EIA: Consumption Will Outpace Production

Although the sky appears to be the limit for the current gas market, it apparently hasn't affected the long-term optimism of the Energy Information Administration. EIA actually predicts prices will begin to decline in 2002 and basically flatten out through 2020. That will occur, EIA believes, despite a massive increase in gas consumption to nearly 35 Tcf by 2020.

The average wellhead price of natural gas is expected to increase from $2.08/Mcf in 1999 to about $3.30/Mcf in 2000 and 2001, then decline slightly through 2004, EIA said in its Annual Energy Outlook 2001 With Projections to 2020. The projected price settles at $3.13/Mcf by 2020.

Meanwhile, natural gas consumption, which accounted for 23% of domestic energy use in 1999, is expected to grow more rapidly than any other major fuel source from 1999 to 2020, mainly because of projected growth in gas-fired electricity generation, EIA said. Gas demand is projected to grow by 2.3% per year on average, from 21.4 Tcf in 1999 to 34.7 Tcf in 2020.

Growth in demand for electricity generation is expected to triple between 1999 and 2020. Natural gas' share of power generation is projected to grow from 16% in 1999 to 36% in 2020, while the coal share is projected to decline from 51% to 44%.

Gas production is expected to grow at a much slower pace. "Domestic consumption still is expected to increase at a faster rate than domestic production over the forecast period, with imports making up the difference," EIA said. Gas imports are expected to increase from 3.4 Tcf in 1999 to 5.8 Tcf in 2020, outpacing domestic production over the forecast. Net imports of liquefied natural gas are expected to increase to 0.7 Tcf by 2020.

The administration said it expects gas production to manage 2.1% annual growth through 2020 to 29 Tcf as new technological advances enable producers to continue finding gas despite rapid decline rates, a declining number of locations in which to drill and the challenges of a declining workforce. "Technically recoverable natural gas resources in North America are believed to be adequate to sustain the production volumes projected in AEO2001," EIA said.

At the end of 1999, U.S. proved reserves totaled 167 Tcf. According to assessments by the U.S. Geological Survey for onshore regions and by the Minerals Management Service for offshore areas as of Jan. 1, 1999 U.S. technically recoverable resources were estimated at 1,281 Tcf, including 164 Tcf of proved reserves, 244 Tcf of inferred reserves from known fields, 319 Tcf of undiscovered conventional resources not associated with oil deposits, and 393 Tcf of undeveloped resources of unconventional gas. Gas associated with oil makes up most of the balance.

Reserves are expected to increase through most of the forecast period, with increasing onshore unconventional reserves compensating for declines in onshore conventional reserves. As a result, reserves are anticipated to be adequate to sustain the projected levels of production, EIA said, with the average lower 48 production-to-reserves ratio projected to increase from 11.6% in 1999 to 15% in 2020.

In the AEO2001 forecast, the number of gas wells drilled is projected to increase from 10,200 in 1999 to 23,400 in 2020. "In view of the historical and current responses to rising prices, it is assumed that the rigs needed to meet such drilling levels will be constructed. It is also assumed that, in the long term, improvements in technology will make individual rigs more productive and temper the need for additional rigs," EIA said.

The U.S. gas industry does face some other significant challenges, however. One major obstacle is the labor shortage. The number of jobs needed to support the projected level of production in 2020 is estimated at 411,500 or roughly a 40% increase over 1999 employment levels, but EIA expects the industry will be able to attract the required labor.

Another area of uncertainty is the future impact of advances in exploration and drilling technologies. Advances in technology over the past 15 years have improved success rates by as much as 50%. EIA expects that trend to continue as well. Technological advances also could have a positive impact on finding gas in environmentally sensitive areas. At least 551 Tcf of the remaining untapped gas resource underlies federally owned lands, almost evenly split between onshore and offshore locations. And 217 Tcf of gas under Federal lands is estimated to be unavailable for development due to moratoria and/or restrictions and therefore is not included in the resource base assumed in the AEO2001 reference case.

"As technological improvements make it possible to produce gas while meeting environmental restrictions, some of the resources in those areas may become available," EIA said.

For the complete Annual Energy Outlook go to EIA's web site at http://www.eia.doe.gov/oiaf/aeo/index.html

©Copyright 2000 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.