EIA gas projections to 2030 identify market changes

Jan. 28, 2008
This energy outlook for natural gas to 2030 was developed by the US Energy Information Administration and focuses on a short-term reference case, Annual Energy Outlook 2008 (AEO2008), which it compares with the Annual Energy Outlook 2007 (AEO2007) reference case.

This energy outlook for natural gas to 2030 was developed by the US Energy Information Administration and focuses on a short-term reference case, Annual Energy Outlook 2008 (AEO2008), which it compares with the Annual Energy Outlook 2007 (AEO2007) reference case.

This early release version does not include consideration of HR 6, the Energy Independence and Security Act of 2007, that was signed into law on Dec. 19, 2007. EIA said a revised reference case, to be released later, will include the impacts of HR 6.

Meanwhile, this reference case assumes that current policies affecting the energy sector remain unchanged throughout the projection period. Policy changes—such as the adoption of policies to reduce greenhouse gas emissions—could change the projections.

While some current laws and regulations will change, and new ones will be created over the next 25 years, no one knows the specifics of what they will be or when they will be enacted. Consequently, this reference case provides a basis against which the impacts of new proposed policies and regulations can be compared.

Trends in energy supply and demand are affected by difficult-to-predict factors: energy prices, US and worldwide economic growth, advances in technologies, and future public policy decisions in the US and in other countries.

Energy markets are changing in response to factors such as the higher energy prices experienced since about 2000, the greater influence of developing countries on worldwide energy requirements, recently enacted legislation and regulations in the US, and changing public perceptions on issues related to the use of alternative fuels, emissions of air pollutants and greenhouse gases, and the acceptability of various energy technologies, among others. The AEO2008 reference case makes several important changes from earlier AEOs to better reflect trends that are expected to persist in the economy and energy markets. The projection for US economic growth, a key determinant of US energy demand, has been lowered, reflecting an updated projection of productivity improvement. Key energy market changes EIA analysts have identified include:

  • Higher oil and gas prices.
  • Higher delivered energy prices, reflecting both higher wellhead prices and transportation and distribution costs.
  • Slower projected growth in energy demand, especially for gas.
  • Faster projected growth in the use of (nonhydroelectric) renewable energy forms.
  • Higher domestic oil production in the near term.
  • Slower projected growth in gas imports.
  • Slower projected growth in energy-related emissions of carbon dioxide.

These important adjustments, however, have limited implications for some parts of the overall energy outlook, and US energy consumption will continue to be met predominantly by traditional fossil fuels, with coal, liquid fuel (excluding biofuels included in liquids), and natural gas meeting 83% of total US primary energy supply requirements in 2030—down only slightly from an 85% share in 2006 despite higher energy prices, lower total energy demand, and increased use of renewable energy compared with AEO2007.

Economic growth

The AEO2008 reference case reflects reduced expectations for economic growth. US gross domestic product increases at an average rate of 2.6%/year during 2006-30, about 0.3 percentage points slower than the rate in the AEO2007 reference case over the same period.

The price of natural gas is higher in the AEO2008 reference case. The real wellhead price of natural gas (in 2006 dollars) declines from current levels through 2017, as new supplies enter the market. After 2017, real natural gas prices rise to $6.60/Mcf ($10.40/Mcf in nominal dollars) in 2030. The higher prices in the AEO2008 reference case reflect an increase in production costs. Higher natural gas prices will be supported by higher oil prices.

Energy consumption

In 2030, the levels of consumption projected for gas is lower in the AEO2008 reference case. Among the more important factors resulting in lower total energy demand will be lower economic growth, higher energy prices, greater use of more-efficient appliances, and slower growth in energy-intensive industries.

Higher delivered energy prices and slower growth in commercial square footage will lead to slower growth in commercial energy consumption. Delivered commercial energy consumption will rise 11.5 quadrillion btu (quads) in 2030 from 8.4 quads in 2006, but almost 1 quad less than in AEO2007.

Since 1997, delivered energy consumption in the US industrial sector has trended downward, falling from about 27 quads in 1997 to 25 quads in 2006. Factors implicit in reducing industrial energy consumption include economic weakness during 2000-03, the hurricanes of 2005 that reduced activity in some subsectors, and rising energy prices.

Total industrial energy consumption in AEO2008 will include strong growth in nontraditional fuels, such as coal-to-liquids and biofuels.

Gas consumption in the AEO2008 reference case is projected sharply lower than in AEO2007 as gas consumption increases to 24.3 tcf in 2016 from 21.8 tcf in 2006, then declines to 23.4 tcf in 2030. Consumption is lower in all areas, particularly in industrial and electric power.

Industrial gas use is 1.3 tcf lower in 2030 in the AEO2008 reference case (8.5 tcf compared with 9.8 tcf in the AEO2007 reference case) because of higher delivered natural gas prices, lower economic growth, and a reassessment of gas use in energy-intensive industries. In 2030, electricity generation accounts for 5.1 tcf of gas use, compared with 5.9 tcf in the AEO2007 prognosis. The lower level of consumption in AEO2008 results from higher gas prices and slower growth in electricity demand.

