Because estimated technically recoverable shale gas resources have doubled in a year, the annual average natural gas wellhead price will remain under $5/Mcf through 2022, the Energy Information Administration (EIA) said Thursday.
EIA’s projections about prices and gas resources are part of its Annual Energy Outlook 2011 (AEO2011). The final report, to be published early next year, annually updates trends and issues that could impact U.S. energy markets through 2035; the previous report was published a year ago (see Daily GPI, Dec. 15, 2009). The report also is to serve as a starting point to analyze potential changes in energy policies, rules or regulations.
“Our reference case projection shows the growing importance of natural gas from domestic shale gas resources in meeting U.S. energy demand and lowering natural gas prices,” said EIA Administrator Richard Newell during a press conference. “Energy efficiency improvements and the increased use of renewables are other key factors that moderate the projected growth in energy-related greenhouse gas emissions.”
One of the biggest changes to the newest reference case is the reduced projections for natural gas prices. Gas wellhead prices (in 2009 dollars) are expected to hit $6.53/Mcf in 2035, well below the $8.19 projection of a year ago.
Gas pricing today is less influenced by oil prices, EIA noted, and because of the huge increase in the estimated amount of shale gas reserves, wellhead prices may not average above $5/Mcf to 2022. However, prices after that should increase “because significantly more shale wells must be drilled to meet growth in natural gas demand and offset declines in natural gas production from other sources. As the shale gas resource base is developed, production gradually shifts to resources that are somewhat less productive and more expensive to produce.”
Among the key changes from last year’s reference case (AEO2010) include:
“The technically recoverable unproved shale gas resource is 827 Tcf (as of Jan. 1, 2009) in the AEO2011 reference case, 474 Tcf larger than in the AEO2010 reference case, reflecting additional information that has become available with more drilling activity in new and existing shale plays,” the report said. “The larger resource leads to about double the shale gas production and over 20% higher total Lower 48 natural gas production in 2035, with lower natural gas prices, than was projected in the AEO2010 reference case.”
Last month EIA reported that domestic gas proved reserves increased by 11% in 2009 to 284 Tcf, which is the highest level since 1971 (see Daily GPI, Dec. 1).
Projected demand for energy imports is moderated from last year because of increased use of “domestically produced biofuels, demand reductions resulting from the adoption of new efficiency standards and rising energy prices,” said EIA. “Rising fuel prices also spur domestic energy production across all fuels, which moderates growth in energy imports. The net import share of total U.S. energy consumption in 2035 is 18%, compared with 24% in 2009.”
The fastest growing fuels used to generate electricity are natural gas and “nonhydro” renewables, “but coal remains the dominant fuel because of the large amount of existing capacity.” However, EIA “is not projecting any new central station coal-fired plants…beyond those already under construction or supported by clean coal incentives.”
The generation share from renewable resources increases to 14% in 2035 from 11% in 2009 to 14 percent in response to “federal tax credits in the near term and state requirements in the long term.”
Natural gas also is to play “a growing role due to lower natural gas prices and relatively low capital construction costs that make it more attractive than coal.” The share of generation from natural gas increases to 25% in 2035 from 23% in 2009. Industrial natural gas demand also is expected to grow “sharply” in the near term, to 9.4 Tcf in 2020 from 7.3 Tcf in 2009.
“This growth reverses the recent downward trend, as a result of a strong recovery in near-term industrial production, growth in combined heat and power, and relatively low natural gas prices,” EIA stated.
Assuming there are no changes in policy related to GHG, carbon dioxide emissions “grow slowly, but do not again reach 2005 levels until 2027.”
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