Continuing to maintain an ample supply of natural gas in the United States going forward will depend on large, new domestic and imported supply projects, according to the Energy Information Administration (EIA), which last week released the reference case forecast from its “Annual Energy Outlook 2003” (AEO2003). The forecast noted that gas demand in the country is projected to grow 54% by 2025.

“A major consideration for energy markets through 2025 will be the availability of adequate natural gas supplies at competitive prices to meet growth in demand,” the EIA forecast said. ” AEO2003 projects growing dependence on major new, large-volume natural gas supply projects for both domestic and imported supplies to meet future demand levels, including deepwater offshore wells, new and expanded LNG facilities, the Mackenzie Delta pipeline in Canada, and an Alaskan pipeline that would allow delivery of natural gas to the lower 48 States.”

According to the forecast, total demand for gas is projected to increase at an average annual rate of 1.8% between 2001 and 2025, from 22.7 Tcf to 34.9 Tcf, primarily attributed to the rapid growth in demand for electricity generation. “With higher projected prices, total natural gas demand in 2020 (32.1 Tcf) is projected to be 1.6 Tcf lower in AEO2003 than in AEO2002.”

The EIA found that growth in domestic gas supplies will hinge on increased unconventional natural gas production and the growth of imported supplies through expanded LNG imports and pipeline imports from Canada. EIA’s forecast said much of the unconventional production will have to come from tight sands, coalbed methane and shale, much of it out of the Rocky Mountain region, and construction of an Alaskan natural gas pipeline that delivers gas supplies to the Lower 48 States starting in 2021. By EIA calculations, total nonassociated unconventional natural gas production is projected to grow from 5.4 Tcf in 2001 to 9.5 Tcf by 2025, while total Alaskan production is projected to increase from 0.4 Tcf in 2001 to 2.6 Tcf by 2025.

The AEO2003 forecast said that the four existing U.S. LNG terminals (Everett, MA; Cove Point, MD; Elba Island, GA; and Lake Charles, LA) will expand and three additional facilities will be built in the lower 48 States serving Florida and the Gulf states. The study also believes that another facility will be built in Baja California, Mexico, predominantly serving the California market. As a result, total net LNG imports are projected to increase from 0.2 Tcf in 2001 to 2.1 Tcf by 2025.

An increase in imports from Canada depends in part on the projected completion of the MacKenzie Delta pipeline, according to AEO2003. The study forecasts that the MacKenzie Delta pipeline will be completed in 2016 and expanded in 2023. The initial full flow rate into Alberta is assumed to be 1.5 Bcf/d. Including both pipeline imports and LNG, total net natural gas imports are expected to increase from 3.7 Tcf in 2001 (16% of U.S. demand) to 7.8 Tcf by 2025, meeting 22% of total natural gas demand in 2025.

With projects such as the Alaskan pipeline and various LNG facilities coming online over the next number of years, the EIA said gas prices are projected to increase in an “uneven fashion.” Despite the short-term impact when projects come online, the EIA predicts average gas prices will move higher as “technology improvements and new supply sources prove unable to completely offset the effects of resource depletion and increased demand.” Annual average Lower 48 natural gas wellhead prices are initially projected to decline from the high levels of 2001, falling to $2.75/Mcf (2001 dollars) in 2002.

“Prices are projected to reach about $3.70 per Mcf by 2020 and $3.90 per Mcf by 2025 (equivalent to more than $7.00 per Mcf in nominal dollars),” the EIA said in its forecast. “At roughly $3.70 per Mcf, the 2020 wellhead natural gas price in AEO2003 is more than 35 cents higher than the AEO2002 projection, due to a downward revision of the potential for inferred natural gas reserve appreciation and a reduced expectation for technology improvement over time. As demand for natural gas increases, expected technology improvements do not completely offset the effects of resource depletion.”

On the electricity front, the forecast said coal would remain the primary fuel for electricity generation through 2025. However, the share of electricity generated with gas is projected to increase from 17% in 2001 to 29% in 2025, while the coal share is projected to decline from 52% in 2001 to a still dominant 48% in 2025. In addition, the EIA said 74 gigawatts of new coal-fired generating capacity is expected to be constructed between 2001 and 2025.

The study pointed out that while no new nuclear plants have been built in the United States in a number of years, the existing facilities have “substantially improved their performance and reduced operating costs.” In addition, the EIA said it has become common practice to request extensions of the current nuclear plant operating licenses from the Nuclear Regulatory Commission (NRC). More recently, EIA pointed out, companies have been uprating their nuclear plant capacity. As a result, EIA predicts total nuclear capacity to increase from 98.2 GW in 2001 to a peak of 100.4 GW by 2006 as a result of uprates, before declining to 99.6 GW by 2025.

As a result of relatively cheap power prices, renewable electricity generation is expected to increase slowly, likely at a rate of 2.1% a year. Including combined heat and power, total renewable electricity generation is projected to increase from 298 billion kWh in 2001 to 495 billion kWh by 2025. The EIA said growth is also expected to be slow because competitive electricity markets favor less capital-intensive natural gas technologies over coal and baseload renewables in the competition for new capacity.

Other forecast highlights include:

EIA said its full report, including projections with differing assumptions on the price of oil, the rate of economic growth, and the characteristics of new technologies, will be released in early January 2003, along with regional projections and a report on the major assumptions underlying the projections.

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