While natural gas is becoming the fuel of choice due to its clean-burning qualities and newfound abundance in North America thanks to shale development, the increased gas demand from multiple sources, including the industrial sector, electric power sector, transportation and liquefied natural gas and pipeline exports, is unlikely to boost the domestic price of the resource substantially, according to a new study titled "New Dynamics of the U.S. Natural Gas Market," conducted by the Bipartisan Policy Center (BPC).
After running multiple scenarios for natural gas supply and demand over the next few decades, BPC's energy project staff found that even when demand for gas is high and supplies are low, prices "never reach the levels seen in the past years when prices peaked."
In the 57-page study's modeling analysis, total U.S. dry gas production ranges from 67 to 81 Bcf/d in 2020, with increases occurring throughout the forecast period across all scenarios. The primary driver of differences in natural gas production across the scenarios is the level of shale gas production, which ranges from 25 to 38 Bcf/d in 2020. While the study found that prices are obviously higher in the Low Supply, High Demand case, the nation's ample supply of gas keeps the modeled prices in the scenario analysis from approaching the annual levels that were recorded in past years when natural gas prices peaked.
Even with all of the current project initiatives to get liquefied natural gas (LNG) export facilities up and running in North America, the study found that LNG exports are unlikely to have a large impact on domestic prices because the price of U.S. natural gas will influence LNG export levels far more than LNG exports will influence domestic prices. The scenarios studied projected LNG exports from a low of 2 Bcf/d to as much as 6.4 Bcf/d by 2030, which the research team deemed a plausible range "given the substantial barriers facing LNG projects, including the high cost of building facilities, liquefying and transporting natural gas overseas, and finding U.S. producers willing to enter into long-term low price contracts for natural gas." Overall, the study projects that the United States will become a net exporter of gas between 2017 and 2021 in all of the modeled scenarios.
Regarding the transportation sector, the study allows that natural gas use is expected to grow, but not at levels that will make any real dent in the larger supply/demand balance. In BPC's High Demand, High Supply scenario, sales of heavy-duty natural gas trucks grow to account for 14% of all new vehicle sales and natural gas vehicles (NGVs) account for 9% of total heavy-duty vehicle miles traveled in 2030. Despite these substantial gains, the study points out that transportation-sector consumption of natural gas (at roughly 1.5 Bcf/d in 2030) remains "relatively small" as a fraction of overall U.S. consumption, accounting for only about 2% of total domestic demand.
Natural gas demand in the power-generation sector is certainly expected to grow through 2030, but the study found that renewables will "also play a significant role." The BPC study shows demand for gas from the electric power sector ranged from 20 Bcf/d to nearly 26 Bcf/d in 2020, with gas-fired generation increasing to 1,171-1,727 billion KWh -- or 25-33% of total U.S. electricity production -- by 2030. However, projected generation from hydroelectric and other renewables in 2030 ranges from 683 to 812 billion KWh -- equal to 14-16% of total generation. The significant contributions from renewables will likely keep gas demand for power generation from booming to the point of requiring significant price hikes.
"The scenario analysis revealed that within the suite of natural gas supply and demand assumptions considered, there are ample domestic supplies of natural gas to meet future demand without significant price increases," BPC said. "Similarly, the analysis shows that the United States is uniquely positioned to take advantage of the economic, environmental, and energy security benefits of the country's large natural gas resource base. Natural gas resources have the potential to create new market opportunities for expanded natural gas use in ways that will grow the economy and improve the environmental performance of the U.S. energy system, if the environmental challenges associated with natural gas development using horizontal drilling and hydraulic fracturing are addressed by industry in collaboration with state and federal regulators."
BPC, which was founded in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell, is a nonprofit organization "that drives principled solutions through rigorous analysis, reasoned negotiation, and respectful dialogue."