Comparison of AEO 2007 Natural Gas Price Forecast to NYMEX FuturesPrices Page: 4 of 8
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Figure 4 shows the same price series in real (2005) dollars.
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N N N 0 0 0 0Figure 4: Natural Gas Prices Delivered to Electricity Generators, 2005 $/Mcf
The wide range of price forecasts exhibited in the early years of Figures 3 and 4 suggests that
recent EIA forecasts have significantly missed their mark. Figure 5 confirms this notion, by
showing the EIA's wellhead gas price forecasts (going back to AEO 1985) plotted against
subsequent actual wellhead prices (shown in red). Though the number of lines on the graph
make it difficult to follow, it is nevertheless clear that past forecast accuracy has been wanting:
the EIA grossly over-projected the price of gas in the late 1980s, and conversely has grossly
under-projected the price of gas since the mid-1990s (we suspect that other providers of
fundamentals-based, long-term forecasts have experienced similar levels of inaccuracy). This
poor track record suggests that, when valuing generation assets, little weight should be placed on
long-term, fundamental forecasts such as those created by the EIA, and that sizable uncertainty
bounds should be used regardless of which "base-case" forecast is used.10
Historical AEO Wellhead Gas Price Forecasts vs. Actual Wellhead Price
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4 94-95 4-05
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Actual Wellhead Price
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e: EIA - - - - - - -Figure 5: Historical AEO Wellhead Gas Price Forecasts vs. Actual Wellhead Price
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Bolinger, Mark & Wiser, Ryan. Comparison of AEO 2007 Natural Gas Price Forecast to NYMEX FuturesPrices, report, December 6, 2006; Berkeley, California. (https://digital.library.unt.edu/ark:/67531/metadc894466/m1/4/: accessed March 18, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.