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Without Policy Shift, EIA Sees Coal Demand Far Outpacing Gas

The Energy Information Administration (EIA) continued to scale back its projections of natural gas consumption and boosted its forecast for coal demand in its latest Annual Energy Outlook (AEO) for 2007. The agency is now expecting annual U.S. gas consumption to reach only 26.1 Tcf by 2030, which is way down from expectations a few years ago of more than 30 Tcf.

Gas demand is expected to increase only about 19% from a 2005 level of 22.6 quadrillion Btus (quads) to a 2030 level of 26.9 quads, while coal consumption is projected to grow nearly 50% to 34.1 quads in 2030 from 22.9 quads in 2005.

High gas prices are mainly to blame, and EIA's latest forecast shows an average wellhead price of nearly $6/Mcf in 2030 in 2005 dollars ($9.60/Mcf in nominal dollars), which is about the same as last year's projections. The agency sees gas prices declining from current levels as increased drilling brings on new supply and liquefied natural gas (LNG) imports increase. The average wellhead price is expected to fall to just under $5/Mcf in 2015 (2005 dollars) but then rise gradually to about $6 in 2030.

"Imports of [LNG], new natural gas production in Alaska and production from unconventional sources in the Lower 48 states are not expected to increase sufficiently to offset the impacts of resource decline and increased demand," EIA said.

Despite growing concerns about greenhouse gas emissions, EIA expects coal to play a major energy role through the forecast period, particularly in power generation. The agency sees significant additions of coal-fired power generation, particularly over the last decade of the forecast period when natural gas prices are rising. Its projections, however, do not include expectations of any policy changes.

"The reference case projections for coal consumption are particularly sensitive to the underlying assumption that current energy and environmental policies remain unchanged through the projection period," EIA said. "Recent EIA service reports have shown that steps to reduce greenhouse gas emissions through the use of an economywide emissions tax or cap-and-trade system could have significant impact on coal use."

Minemouth coal prices are higher than in previous AEO projections because of rising mining costs. The largest coal price increases are expected in Appalachia, but those increases are expected to be offset by increased mining of low-cost Powder River Basin coal in Wyoming. Average minemouth coal prices are expected to fall from $1.15/MMBtu ($23.34 per short ton) in 2005 to $1.08/MMBtu ($21.51/short ton) in 2019. After that year, new coal-fired power plants are expected to increase demand and coal prices are expected to rise back up to $1.15/MMBtu ($22.60/short ton). The projected 2020 and 2030 coal prices are 4.2% and 1.4% higher than in the AEO2006 forecast.

Power prices are expected to fall in the near term after the rapid increases in recent years, but then are expected to slowly rise again.

"Despite the rapid growth for biofuels and other nonhydroelectric renewable energy sources and the expectation that orders will be placed for new nuclear power plants for the first time in more than 25 years, oil, coal and natural gas still are projected to provide roughly the same 86% share of the total U.S. primary energy supply in 2030 that they did in 2005 (assuming no changes in existing laws and regulations)," EIA said. The agency noted that the rapid growth of renewables and biofuels began from a very low base level.

Hydropower supply, which represents the bulk of the renewable resource, is expected to be about flat over the period. Despite the resurgence of nuclear power, its share of total generation is expected to fall to 15% by 2030 from 19% in 2005 because of rapidly rising power demand. Nuclear output is projected to increase to 896 billion kWh in 2030 from 780 billion kWh in 2005.

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