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EIA Annual Energy Outlook Preview Hints at U.S. Energy Independence; NatGas Production Up 50% by 2040

Natural gas prices at the benchmark Henry Hub will increase to roughly $5.00/MMBtu in the mid 2020s and remain at about that level through 2040, and production will grow more than 50% by 2040, according to the reference case in an upcoming Energy Information Administration (EIA) report.

Production will rise over the years even as prices stabilize thanks to technological improvements, according to a preview of EIA's Annual Energy Outlook 2016 (AEO2016), which is due to be released July 7.

In AEO2015, EIA said it expected the United States to become a net exporter of energy by 2030, with the transition coming even sooner -- as early as 2017 -- for natural gas net imports/exports (see Daily GPI, April 14, 2015). In the AEO2016 reference case, the United States is projected to become a net exporter of natural gas before 2020, largely because of growth in liquefied natural gas exports.

"U.S. net energy imports, including petroleum and other liquids, natural gas and coal, decline and ultimately end in the reference case, a first since the 1950s," EIA said. "The net import share of total U.S. energy consumption was 11% in 2015 and 30% as recently as 2005.

"The transition from a net energy importer to a net energy exporter follows a similar pattern in the reference and no-CPP [Clean Power Plan] cases, although the total levels of U.S. energy consumption and production are somewhat higher beyond 2022 in the no-CPP case. By 2040, total U.S. energy production is greater than total U.S. energy consumption, allowing for U.S. net energy exports equal to 4% of total consumption."

The reference case, a business-as-usual trend estimate, "assumes CPP compliance through mass-based standards that establish caps on CO2 emissions from fossil-fired generators covered by the CPP," EIA said. The reference case takes into account known technology and technological and demographic trends.

Gas prices and production will be slightly lower if the CPP isn't implemented, according to EIA projections. With or without CPP implementation, EIA expects substantially more growth in electricity generation from wind and solar energy than in previous projections.

Strong growth in wind and solar generation spurred by tax credits is projected in the reference case to lead to a short-term decline in gas-fired power generation through 2021. "However, natural gas generation then grows significantly under a mass-based CPP implementation, increasing by more than 67% from 2021 through 2040, when it is by far the largest generation source," EIA said.

The reference case projects crude oil production below 9.5 million b/d through 2025 and growing to 11.3 million b/d by 2040, reflecting higher recovery rates driven by technology advances and higher prices. Petroleum use, including natural gas liquids, rises 4% while transportation use falls 10%, primarily due to improved light duty vehicle fuel efficiency. The crude oil price scenario is lower in AEO2016's reference case than in AEO2015, particularly in the near term. In the reference case, the Brent crude oil price averages $37/bbl in 2016, climbing to $77/bbl in 2020, with prices continuing to rise as growing demand encourages development of more costly resources.

The full AEO2016 will also include alternate cases, including a no-CPP case, which will assume the CPP is not implemented, alternative CPP cases, high and low world oil price cases, high and low macroeconomic growth cases, high and low oil and natural gas resources/technology cases, and others.

"EIA's approach to addressing the inherent uncertainty surrounding the country's energy future is to develop multiple cases that reflect different sets of internally consistent assumptions about key sources of uncertainty such as future world oil prices, macroeconomic growth, energy resources, technology costs, and policies," said EIA Administrator Adam Sieminski. "The energy sector has always been dynamic and undoubtedly will continue to change in the future.  In creating the AEO, EIA has tried to make its projections as objective, reliable, and useful as possible."

In addition to the Environmental Protection Agency's final rules for the CPP, the latest iteration of the AEO will incorporate updated renewable capital costs, California's latest zero-emission vehicle sales mandates, tax credits for renewables, and lower near-term crude oil prices.

Both the reference case and the no-CPP case project reductions in energy intensity will largely offset the impact of gross domestic production growth, leading to slow growth in energy use. And while natural gas use is expected to increase throughout the projection period, gas use in the electric power sector would grow more slowly in the no-CPP case.

In its International Energy Outlook 2016 (IEO), which was released last week, EIA said world energy consumption will increase by 48% over the next three decades, with natural gas remaining a dominant source of that energy, but renewables will be the fastest-growing (see Daily GPI, May 11). Global energy use is projected to increase an average 1.4% per year, from 549 quadrillion Btu in 2010 to 815 quadrillion Btu in 2040, according to the IEO.

Previous EIA AEO reports have tended to underestimate natural gas production and consequently overestimate net gas imports, according to the agency's Annual Energy Outlook Retrospective Review, which was released in March 2015 (see Daily GPIMarch 26, 2015). In addition, natural gas has been the fuel with the largest absolute percentage difference between AEO projections and historical consumption.

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