Although the sky appears to be the limit for the current gasmarket, it apparently hasn’t affected the long-term optimism of theEnergy Information Administration. EIA actually predicts priceswill begin to decline in 2002 and basically flatten out through2020. That will occur, EIA believes, despite a massive increase ingas consumption to nearly 35 Tcf by 2020.

The average wellhead price of natural gas is expected toincrease from $2.08/Mcf in 1999 to about $3.30/Mcf in 2000 and2001, then decline slightly through 2004, EIA said in its AnnualEnergy Outlook 2001 With Projections to 2020. The projected pricesettles at $3.13/Mcf by 2020.

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

Growth in demand for electricity generation is expected totriple between 1999 and 2020. Natural gas’ share of powergeneration 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 fasterrate than domestic production over the forecast period, withimports making up the difference,” EIA said. Gas imports areexpected to increase from 3.4 Tcf in 1999 to 5.8 Tcf in 2020,outpacing domestic production over the forecast. Net imports ofliquefied 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 advancesenable producers to continue finding gas despite rapid declinerates, a declining number of locations in which to drill and thechallenges of a declining workforce. “Technically recoverablenatural gas resources in North America are believed to be adequateto 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 onshoreregions and by the Minerals Management Service for offshore areasas of Jan. 1, 1999 U.S. technically recoverable resources wereestimated at 1,281 Tcf, including 164 Tcf of proved reserves, 244Tcf of inferred reserves from known fields, 319 Tcf of undiscoveredconventional resources not associated with oil deposits, and 393Tcf of undeveloped resources of unconventional gas. Gas associatedwith oil makes up most of the balance.

Reserves are expected to increase through most of the forecastperiod, with increasing onshore unconventional reservescompensating for declines in onshore conventional reserves. As aresult, reserves are anticipated to be adequate to sustain theprojected levels of production, EIA said, with the average lower 48production-to-reserves ratio projected to increase from 11.6% in1999 to 15% in 2020.

In the AEO2001 forecast, the number of gas wells drilled isprojected to increase from 10,200 in 1999 to 23,400 in 2020. “Inview of the historical and current responses to rising prices, itis assumed that the rigs needed to meet such drilling levels willbe constructed. It is also assumed that, in the long term,improvements in technology will make individual rigs moreproductive and temper the need for additional rigs,” EIA said.

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

Another area of uncertainty is the future impact of advances inexploration and drilling technologies. Advances in technology overthe past 15 years have improved success rates by as much as 50%.EIA expects that trend to continue as well. Technological advancesalso could have a positive impact on finding gas in environmentallysensitive areas. At least 551 Tcf of the remaining untapped gasresource underlies federally owned lands, almost evenly splitbetween onshore and offshore locations. And 217 Tcf of gas underFederal lands is estimated to be unavailable for development due tomoratoria and/or restrictions and therefore is not included in theresource base assumed in the AEO2001 reference case.

“As technological improvements make it possible to produce gaswhile meeting environmental restrictions, some of the resources inthose areas may become available,” EIA said.

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

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