In attempting to forecast the energy future in the United States through 2030, the Energy Information Administration (EIA) said last week that energy prices will continue to fluctuate and renewable supply will continue to grow, but the liquefied natural gas (LNG) supply market remains the great unknown.
Natural gas prices are expected to decline from current levels through 2016 as new supplies hit the market, but after that real natural gas prices rise to $6.56/Mcf ($10.52/Mcf in nominal dollars) in 2030, reflecting an increase in production costs and higher oil prices, according to the EIA’s updated Annual Energy Outlook 2008 (AEO2008). The gas price forecast marked a 4-cent decrease from the AEO2008 preview that was released in early December 2007 (see NGI, Dec. 17, 2007).
While U.S. LNG regas capacity will nearly quadruple by 2009 to 5.7 Tcf, considerably less LNG supply is expected to be available. “Given global LNG supply constraints, overall capacity utilization at the U.S. LNG import facilities is expected to remain below 50% through 2030,” EIA Administrator Guy Caruso said.
Speaking before the Senate Energy and Natural Resources Committee on Tuesday, Caruso said the future direction of the global LNG market was “one of the key uncertainties” in the AEO2008 reference case. With many new international players entering LNG markets and strong competition for available supply, the impact of LNG on U.S. markets is hard to nail down. The updated AEO2008 showed that total net imports of LNG to the United States are expected to increase from 0.5 Tcf in 2006 to 2.8 Tcf in 2030. U.S. LNG regasification capacity is expected to increase from 1.5 Tcf in 2006 to 5.7 Tcf in 2009 with the addition of six new regasification facilities that are currently under construction (four along the Gulf Coast and two off the coast of New England). But U.S. receiving terminals overall are expected to remain less than half full for the next 22 years, Caruso said.
Also last week, the EIA released a report that showed that natural gas supply imports to the United States fell in 2006 as European and Asian markets offered higher prices for LNG. However, the government agency said it expects new LNG sources to come online in the coming years to help build back the losses (see related story).
Discussing AEO2008, Caruso noted that total U.S. consumption of natural gas will increase from 21.7 Tcf in 2006 to 23.9 Tcf in 2016, then decline to 22.7 Tcf in 2030.
“Industrial natural gas use is lower than in previous AEOs because of the higher delivered natural gas prices, lower economic growth, and a reassessment of natural gas use in the energy-intensive industries in AEO2008,” Caruso said. “Under current laws and regulations, natural gas is expected to lose market share to coal in the electric power sector as result of a continued increase in natural gas prices in the latter half of the projection and slower growth in electricity demand.”
With crude futures at all-time record highs above $100/bbl and natural gas futures prices currently trading higher than they have in 25 months, energy commodity prices were a hot topic for the committee. Sen. Byron Dorgan (D-ND) asked Caruso about the relationship of growing speculator activity in energy commodities and the recent high prices.
“Looking at the short-term fundamental factors…our trendline analysis indicated that those fundamental factors can explain most of the change in price over the last five or six years,” Caruso said. “There has clearly been a surge in monies coming into the commodity markets, including energy, which has had some upward effect on the price above the trendline.” However, he also noted that prices have gone below the trendline as well over the last five or six years.
In the AEO2008 reference case, total domestic natural gas production, including supplemental natural gas supplies, are expected to increase from 18.6 Tcf in 2006 to 20.1 Tcf in 2022 before declining to 19.6 Tcf in 2030. “While onshore conventional production declines steadily from 6.6 Tcf in 2006 to 4.4 Tcf in 2030, Lower 48 offshore production grows from 3.1 Tcf in 2006 to a peak of 4.5 Tcf in 2017 as new resources come online in the Gulf of Mexico,” Caruso said. “After 2017, Lower 48 offshore production declines to 3.5 Tcf in 2030.”
Caruso noted that Lower 48 production of unconventional natural gas, “particularly gas from shale,” is expected to be a key contributor to growth in U.S. natural gas supplies, increasing from 8.5 Tcf in 2006 to 9.5 Tcf in 2030. He added that the Alaska natural gas pipeline is expected to be completed in 2020 — later than previously anticipated — because of delays in the resolution of issues between Alaska’s government and industry participants.
Net pipeline imports of natural gas into the United States are expected to fall from 2.9 Tcf in 2006 to 0.3 Tcf in 2030 in the AEO2008 reference case, reflecting both resource depletion in Alberta and Canada’s growing domestic demand, the report said.
