California Energy Commission

Natural Gas Price Forecast Retrospective

IEPR Commissioner Workshop on

Preliminary Natural Gas OutlookCalifornia Energy Commission

1516 Ninth Street

First floor, Art Rosenfeld Hearing Room

Sacramento, CA 95814

Thursday, May 21, 2015

Anthony Dixon

Supply Analysis Office

Energy Assessments Division

anthony.dixon@energy.ca.gov / (916)654-4882

California Energy Commission

“Prediction is very difficult, especially if it’s about the future.”–Nils Bohr, Nobel laureate in Physics

Using Error Bands

• The forecasting of natural gas prices depends on many factors

• The error bands allow for comparison of IEPR common cases to historical estimates

• Help ensure that IEPR common case are reasonable assumptions

California Energy Commission

• 1998 Natural Gas Market Outlook• 1997 Fuels Report• 1999 Fuels Report• 2003 IEPR Natural Gas Price Forecast• 2005 IEPR Natural Gas Price Forecast• 2007 IEPR Natural Gas Price Forecast• 2011 IEPR Natural Gas Price Forecast• 2012 IEPR Natural Gas Price Forecast• 2013 IEPR Natural Gas Price Forecast

Past Energy Commission Forecasts Used

California Energy Commission

Mean Absolute Percent Error MAPE

Statistical method for determining the goodness of fit of past predictions to actual prices.

California Energy Commission

MAPE ResultsAbsolute Percent Error 1 2 3 4 5 6 7 8 9 10

Years Forecasted YR 1 YR 2 YR 3 YR 4 YR 5 YR 6 YR 7 YR 8 YR 9 YR 10

1998 Natural Gas Market Outlook47% 68% 70% 60% 75% 78% 83% 81% 78% 83%

1997 Fuels Report 47% 68% 70% 60% 75% 78% 83% 81% 78% 83%1999 Fuels Report 50% 70% 72% 62% 77% 79% 84% 82% 79% 84%

2003 IEPR NG Price Forecast 78% 80% 85% 83% 80% 85% 65% 69% 63% 44%

2005 IEPR NG Price Forecast 33% 43% 9% 51% 40% 30% 62% 143% 76% 

2007 IEPR NG Price Forecast 19% 36% 44% 32% 67% 164% 90%     

2011 IEPR NG Price Forecast 2% 115% 69%             

2012 IEPR NG Price Forecast 1% 118% 72%             

2013 IEPR NG Price Forecast6%  3%               

                     Mean Absolute Percentage Error (MAPE) 31% 67% 61% 58% 69% 86% 78% 91% 75% 73%

California Energy Commission

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Error Bands with the Three Preliminary 2015 IEPR Common Cases

Upper Error Bound

High Case

Mid Case

Low Case

Lower Error Bound

20

10

$/

MM

Btu

California Energy Commission

EIA STEO

California Energy Commission

EIA and CEC

7/1/2015 1/1/2016 7/1/20160.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Energy Commission and EIA's Price Uncertainties

CEC Upper

EIA Upper

2015 IEPR Mid Case

EIA STEO

NYMEX Futures

EIA Lower

CEC Lower

Nom

inal

$s/

Mm

btu

California Energy Commission

Thank You