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EIA Sees Rapid Shale Growth, Lesser Role for LNG

The Energy Information Administration in its latest Annual Energy Outlook (AEO2009) Tuesday raised its projection for domestic natural gas production and demand in the coming decades, citing the continued rapid growth in gas shale development and demand for gas by power generators. But it predicts a smaller role for imports of liquefied natural gas (LNG) in the years ahead.

"The larger natural gas resource [base] in the reference case results primarily from a larger estimate for natural gas shales, with some additional impact from the 2008 lifting of the executive and congressional moratoria on leasing and development of crude oil and natural gas resources in the OCS [Outer Continental Shelf]," the EIA said. The EIA reference case assumes "business as usual" and is based on the assumption that for the United States, existing laws, regulations and practices will be maintained throughout the projection period (2007-2030), and that the world economy will recover by 2010.

The Department of Energy agency predicts that domestic gas production will increase 22% by 4.3 Tcf/year between 2007 and 2030, while net imports will fall by 3.1 Tcf/year (22%). The EIA sees natural gas demand rising by 0.2% annually during the projection period.

Unconventional gas will be the largest contributor to the growth in domestic gas production over the coming decades, accounting for 56% of gas production by 2030, according to the EIA. And gas in tight sand formations will be the largest source of unconventional production during the period, making up 30% of total U.S. production in 2030.

But production from shale formations will be the fastest growing source of gas, the EIA said. With an assumed 267 Tcf of undiscovered technically recoverable resources, production of gas from shale formations is expected to increase to 4.2 Tcf/year, or 18% of total U.S. production, in 2030 from 1.2 Tcf/year in 2007, the agency noted.

Offshore production will continue to make up a significant portion of the U.S. gas supply, accounting for 15% of total domestic production in 2007 and 21% in 2030. "The increase in offshore production [will be] largely from deepwater formations and OCS areas recently released from congressional moratoria," EIA said.

"Although average real U.S. wellhead prices for natural gas [are expected to] increase from $6.39/Mcf in 2007 to $8.40/Mcf in 2030, stimulating production from domestic resources, the prices [will not be] high enough to attract large imports of LNG," the agency said. Due to the anticipated growth in production of gas from unconventional onshore sources, combined with increased supplies from the OCS and Alaska, the EIA projects that the net import share of U.S. natural gas use will drop to 3% in 2030 from 16% in 2007.

LNG imports are expected to peak at 1.5 Tcf in 2018 before declining to 0.8 Tcf in 2030, despite projected U.S. regasification capacity of 5.2 Tcf, according to the EIA. "The near-term increase is the result of growth in world liquefaction capacity, which temporarily exceeds world demand, making LNG available to the U.S. market -- particularly in the summer to fill storage facilities. In the longer term, high LNG prices (which are tied to oil prices in many markets) and ample domestic natural gas supplies reduce U.S. demand for LNG imports."

The AEO2009 reference case assumes that an Alaska gas pipeline will be built in 2020, and that Alaska's gas production will increase by 1.6 Tcf as a result. "The no-Alaska pipeline case assumes that the pipeline will not be built, leading to higher prices in Lower 48 natural gas markets, more Lower 48 production and imports of natural gas, and lower consumption." EIA said.

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