The Henry Hub natural gas spot price could peak at $8.22/Mcf in January but will likely average $7.78/Mcf in 2008, while higher energy prices and changing attitudes about greenhouse gas (GHG) emissions and renewable fuel sources will force changes in worldwide energy markets over the long term, the Energy Information Administration (EIA) said in a pair of reports issued last week.
In its Short Term Energy Outlook for December, EIA said it expects prices will rise only moderately despite historically high prices for major petroleum products due to projected crude oil prices (global oil markets will likely remain tight and West Texas Intermediate crude oil prices will likely exceed $80/bbl over the next year). The high level of storage going into the winter — working natural gas in storage reached 3.44 Tcf at the end of November — and limited remaining fuel switching capability has insulated to some extent the natural gas market from the impact of recent price increases in the petroleum markets, EIA said.
The Henry Hub natural gas spot price is expected to average about $7.21/Mcf in 2007 and $7.78/Mcf in 2008, hitting a winter peak of $8.22/Mcf in January, according to EIA. The average household natural gas expenditure is expected to increase about 7% over last winter.
Total natural gas consumption is expected to increase by 5% in 2007, largely driven by increases in the residential, commercial, and electric power sectors, and an expected return to near-normal weather in 2008 is expected to increase total consumption by 1.1%, EIA said. Even though consumption of natural gas in the industrial sector is projected to decline by 0.7% in 2007, the weaker U.S. dollar and global demand for natural-gas-intensive goods produced domestically are expected to contribute to a 0.8% increase in industrial sector consumption in 2008, according to EIA.
New deepwater supply infrastructure in the Gulf of Mexico (GOM) and ongoing efforts to develop unconventional reserves prompted EIA to predict an increase in GOM and Lower 48 production by 5.1% and 1%, respectively in 2008. Total U.S. marketed natural gas production is expected to rise by 2.1% this year and by 1.6% next year.
Liquefied natural gas (LNG) imports are expected to reach about 790 Bcf in 2007, a 35% increase over 2006, and about 940 Bcf in 2008. The expansion of global liquefaction capacity is expected to boost LNG shipments to the United States next year, but the risk of project delays and production shortfalls, as well as negative price differentials between the U.S. market and other LNG-consuming countries, could temper the number of spot cargoes directed to U.S. ports next year, according to EIA.
In its Annual Energy Outlook 2008 (AEO), a midterm projection and analysis of U.S. energy supply, demand, and prices through 2030, EIA said higher prices, increasing supply demands from developing nations, recently enacted U.S. regulations and changing public attitudes toward GHG emissions and alternative fuels are all forcing changes in worldwide energy markets.
Foremost among those trends is the increase in energy prices since 2000. When combined with slower U.S. economic growth — the AEO forecasts gross domestic product growing at 2.6% annually through 2030, down from EIA’s 2007 forecast of 2.9% — those higher prices will result in total primary energy consumption increasing at an average rate of just 0.9% per year, to 123.8 quadrillion Btus (quads) in 2030 from 100.0 quads in 2006 — 7.4 quads less than EIA predicted last year.
EIA forecast the real wellhead price of natural gas in 2006 dollars will decline through 2017 as new supplies enter the market before rebounding to $6.60/Tcf ($10.40/Tcf in nominal dollars) by 2030, reflecting an increase in production costs and supported by higher oil prices.
The report projects natural gas production increasing to 20.2 Tcf in 2021 from 18.6 Tcf last year before declining to 19.9 Tcf in 2030. Lower 48 offshore natural gas production is expected to grow to a peak of 4.5 Tcf in 2019 from 3.0 Tcf in 2006 as new resources come online in the Gulf of Mexico, then decline to 3.5 Tcf by 2030. Working under the assumption that the Alaska natural gas pipeline will be completed in 2020, EIA forecast total Alaskan natural gas production increasing to 2.0 Tcf in 2021 from 0.4 Tcf in 2006 and hit 2.4 Tcf in 2030 as the result of subsequent expansion.
Without changes in current carbon emissions policies that were not assumed in the AEO, carbon dioxide (CO2) emissions will grow sharply, but to lower levels than EIA previously predicted because of lower primary energy consumption. EIA now forecasts energy-related CO2 emissions to grow by 25% between 2006 and 2030, down from EIA’s 2006 projection of 35%.
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