Daily GPI / NGI All News Access

EIA's Annual Outlook Sees Lower Production, Imports & Consumption Than Previous Forecast

Last summer's hurricanes, increasing interest in unconventional reserves and high natural gas prices all figure in the outlook for natural gas production and consumption in the preliminary report of the Energy Information Administration's (EIA) latest long term energy outlook released Monday.

Domestic production will increase, but not as much as had been projected last year because the summer's devastating hurricanes are expected to delay offshore drilling projects due to a lack of rigs. This will have a long-term effect on production levels as a result of the slow recovery of production from existing fields offshore. Making up the some of the difference will be lower 48 production of unconventional natural gas, which is projected to account for 45% of domestic U.S. natural gas production in 2030.

And while natural gas prices are expected to decline in the near term, longer term they will increase, causing gas to ultimately lose power generation market share to coal and nuclear power. This is in line with lower projections for Canadian and LNG imports.

Total U.S. consumption from domestic production and imports is projected to increase from 22.4 Tcf in 2004 to 27 Tcf in 2025. This is 3.7 Tcf less than what was projected in Annual Energy Outlook 2005 (AEO2005), and the decrease is due mostly to higher gas prices, EIA says. "After peaking at 27.0 Tcf in 2024, natural gas consumption is projected to fall slightly by 2030, as higher natural gas prices result in a larger market share for coal in the electric power sector in the later years of the projection."

The near-term demand growth for gas that is projected in Annual Energy Outlook 2006 (AEO2006) primarily results from power generation and industrials, although residential and commercial demand is expected to grow 1.5 Tcf from 2004 to 2025.

That's according to the "reference case" in EIA's AEO2006. The report precedes release of the full AEO2006 early next year, which will include higher and lower forecasts in addition to its "reference" or base case. EIA Monday compared projections of this year's base case energy outlook and last year's. This year's report is the first to make projections out to 2030.

"Total domestic natural gas production, excluding supplemental natural gas supplies, increases from 18.5 Tcf in 2004 to 21.6 Tcf in 2019, before declining to 20.8 Tcf in 2030 in the AEO2006 reference case. In 2025, domestic natural gas production is projected to be 21.2 Tcf, compared with 21.8 Tcf in the AEO2005 reference case." The lower level of domestic natural gas production in the latest outlook "is entirely attributable to lower levels of offshore production."

Regarding domestic production the fact that 2004 reserve discoveries was lower than anticipated has lowered the long-term forecast for offshore natural gas production. Lower 48 offshore production is projected to fall slightly from the 2004 level of 4.3 Tcf and then grow steadily through 2015, peaking at 5.1 Tcf as new resources come on line in the Gulf of Mexico. After 2015, lower 48 offshore production declines to 4.3 Tcf in 2025 and 4.0 Tcf in 2030. In the last year's reference case, offshore natural gas production was projected to increase more quickly and reach higher levels, peaking at 5.3 Tcf in 2014 before falling to 4.9 Tcf in 2025.

The projection for onshore production of natural gas is also generally lower for most of the projection period in this year's forecast than was projected in AEO2005. In the later years of the AEO2006 reference case, however, with higher natural gas prices, onshore production grows strongly, to 14.7 Tcf in 2025 -- equal to the AEO2005 projection. Projected onshore production in AEO2006 remains at the 2025 level through 2030.

"Lower 48 production of unconventional natural gas is expected to be a major contributor to growth in U.S. natural gas supplies," EIA says, accounting for 45% of domestic U.S. natural gas production in 2030, as compared with the AEO2005 projection of 39% in 2025. In the latest forecast, however, unconventional natural gas production is lower in the mid-term (between 2006 and 2020) than was projected earlier, reflecting a decline in overall natural gas consumption in response to higher prices. Starting in 2021, the projected levels of unconventional natural gas production in the latest outlook are higher than those in AEO2005, reaching 9.5 Tcf in 2030.

EIA expects the Alaska natural gas pipeline to be completed by 2015, boosting Alaska gas production from 0.4 Tcf in 2004 to 2.2 Tcf in 2025.

The projection in the latest forecast for net U.S. pipeline imports of natural gas mainly from Canada by 2025 is 1.3 Tcf lower than was projected in AEO2005. The total will drop to 1.2 Tcf in 2030, as a result of depletion effects and growing domestic demand in Canada.

Growth in LNG imports is projected to meet much of the increased demand for natural gas in the latest forecast, but the increase, moderated by reduced U.S. consumption and increased foreign demand for feedstock natural gas, is less than was projected in the AEO2005 reference case. Except for expansions of three of the four existing onshore U.S. LNG terminals, the completion of U.S. terminals currently under construction, and the addition of four new facilities -- one on the Gulf Coast, one in Baja California, Mexico, and two in eastern Canada -- no other new facilities are projected to be built to serve U.S. markets in the AEO2006 reference case.

Total net imports of LNG to the United States in the latest forecast are projected to increase from 0.6 Tcf in 2004 to 4.1 Tcf in 2025 (about two-thirds of the import volumes projected in the AEO2005 projection) and to 4.4 Tcf in 2030. In some of the AEO2006 alternative cases, however, particularly those with relatively higher natural gas prices, additional LNG imports and new terminals are projected.

On the demand side,"in the AEO2006 reference case, the natural gas share of electricity generation (including generation in the end-use sectors) is projected to increase from 18% in 2004 to 22% around 2020, before falling to 17% in 2030," EIA says. Coal's share is projected to decline slightly from 50% to 49% before increasing to 57% in 2030. Between 2004 and 2030, EIA projects the addition of 174 gigawatts of additional coal-fired capacity.

In the near term, gas prices are projected to decline gradually from current levels as increased drilling brings new supplies on line and new import sources become available. The average price falls to $4.46/Mcf in 2016 (in 2004 dollars), then rises gradually to more than $5.40/Mcf in 2025, equivalent to about $10/Mcf in nominal dollars. Prices are projected to reach $5.90/Mcf by 2030.

"LNG imports, Alaskan natural gas production, and Lower 48 production from unconventional sources are not expected to increase sufficiently to offset the impacts of resource depletion and increased demand," EIA says. "The projected wellhead natural gas prices in the AEO2006 reference case from 2016 to 2025 are consistently higher than the comparable prices in the AEO2005 reference case, by about 30 to 60 cents per Mcf, primarily as a result of higher exploration and development costs."

Additionally, EIA projects growth in nuclear generating capacity through uprates of existing plants and newly constructed generating stations.

©Copyright 2005 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.