
Consulting Project Manager. While near-term SO(2) allowance prices are too
high, forward prices are too low. "Given that the Clean Air Interstate Rule
(CAIR) will cut the total limit on SO(2) emissions by 50 percent in 2010 and
by 70 percent in 2015 in the CAIR-affected states, the SO(2) allowance price
decline in the current forward curve is unlikely to occur," says Mr.
MacCracken.
"Our study illustrates that the rapid depletion of the SO(2) allowance
bank since the beginning of Phase II in 2000 will be reversed," says Mr.
MacCracken.
For more information, visit
http://www.icfconsulting.com/emissions.
ICF Consulting (
http://www.icfconsulting.com) is a leading management,
technology, and policy consulting firm. Drawing upon extensive industry
knowledge, distinguished professionals, and innovative analytics, the firm
develops solutions to complex defense, homeland security, energy, environment,
social program, and transportation issues. ICF Consulting's approach to these
issues is strengthened by its expertise in information technology,
organizational improvement, program management, and communications. Since
1969, ICF Consulting has been serving major corporations, government at all
levels, and multinational institutions. More than 1,200 employees serve these
clients from key business centers in the Americas, Asia, and Europe.
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