Natural gas wellhead prices are projected to increase at anaverage rate of 1.7% a year through 2020, from $1.96 per Mcf in1998 to $2.81 (1998 dollars) in 2020 as demand rises to 31.5Tcf/year, according to the U.S. Energy Department’s EnergyInformation Administration.

In its Annual Energy Outlook 2000 (AEO2000) EIA has increasedits price forecast for natural gas in 2020 over its 1999 forecastby 10 cents/Mcf at the same time it is decreasing its priceestimates for oil and coal slightly. While electricity prices areexpected to drop also – from 6.7 cents/kwh to 5.8 cents/kwh — dueto restructuring, the price cut is slightly less than thatprojected last year because of revisions in natural gas.

A “higher assumed cost of capital and a slower decline in thecapital costs of natural gas generation in the later years” willmean a slightly higher cost of electricity. At the same time theincrease in wellhead natural gas prices is blamed on low prices inthe near term which tend to dampen exploratory and developmentalactivity. The wellhead price at the halfway mark in 2010 isexpected to be $2.60/Mcf. Regarding natural gas prices, EIA says”technological improvements in exploration and production areexpected to moderate the growth in prices as demand, particularlyfor electricity generation, increases rapidly.

Forecasts for average transportation and distribution marginsalso are about 10 cents/Mcf higher in 2020 than forecast last year,led by the residential and commercial sectors where T&D marginsare between 30 cents and 50 cents higher than predicted in the 1999report. The latter stems from “an increase in projected capitalcosts and fewer cost reductions from efficiency improvements thanpreviously assumed.” T&D costs in 2020 are expected to be$3.72/Mcf for residential customers adding up to a delivered priceof $6.55; for commercials T&D $2.83, total delivered $5.66; forindustrials T&D $0.77, delivered $3.60; electric generatorsT&D $0.58, delivered $3.41.

Natural gas use will see its largest expansion in the area ofelectric generation where usage (excluding cogenerators) isforecast to rise from 3.7 to 9.3 Tcf between 1998 and 2020.

U.S. natural gas production is projected to increase from 18.9Tcf in 1998 to 26.4 Tcf in 2020, an average growth rate of 1.5%year. Net imports, primarily from Canada, should increase from 3.1Tcf in 1998 to 5.1 Tcf in 2020. That includes an increase in LNGimports from 0.02 Tcf to 0.3 Tcf.

Overall energy consumption in the U.S. is projected to grow from94.9 to 120.9 quadrillion Btu (Quad approximately equals Tcf), agrowth rate of 1.1% versus the 1.8% rate for natural gas.

Leaving no doubt as to where the U.S. government is coming from,the EIA press release led off with the projected increase in carbondioxide emissions from energy use. Emissions will increase 33% from1990 to 2010 and 47% by 2020, going from 1,345 to 1,979 millionmetric tons in 2020. The increase is blamed on the increased use offossil fuels, the decline in nuclear power and the slow growth ofrenewable energy.

Petroleum use is projected to increase by 1.3% while prices gofrom $12.10 a barrel in 1998 to $22.04/b in 2020. While the pricein the out years is lower than predicted in 1999, “priceprojections over the next several years are much higher than inAEO99 by about $7/b in 2000.” This is due to the recovery in EastAsia and the OPEC agreement restricting production. U.S. importswill rise from 52% in 1998 to 64% in 2020.

Nuclear generation will decline 37%, not quite as fast aspreviously predicted because of new figures on the capital costs ofreplacement fossil-fuel infrastructure. Coal will experience anannual consumption increase of 0.9% while the average minemouthprice declines from $17.51 a ton in 1998 to $12.54 a ton in 2020due to increased productivity, a shift to lower cost westernproduction and competitive pressures on labor costs. The higherproductivity is expected particularly in the Powder River Basin.

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