U.S. consumption of natural gas increased by 18 percent between 1990 and 2002 and is expected to grow for at least the next two decades, in large part because of substantial additions of gasfired electric generating capacity.
In fact, recent trends indicate that future supply and demand dynamics for natural gas may be far different from the experience in the 1990s, leading many analysts to conclude that the North American natural gas market has moved to a permanently higher price level. Underlying these trends is the reality that growth in domestic natural gas production has been unable to keep pace with increased demand. Even with increased imports from Canada – which have historically helped to meet U.S. demand – natural gas prices have continued to rise rapidly.
In this context, U.S. policymakers are now considering a variety of long-term supply and demand strategies to address concerns about potentially high prices and increased price volatility in future natural gas markets. Prominent among the supply-side options under discussion are: (a) the construction of a major new pipeline to bring natural gas from developed fields in the North Slope of Alaska to the lower 48 states and (b) the expansion of available infrastructure for importing liquefied natural gas (LNG) from foreign sources. With respect to the Alaska pipeline, in particular, recent discussions have focused on the appropriateness and desirability of providing some form of federal tax incentive or subsidy to support pipeline construction.