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Executive Summary

"The oil and gas industry is in painful need of a wake-up call."

"Over the years, the industry’s wonderful can-do attitude, coupled with an over-cautious mindset that prices will never rise, created an industry-wide blindness to the many energy problems looming over the horizon, and the train wreck about to occur in the energy markets. Too many problems were ignored for too long. It is a sad commentary to have to make, but I fear we are now in the early days of a severe energy crisis that will take at least a decade to fix."

–Matthew Simmons, consultant to the National Petroleum Council, December 2000

Executive Summary

In response to the energy crisis of 2000-2001, Washington state policy makers rushed to approve and encourage the construction of natural gas power plants. This dash to a "solution" could have dangerous effects on the state’s long-term energy stability. By relying so heavily on one fuel source, the state risks setting itself up for another energy crisis in the near future. The outlook for natural gas is troubling, and Washington should be working to diversify its energy mix.

Demand for natural gas is skyrocketing.
• Natural gas consumption has grown by 40 percent nationwide since 1986, and is still growing: demand is expected to be 54 percent greater in 2025 than it was in 2001.

• In Washington, utilities’ use of natural gas for electricity generation increased sevenfold from 1999 to 2001. In that time, utilities and industrial users added thirteen new natural gas power plants. Overall gas use is expected to increase by another two percent annually over the next few years, as seven additional plants come on line.

• Over 90 percent of new centralized energy production currently under development will come from natural gas, nearly doubling the percentage of Washington’s electricity generated from natural gas from 13 percent to 24 percent. Only one percent of the state’s electric power comes from clean, non-hydroelectric renewable resources–wind and solar.

The U.S. has very limited supplies of natural gas. More new wells have to be drilled each successive year just to produce the same amount of gas.
• If demand growth and import levels follow current trends, the predicted domestic supply of natural gas will be consumed by 2040.

• There are 2.5 times as many wells in the U.S. today as there were in 1973, but each well is producing only a third as much gas. This means many more wells need to be drilled to meet national production goals.

• Because the more accessible reserves have already been tapped, many of these wells will be deeper in the ground, deeper underwater, and deeper into ecologically sensitive areas.

Federal energy officials are knowingly instituting an energy policy that will lead to increased dependence on foreign fuel supplies. Policymakers are well aware that under our current pattern of energy use, increasing demand and insufficient predicted growth in domestic supply of natural gas will force us to become more dependent on foreign suppliers. The U.S. Department of Energy predicts that, based on current usage patterns, the U.S. will import 13 percent of its gas by 2025. Because of limits to the growth rate of production, this is likely to be a vast underestimation of our future reliance on foreign gas supplies. The Pacific Northwest already imports 80 percent of its gas from Canada.

Washington’s increasing use of natural gas will lead to steadily rising electricity prices mixed with periodic price spikes.
• Gas price volatility has increased since the early 1980s as the indus try has become more tied to shortterm market signals. As the margin between growing demand and available supply narrows, these disruptions are sure to become more frequent and severe.

• Natural gas prices have soared to $6 per thousand cubic feet this year, twice the price of a year ago.

• Imported gas will not provide price relief. Because shipping gas overseas requires liquefying the gas at -256 degrees Fahrenheit, non-Canadian imported gas is very expensive.

Energy efficiency measures can reduce the state’s need for electricity and its vulnerability to unstable electricity prices. Many efficiency gains are inexpensive. With renewed investment in efficiency, Washington could achieve savings equal to 12 percent of current electricity use by 2010 and 24 percent by 2020.

Renewable energy can provide electricity at low, stable prices. Renewable energy technology is ready for widespread use.
• Because renewable energy does not rely on fuel, its costs are predictable and stable. Once the plants are built, producers have to pay only regular operating and management costs to keep the power flowing.

• Both wind and solar energy costs have plummeted over the last twenty years and are predicted to continue declining.

• Washington has tremendous potential to produce renewable energy in-state, creating jobs and keeping energy dollars in the state economy.