In the early release of its Annual Energy Outlook for 2013 (AEO2013), the Energy Information Administration (EIA) projects that natural gas production will continue to grow during the entire forecast period, with the industry increasingly serving the industrial and electric power sectors, as well as an expanding export market.
“Relatively low natural gas prices, facilitated by growing shale gas production, [will] spur increased use in the industrial and electric power sectors, particularly over the next 15 years,” according to the reference case in the AEO2013, which was released Wednesday. The reference case assumes that all laws and regulations affecting energy will remain unchanged throughout the projection period, which extends through 2040.
The entire AEO2013 report will be released early next year.
The EIA sees gas use (excluding lease and plant fuel) by the industrial sector increasing by 16% to 7.8 Tcf/year in 2025 from 6.8 Tcf in 2011. “Industrial production grows more rapidly in AEO2013 due to the benefit of strong growth in shale gas production and an extended period of relatively low natural gas prices, which lower the costs of both raw materials and energy, particularly through 2025.”
While gas will continue to capture a growing share of total electricity generation, gas consumption by power plants probably won’t grow as sharply because the newer plants will be more efficient. After accounting for 16% of total generation in 2000, gas’ share of generation rose to 24% in 2010 and is expected to rise to 27% in 2020 and to 30% in 2040, the EIA said.
The agency sees gas becoming more competitive with coal in the generation market. “Natural gas prices to electricity generators are significantly lower than those in [last year’s report] AEO2012 in the first few years and are between 3% and 5% lower from 2025 and 2035, while the cost of coal is higher after 2015.”
In the EIA reference case, natural gas also reaches other new markets, such as exports, as a fuel for heavy-duty trucks and as a feedstock for producing diesel and other fuels. Natural gas in vehicles amounts to about 1.7 Tcf (including gas-to-liquids technology) by 2040, displacing 0.7 million b/d of other motor fuels, the agency said.
Natural gas will be the dominant fuel during the forecast period, said EIA Administrator Adam Sieminski.
Due in large part to the onslaught of shale gas, the EIA projects that dry gas production will increase throughout the period, outpacing domestic consumption by 2020 and spurring net exports of natural gas. By 2025, it sees dry gas volumes climbing to 28.59 Tcf, rising to 31.35 Tcf by 2035 and to 33.14 Tcf by 2040. All three of the projections are more optimistic than what the EIA projected last year for those years.
The EIA sees the United States becoming a new exporter of liquefied natural gas (LNG) starting in 2016, and a net exporter of gas (including via pipelines) in 2020. It projects that LNG exports will rise to about 1.6 Tcf by 2027, almost double the 0.8 Tcf projected last year in the AEO2012. The agency anticipates that the United States will become less dependent on foreign energy over the forecast period. Energy imports will fall to 9% in 2040, compared with 19% in 2011 and 30% in 2005, it said.
For 2025, the EIA raised its projection for consumption to 27.28 quadrillion Btu from 26.14 quadrillion Btu that it projected last year. It forecasts that gas demand will grow to 29.06 quadrillion Btu by 2035 and 29.83 quadrillion Btu by 2040.
The agency sees Henry Hub spot gas prices remaining below $4.00 MMBtu (2011 dollars) through 2018.
“The resilience of drilling activity [during this period], despite low natural gas prices, is in part a result of high crude oil prices, which significantly improve the economics of natural gas plays that have relatively high liquids content (crude oil, lease condensates and natural gas liquids,” the EIA said.
After 2018, gas prices “[will] increase steadily as tight gas and shale gas drilling activity expands to meet growing domestic demand for natural gas and offsets declines in natural gas production from other sources. Natural gas prices rise as lower cost resources are depleted and production gradually shifts to less productive and more expensive resources,” according to the AEO2013 reference case. It anticipates that Henry Hub gas prices (in 2011 dollars) will reach $5.40 MMBtu in 2030 and $7.83 MMBtu in 2040.
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