Electricity generation

In AEO2008, electricity generation from gas-fired power plants is seen increasing sharply to 2007 from 2006 then remaining relatively flat for the next 5 years, before rising slowly through 2016.

The gas share of electricity generation remains 20-21% through 2018, before falling to 14% in 2030. Given the assumed continuation of current energy and environmental policies in the reference case, carbon capture and sequestration (CCS) technology does not come into use during the projection period.

Total electricity generation from nuclear power plants will grow to 949 billion kw-hr in 2030 from 787 billion kw-hr in 2006 in the AEO2008 case, accounting for about 17% of total generation in 2030.

The use of renewable technologies for electricity generation also is stimulated by improved technology, higher fossil fuel prices, and extension of the tax credits in EPACT 2005 legislation.

Gas production, imports

Total domestic gas production, including supplemental gas supplies, will increase to 20.2 tcf in 2021 from 18.6 tcf in 2006 before declining to 19.9 tcf in 2030, EIA predicts. The projections are lower, primarily because of the higher costs associated with exploration and development and, in the last decade of the projection, lower gas demand.

In the AEO2008 case, Lower 48 offshore gas production shows a pattern similar to that in the AEO2007 case, growing to a peak of 4.5 tcf in 2019 from 3 tcf in 2006 as new resources come online in the Gulf of Mexico. Beyond 2019, Lower 48 offshore production will decline to 3.5 tcf in 2030. After a small, near-term increase, onshore conventional gas production will decline steadily, as it did previously.

Onshore production of unconventional gas is expected to be a major contributor to growth in US supply, increasing to 9.5 tcf in 2030 from 8.5 tcf in 2006. As in AEO2007, most of the increase in unconventional production is projected to come from gas shale, which more than doubles over the projection, to 2.3 tcf in 2030 from 1 tcf in 2006.

The Alaska gas pipeline is expected to be completed in 2020, 2 years later than in the AEO2007 reference case because of delays in the resolution of issues between Alaska’s state government and industry participants.

After the pipeline goes into operation, Alaska’s total gas production in the new reference case increases to 2 tcf in 2021 (from 0.4 tcf in 2006) and then to 2.4 tcf in 2030 as the result of a subsequent expansion. The pipeline connecting the MacKenzie Delta in Canada to the US is not constructed in the AEO2008 reference case, unlike in AEO2007, because cost estimates recently filed by the industry substantially exceed the estimates included in AEO2007, and the project is not economical with AEO2008 reference case prices.

Net pipeline imports of gas from Canada and Mexico, predominantly from Canada, fall to 0.5 tcf in 2030 from 2.9 tcf in 2006 (compared with 0.9 tcf in AEO2007). The difference between the projections for 2030 is largely a result of increased exports to Mexico.

The higher level of exports to Mexico will result from a lower assumed growth rate for Mexico’s gas production than in AEO2007. Net imports from Canada also decline, reflecting resource depletion in Alberta and Canada’s growing domestic demand, which are offset somewhat by increases in unconventional gas production from coal seams and tight formations.

Total net LNG imports to the US will increase to 2.9 tcf in 2030 from 0.5 tcf in 2006, compared with 4.5 tcf in 2030. The lower projection is attributable to higher costs throughout the LNG industry, especially in liquefaction, and decreased US gas consumption due to higher gas prices, slower economic growth, and expected greater competition for supplies within the global LNG market.

US LNG regasification capacity will increase to 5.2 tcf in 2009 from 1.5 tcf in 2006, with the addition of five new regasification facilities that currently are under construction (four along the Gulf Coast and one off the coast of New England). Given global LNG supply constraints, overall capacity utilization at US LNG import facilities is expected to remain under 35% through 2013, after which it is expected to increase to 57% in 2017 and remain in the range of 55-58% through 2030.

One of the key uncertainties in the AEO2008 reference case is the future direction of the global LNG market. With many new international players entering LNG markets, competition for the available supply is strong, and supplies available to the US may vary greatly year-to-year. The AEO2008 case has been updated to reflect current market dynamics, which could change considerably as worldwide LNG markets evolve.

Energy intensity

Energy intensity, measured as energy use in 1,000 btu/dollar of GDP (in 2000 dollars), is projected to decline at an average annual rate of 1.6% during 2006-30. Although energy use generally increases as the economy grows, continuing improvement in the energy efficiency of the US economy and a shift to less energy-intensive activities are projected to keep the rate of energy consumption growth lower than the rate of GDP growth.

Population influences demand for travel, housing, consumer goods, and services. Since 1990, population has increased by about 20% and energy consumption by a comparable18% in the US, with annual variations in energy use per capita resulting from variations in weather and economic factors.

The age, income, and geographic distribution of population affect energy consumption growth. The aging of the population, a gradual shift from the North to the South, and rising per-capita income will influence future trends. Overall, population in the reference case increases by 22% to 2030 over 2006.

Over the same period, energy consumption will increase by 24%. The result is an increase in energy consumption per capita at an annual rate of 0.1%/year during 2006-30—slightly slower than in the AEO2007 reference case.