The Energy Information Administration released its Annual EnergyOutlook 1999 (AEO99) last week, projecting gas demand will grow byabout 50% to 33.17 Tcf by 2020 from 1997 levels of 22.59 Tcf, whichis a 1.7% average annual increase.

Gas demand is projected to rise in all sectors with electricgenerators leading the charge. The generation sector, excludingindustrial cogenerators, will account for 9.2 Tcf of total gasdemand in 2020, a nearly three-fold increase from 3.3 Tcf lastyear. And gas’ share of generation demand will increase to 33% by2020 from only 14% last year. Residential consumption is projectedto grow 0.6% annually. Commercial consumption is expected toincrease 0.7%/year, and industrial consumption is forecast to riseby 0.7% per year.

EIA said it will be quite a challenge for the industry to meetsuch huge increases in demand, but it can be accomplished.”.Increases well above those projected in AEO99 have been realizedin the past, and the industry’s past performance gives reason forconfidence that the projected increases can be accommodated,” EIAsaid.

However, the task will not be easy. In order to satisfy thedemand projected, aÿnumber of changes will be needed in the U.S.natural gas industry, EIA noted, including a “significant increasein production and considerable expansion of infrastructure.”

Natural gas production is projected to increase from 18.9 Tcf in1997 to 27.4 Tcf in 2020, an average rate of 1.6% a year, to meetmost of the rising domestic demand for natural gas. Imports willfill in the remaining requirement. Net imports, primarily fromCanada, increase from 2.8 Tcf to 5.0 Tcf between 1997 and 2020.

The Administration projects onshore and offshore gas productionwill rise 57% and 14%, respectively, while pipeline capacity willincrease by 32% over 1997 levels. The industry accomplished a 21%increase in pipeline capacity in seven years, EIA noted, between1990 and 1997 without demand as the driving force. Shifting supplyand demand centers were the primary reasons for the growth duringthat period.

Much of the pipeline expansion projected in AEO99 before 2001already is either under construction or planned, and more than halfthe pipeline expansion expected by 2020 is likely to occur betweennow and 2000, EIA said.

There are a number of potential problems related to the recoveryof natural gas from offshore areas, EIA said, referring to rig andpersonnel availability, and the expansion of offshore gathering andprocessing. But EIA is optimistic the industry can handle the job.

Rising demand and prices for gas will “provide additionaleconomic incentives for the investments in infrastructure, rigs,drilling, and manpower development needed to meet the necessaryincreases in gas production,” EIA said. “As a result, it isexpected that the natural gas industry will be in a position tomeet the challenge of satisfying the demand increases projected.”

EIA forecasts domestic wellhead gas prices will rise 0.8%annually to $2.68/Mcf by 2020. Imported gas wellhead prices areexpected to increase 1%/year. Prices for gas delivered toindustrial and power generation markets are expected to rise by0.5% and 0.8%/year, respectively. However mainly because of retailunbundling, delivered prices in the residential and commercialsectors actually are projected to fall by 0.7% and 0.4%/year,respectively. Transmission and distribution margins, i.e., thecosts associated with those services, also are expected to fall inthe residential, commercial and industrial sectors by 1.7%, 1.4%and 0.6%/year, respectively.

In addition to analyzing the impacts of world oil markets,economic growth, technology, and electricity regulations, AOE99discusses recent and proposed regulatory changes and other currentenergy issues. The report can be accessed on EIA’s Internet site at

Rocco Canonica

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