EIA updates energy outlook reference case

By OGJ editors
HOUSTON, Apr. 28
-- Strong growth in shale gas production, increasing use of natural gas and renewable energy sources in electric power generation, and declining reliance on imported liquid fuels are some of the findings in the latest energy outlook from the US Energy Information Administration.

EIA’s Annual Energy Outlook 2011 (AEO2011) focuses on US energy market developments over the long term. The reference case in AEO2011 examines energy production, consumption, technology, and market trends and their possible future directions. The outlook also includes 57 sensitivity cases that look at areas of uncertainty for markets, technologies, and policies in the US energy economy.

While some projections are unchanged, this outlook has been updated from the reference case that was released as part of the AEO2011 Early Release Overview in December 2010. The reference case was updated to incorporate modeling changes and reflect new legislation or regulation that was not available when the Early Release Overview version of the reference case was published.

Oil demand, imports
In the reference case, real US gross domestic product grows by 2.7%/year from 2009-35, and oil prices climb to about $125/bbl in 2035; as a result, net imports meet a major but declining share of total US energy demand.

The need for energy imports is offset not only by the increased use of US-produced biofuels, but also by demand reductions resulting from the adoption of new vehicle fuel economy standards and by rising energy prices, according to the AEO2011. Rising fuel prices also will spur US energy production across all fuels, particularly natural gas from shale gas resources, and limit import growth. The net import share of total US energy consumption in 2035 is 17%, compared with 24% in 2009. The share was 29% in 2007, but it dropped during the 2008-09 recession.

Total US consumption of liquid fuels, including fossil fuels and biofuels, rises to 21.9 million b/d in 2035 in the reference case from about 18.8 million b/d in 2009. Oil demand for transportation fuels climbs about 2.5 million b/d, but oil demand for all other uses is flat over the period.

Liquids import dependency, which reached 60% in 2005 and 2006 before falling to 51% in 2009, falls to 42% in 2035.

US oil production
Rising world oil prices, growing shale oil resources, and increased production using enhanced oil recovery techniques contribute to increased US oil production to 2035 in the AEO2011 reference case. From 2009 to 2035, US crude oil production is forecast to increase by about 600,000 b/d.

Bakken shale oil contributes to oil production growth in the Rocky Mountain region, and growth in the Gulf Coast region is spurred by resources in the Eagle Ford and Austin Chalk formations, while some of the decline in oil production in the southwestern US is offset by production from the Avalon shale formation, according to the outlook.

Lower 48 offshore production increases by 13% between 2009 and 2035 in the reference case. According to the recent Bureau of Ocean Energy Management, Regulation, and Enforcement leasing plan, lease sales in the Mid-Atlantic and South-Atlantic Outer Continental Shelf will not occur before 2017. Oil shale liquid production, which comes on line in the Rocky Mountain region in 2029 in the reference case, accounts for about 2% of total US oil production in 2035.

Natural gas liquids production in the base case increases by 1 million b/d to 2.9 million b/d in 2035, mainly as a result of strong growth in gas shale production, which tends to have relatively large amounts of liquids associated with it. Meanwhile, US biomass-to-liquids production increases to 516,000 b/d, and coal-to-liquids production rises to 550,000 b/d in 2035.

Gas supplies, prices
US shale gas production in 2035 will grow to 12.2 tcf, comprising nearly half of total US gas production. This compares to a 16% share in 2009. The AEO2011 calls for total US gas production to climb to 26.3 tcf in 2035, up from 21 tcf in 2009.

The estimate for technically recoverable unproved shale gas resources in the reference case is 827 tcf. Although more information is gathered from increased drilling activity in shale gas plays, estimates of technically recoverable resources and well productivity remain highly uncertain, the outlook said.

The alternative cases in AEO2011 examine the potential impacts of variation in the estimated ultimate recovery per shale gas well and the assumed recoverability factor used to estimate how much of the play acreage contains recoverable shale gas. In those cases, estimates of total US natural gas production in 2035 vary between 22.4 tcf and 30.1 tcf.

Unlike oil prices, natural gas prices do not return to the higher levels recorded before the 2007-09 recession, AEO2011 said. The projected Henry Hub spot price for gas in 2035 (in 2009 dollars) ranges from $5.35/Mcf to $9.26/Mcf in the alternative cases, compared with $7.07/Mcf in the reference case.

Gas in electricity generation
AEO2011 finds that despite rapid growth in generation from natural gas and renewable energy sources excluding hydropower, coal continues to account for the largest share of electricity generation, but proposed environmental regulations could alter the power generation fuel mix.

The range of coal plant retirements varies considerably across the cases in the outlook, but in all, coal accounts for the largest share of electricity generation through 2035.

”Electricity generation from natural gas is higher in 2035 in all the environmental regulation sensitivity cases than in the reference case. The faster growth in electricity generation with natural gas is supported by low natural gas prices and relatively low capital costs for new natural gas plants, which improve the relative economics of gas when regulatory pressure is placed on the existing coal fleet,” the outlook said.

The AEO2011 reference case finds that assuming no changes in policy related to greenhouse gas emissions, carbon dioxide emissions will grow slowly and will not return to 2005 levels until 2027. This is due to a combination of modest economic growth, growing use of renewable technologies and fuels, efficiency improvements, slower growth in electricity demand in part because of the recent recession, and more use of natural gas, which is the outlook says is less carbon-intensive than other fossil fuels.

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