Natural gas-based combined–cycle technology (NGCC) is favoured at present for the generation of electricity in North America and in many other countries around the world mainly because of its low unit investment cost, high efficiency of fuel conversion, low environmental impact, and the more convenient increments in production possible when installing new or expanding existing facilities. Nevertheless, it is possible to define an equivalent price of natural gas above which other technologies, for example nuclear and wind generation or some mix of the two, would be less costly. In the absence of more detailed information, this equivalent price is assumed here to be $US 6.00 per million Btu in terms of trading on the New York market for gas.
The equivalent price is then examined in the context of two current developments in the natural gas market in North America. First, the market is integrating among the three major nations of the Continent under the influence of the North American Free Trade Agreement (NAFTA). This means that one trading price may approximate the state of the market throughout the Continent through arbitrage. Second, excluding the more expensive Arctic gas, the North American production of conventional natural gas will likely peak by 2010, if not earlier. Once the peak is past, given an integrated market, the price should be set by that of the next least costly alternative assumed here to be liquefied natural gas (LNG) delivered from gas surplus countries by cryogenic tanker. The competitive market–clearing price for LNG should then set the minimum price for all gas offered to the market which, in the equilibrium case (all demands met from competitive sources), is assumed to be $US 4.00 per million Btu. This supply price is assumed to increase at a real one percent per year over time under the influence of slow but steady depletion around the world. A non-equilibrium case is also selected where the price of gas increases at a real three per cent a year as might be the case when the delivered supply of LNG cannot fill all markets at equilibrium prices.
Two illustrative predominance diagrams were prepared which show the relationships between a steady real equivalence price and one set to decrease at one per cent real per year to reflect possible advances in nuclear and wind technologies relative to the NGCC process. In essence, the plots compare the importance of achieving lower equivalent prices on the one hand to increasing gas prices on the other plotted in terms of world cumulative natural gas production to permit ready co-relation with resource potential studies.