Fuel Prices to Dictate Electricity Prices
Caruso said electricity prices in the country would follow trends in the delivered prices of fuels to power plants. Prices are expected to move from a peak of 9.3 cents per kWh (2006 dollars) in 2009 to 8.5 cents per kWh in 2016. Prices are then expected to increase to 8.8 cents per kWh in 2030. In nominal dollars, the average delivered electricity price reaches 14.1 cents per kWh in 2030, the report noted.
Total electricity consumption, including both purchases from electric power producers and on-site generation, is expected to grow from 3,814 billion kWh in 2006 to 4,974 billion kWh in 2030, increasing at an average annual rate of 1.1%. In comparison, electricity consumption grew by annual rates of 7.3%, 4.2%, 2.6%, and 2.3% in the 1960s, 1970s, 1980s, and 1990s, respectively, the report found.
“The most rapid growth — 1.7% per year — occurs in the commercial sector, as building floorspace is expanded to accommodate growing service industries,” Caruso said. “Growing use of electricity for computers, office equipment, and small electrical appliances is partially offset in the AEO2008 reference case by improved energy efficiency. Total marketed renewable fuel consumption grows by an average of 3% per year in the reference case, from 6.8 quadrillion Btu in 2006 to 13.7 quadrillion Btu in 2030.”
The EIA report believes that about 45% of the demand for renewables in 2030 is for grid-related electricity generation (including combined heat and power), and the rest is for dispersed heating and cooling, industrial uses, or transportation uses. The rapid growth in the use of renewable fuels for transportation in AEO2008 reflects the updated renewable fuel standards (RFS) in Section 211 of the Clean Air Act as amended by the Energy Independence and Security Act of 2007 (EISA2007), which was enacted in December shortly after the AEO2008 preview (see NGI, Dec. 24, 2007).
Excluding hydroelectric power, renewable energy consumption for electric power generation is expected to grow from 0.9 quadrillion Btu in 2006 to 3.1 quadrillion Btu in 2030. The higher level of nonhydroelectric renewable energy consumption in the AEO2008 reference case primarily reflects a revised representation of state RPS programs, which require that specific and generally increasing shares of electricity sales be supplied by renewable resources such as wind, solar, geothermal, and sometimes biomass or hydropower.
Caruso added that net imports of energy are expected to continue to meet a “major share” of total U.S. energy demand. “The increased use of biofuels resulting from EISA2007, much of which is domestically produced, and the reduction in transportation fuel demand due to the new fuel economy standards both serve to moderate growth in energy imports,” he said. “Higher fuel prices over the projection period also spur increased domestic energy production and moderate energy demand growth, also tempering growth in imports. Furthermore, the net import share of total U.S. energy consumption in 2030 is 27%, a decline from the 30% share in 2006.”
The AEO2008 report predicted that absent new environmental policy initiatives that would serve to accelerate the retirement of existing coal-fired power plants, the slowing rate of electricity growth would reduce the need for new generating capacity. The EIA believes that the natural gas share of electricity generation (including generation in the end-use sectors) will remain between 20% and 21% through 2017, before falling to 14% in 2030. The coal share will remain between 48% and 49% through 2018, before increasing to 54% in 2030. Net additions to coal-fired generating capacity in the AEO2008 report total 103 GW from 2006 to 2030, including 4 GW at coal-to-liquids plants and 30 GW at integrated gasification combined-cycle plants. Caruso noted that given the assumed continuation of current energy and environmental policies in the reference case, carbon capture and sequestration technology does not come into use during the projection period.
On the nuclear front, the report shows that nuclear generating capacity is expected to increase from 100.2 GW in 2006 to 114.8 GW in 2030. The increase includes 16.4 GW of capacity at newly built nuclear power plants and 2.7 GW expected from uprates of existing plants, partially offset by 4.5 GW of retirements. Total electricity generation from nuclear power plants grows from 787 billion kWh in 2006 to 917 billion kWh in 2030, accounting for about 18% of total generation in 2030. The EIA noted that additional nuclear capacity is built in some of the alternative AEO2008 cases, particularly those that project higher demand for electricity or even higher fossil fuel prices.
The AEO2008 report said the use of renewable technologies for electricity generation is stimulated by improved technology, existing state RPS programs, the availability of the renewable production tax credit for eligible generation placed in service before the end of 2008, and higher fossil fuel prices. Total renewable generation in the reference case, including combined heat and power and end-use generation, shows growth by 2.2% per year, from 385 billion kWh in 2006 to 654 billion kWh in 2030.
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