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EIA Annual Report: Rising Tide of Shale Gas Through 2040

Citing the onslaught of shale gas volumes, the Energy Information Administration (EIA) last Wednesday projected that dry natural gas production will increase significantly throughout 2040, eclipsing domestic consumption by 2020 and spurring net exports of natural gas sooner than the agency had expected.

In the reference case of its Annual Energy Outlook for 2013 (AEO2013), which makes energy projections through 2040, the agency said that "higher volumes of shale gas production...are central to higher total production volumes and an earlier transition to net exports than was projected in the AEO2012 reference case."

The EIA projects that shale volumes will grow to 16.7 Tcf in 2040, accounting for almost half of dry gas production in the out years, and fueling an overall increase in natural gas' share of energy production to 35% by 2040. The agency sees dry gas volumes climbing to 28.59 Tcf in 2025, rising to 31.35 Tcf by 2035 and to 33.14 Tcf by 2040. All the projections are more optimistic than what the EIA projected last year for those years. The entire AEO2013 report will be released early next year.

“Driving everything on the gas production side is shale gas,” said EIA Administrator Adam Sieminski said. “Shale gas production continues to be the major contributor to increased natural gas production.”

Because of rising shale gas development, the United States becomes a net exporter of liquefied natural gas (LNG) starting in 2016, and a net exporter of gas (including via pipelines) in 2020, according to the EIA outlook. It projects that LNG exports will rise to about 1.6 Tcf by 2027, almost double the 0.8 Tcf projected last year in the AEO2012. The agency anticipates that the United States will become less dependent on foreign energy over the forecast period. Overall, energy imports will fall to 9% in 2040, compared with 19% in 2011 and 30% in 2005, it said.

"Cumulative net pipeline imports of natural gas from Canada and Mexico in the AEO2013 reference case are considerably lower than those projected in the AEO2012 reference case, with the United States becoming a net pipeline exporter of natural gas in 2021, or three years earlier than [projected] in AEO2012," the agency said.

For 2025, the EIA raised its projection for U.S. gas consumption to 27.28 quadrillion Btu from the 26.14 quadrillion Btu that it projected last year. It forecasts that gas demand will grow to 29.06 quadrillion Btu by 2035 and 29.83 quadrillion Btu by 2040. One quadrillion Btu is about equal to 1 Tcf of gas.

The agency sees Henry Hub spot gas prices remaining below $4.00 MMBtu (2011 dollars) through 2018.

"The resilience of drilling activity [during this period], despite low natural gas prices, is in part a result of high crude oil prices, which significantly improves the economics of natural gas plays that have relatively high liquids content (crude oil, lease condensates and natural gas liquids)," the EIA said.

"Relatively low natural gas prices, facilitated by growing shale gas production, [will] spur increased use in the industrial and electric power sectors, particularly over the next 15 years," according to the reference case in the AEO2013. Projections made in the reference case are based on all laws and regulations affecting energy remaining unchanged through 2040.

The EIA sees gas use (excluding lease and plant fuel) by the industrial sector increasing by 16% to 7.8 Tcf/year in 2025 from 6.8 Tcf/year in 2011. "Industrial production grows more rapidly in AEO2013 due to the benefit of strong growth in shale gas production and an extended period of relatively low natural gas prices, which lower the costs of both raw materials and energy, particularly through 2025."

While gas will continue to capture a growing share of total electricity generation, gas consumption by power plants probably won't grow as sharply because the newer plants will be more efficient. After accounting for 16% of total generation in 2000, gas' share of generation rose to 24% in 2010 and is expected to rise to 27% in 2020 and to 30% in 2040, the EIA said.

The agency believes gas will become more competitive with coal in the generation market. "Natural gas prices to electricity generators are significantly lower than those in [last year's report] AEO2012 in the first few years and are between 3% and 5% lower from 2025 to 2035, while the cost of coal is higher after 2015."

In the EIA reference case, the agency also projects that gas will be used as fuel for heavy-duty trucks and as a feedstock for producing diesel and other fuels. Natural gas in vehicles amounts to about 1.7 Tcf (including gas-to-liquids technology) by 2040, displacing 0.7 million b/d of other motor fuels, the agency said.

After 2018, gas prices "[will] increase steadily as tight gas and shale gas drilling activity expands to meet growing domestic demand for natural gas and offsets declines in natural gas production from other sources. Natural gas prices rise as lower-cost resources are depleted and production gradually shifts to less productive and more expensive resources," according to the AEO2013 reference case. It anticipates that Henry Hub gas prices (in 2011 dollars) will reach $5.40 MMBtu in 2030 and $7.83 MMBtu in 2040.

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