The Energy Information Administration (EIA) said Tuesday it foresees slower growth for imports of liquefied natural gas (LNG) in the U.S., gradually declining wellhead gas prices, lower than expected consumption and production, and the long-awaited construction and in-service date of a long-line gas transportation system from Alaska’s North Slope over the next two decades.

“Growth in LNG imports is projected to meet much of the increased demand for natural gas in the AEO2006 [Annual Energy Outlook] reference case, but the increase is less than was projected” by the EIA last year, the Department of Energy (DOE) agency said in its Outlook for 2006, which was released Tuesday.

“The growth in LNG imports is moderated by three factors: higher natural gas prices reduce domestic consumption; higher world oil prices increase worldwide demand for natural gas and LNG imports, which raises the price of LNG; and, to a lesser extent, higher world oil prices lead to higher foreign demand for GTL [gas to liquids], which uses more natural gas as a feedstock, further increasing the price pressure on natural gas and LNG,” the EIA said.

Due to these factors, the agency downsized its projection for U.S. LNG imports from 6.4 Tcf to 4.1 Tcf in 2025. LNG import volumes are particularly sensitive to domestic gas prices. In a lower-price scenario, which is unlikely, the EIA noted, LNG imports could climb to as high as 7.4 Tcf in 2030.

Citing the uncertainty with respect to future LNG volumes, the agency said it assumes that only two LNG terminals that were under construction as of August 2005 will be completed: the Cheniere Energy terminals in Freeport, TX (1.5 Bcf/d) and in Cameron Parish, LA (2.6 Bcf/d), with assumed in-service dates of 2008 and 2009. It also assumes that three of the four existing terminals will be expanded.

“LNG imports, Alaskan natural gas production and Lower 48 production from unconventional sources are not expected to increase sufficiently to offset the impacts of resource depletion and increased demand” during this period, according to the EIA. As a result, the projected wellhead natural gas price in the AEO2006 reference case from 2016 to 2025 will be consistently higher than the comparable prices in the AEO2005 reference case, by about 30 to 60 cents/Mcf, primarily due to higher exploration and development costs, it said.

The agency projects that wellhead gas prices will fall to $4.46/Mcf in 2016, then rise gradually to $5.40/Mcf in 2025 and to $5.90/Mcf in 2030.

The EIA expects gas consumption to grow during the period, but at a lower rate than it projected last year. It estimates demand will increase to 27 Tcf in 2025 from 22.4 Tcf in 2004, which is 3.7 Tcf less than what it predicted in 2005. The agency said the downsized projection was mostly due to the expected higher gas prices.

“After peaking at 27 Tcf in 2024, natural gas consumption is projected to fall slightly by 2030, as higher natural gas prices result in a larger market share for coal in the electric power sector in the later years of the projection,” it said. “The projected growth in natural gas demand in AEO2006 results primarily from increased use of natural gas for electricity generation and industrial applications, which together account for 62% of the projected demand growth from 2004 to 2025. In addition, demand for natural gas in the residential and commercial sectors is projected to grow by 1.5 Tcf in total from 2004 to 2025.”

Total domestic gas production, excluding supplemental gas supplies, is expected to increase from 18.5 Tcf in 2004 to 21.6 Tcf in 2019, before declining to 20.8 Tcf in 2030 in the AEO2006 reference case, the EIA said. It predicts that production will be about 21.2 Tcf in 2025, just shy of the 21.8 Tcf that it projected for 2025 in last year’s outlook.

“The lower level of domestic natural gas production in the AEO2006 reference case is entirely attributable to lower levels of offshore production,” according to the EIA. “Offshore natural gas production in 2025 is lower…due at least in part to the impacts of Hurricanes Katrina and Rita, which are expected to delay offshore drilling projects because of a lack of rigs and to have a long-term effect on production levels as a result of the slow recovery of production from existing fields.”

Lower 48 offshore production is projected to fall slightly from the 2004 levels of 4.3 Tcf and then grow steadily through 2015, peaking at 5.1 Tcf as new resources come on line in the Gulf of Mexico, the agency noted. But after 2015, it sees Lower 48 offshore production falling to 4.3 Tcf in 2025 and 4 Tcf in 2030. This was a revision from 2005 when the EIA predicted that offshore gas production would increase more rapidly and reach higher levels, peaking at 5.3 Tcf in 2014 before falling to 4.9 Tcf in 2025.

The agency anticipates that deepwater production in the Gulf of Mexico will peak at 3.2 Tcf in 2014 and then decline to 2.1 Tcf in 2030. Likewise, production in the shallow waters of the Gulf will decline throughout the period, from 2.4 Tcf in 2004 to 1.8 Tcf in 2030, it noted.

The Rocky Mountain and Alaska regions are likely to provide most of the increase in domestic gas production through 2030. The EIA anticipates that Lower 48 production of unconventional gas will be a major contributor to the growth in U.S. gas supplies over the next two decades. It sees unconventional gas production accounting for 45% of domestic gas production in 2030, which is up from the EIA’s projection of 39% in 2005. While unconventional gas production may be lower in the mid-term (2006 and 2020), it is estimated it will represent 9.5 Tcf of production in 2030, the agency said.

The EIA noted that construction planning on the Alaska gas pipeline is expected to start soon, and says the line may be completed by 2015. “When the pipeline goes into operation, Alaska’s total natural gas production is projected to increase to 2.2 Tcf in 2025 (from 0.4 Tcf in 2004).”

At the same time, the agency said it projects a continued decline in net pipeline imports from Canada and Mexico, to 1.2 Tcf in 2030, as a result of depletion effects and growing domestic demand in Canada.

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