Natural Gas Public Policy Choices for
|•||Natural gas consumption will increase by between 18 and 50 percent by 2010, mostly due to new in-state electricity generation.|
|•||The adequacy of the U.S. natural gas resource base does not appear to be an issue in the near to mid term. Sufficient resources exist to meet California's natural gas demand growth assuming adequate investments are made in exploration and production.|
|•||Existing interstate pipeline and storage capacity is constrained, and additional investment will be required if future demand requirements are to be met. Interstate pipeline capacity may become more critical because California will increasingly rely on natural gas imports.|
|•||Existing intrastate receipt capacity may not be adequate to meet the projected growth in demand. It is the bottleneck in the natural gas infrastructure.|
|•||The growing share of gas consumed for electricity generation may make it more difficult to manage the storage system because of summer withdrawals needed to meet electricity generation requirements.|
These points imply that California's natural gas customers may face the risk of supply shortfalls and price volatility similar to those experienced in 2000 and 2001, owing to increasing reliance on natural gas for power. In addition, increasing and fluctuating natural gas prices are passed through to electric rates. This section describes options for California to mitigate the risks associated with increased reliance on natural gas to meet its energy needs. Other than inaction, California's policy choices to address the implications of increased reliance on natural gas fall into two broad categories: supply-side infrastructure expansion and demand reduction or management. In practice, however, both options will probably need to be adopted in varying degrees to ensure adequate energy supplies and to avoid price and supply volatility.