The U.S. Energy Information Administration said in a report released Dec. 5 that the U.S. is now expected to become a net exporter of natural gas earlier than estimated a year ago.
Because quickly rising natural gas production outpaces domestic consumption, the U.S. will become a net exporter of liquefied natural gas (LNG) in 2016 and a net exporter of total natural gas (including via pipelines) in 2020, the agency said.
EIA came to that conclusion in its Annual Energy Outlook 2013 (AEO2013) Reference case, which highlights a growth in total U.S. energy production that exceeds growth in total U.S. energy consumption through 2040.
“EIA’s updated Reference case shows how evolving consumer preferences, improved technology, and economic changes are pushing the nation toward more domestic energy production, greater vehicle efficiency, greater use of clean energy, and reduced energy imports,” said EIA Administrator Adam Sieminski. “This combination has markedly reduced projected energy-related carbon dioxide emissions.”
The AEO2013 Reference case focuses on the drivers that shape U.S. energy markets under the assumption that current laws and regulations remain generally unchanged throughout the projection period. The complete AEO2013, to be released in early 2013, will include many alternative cases in recognition of the uncertainty inherent in making projections about energy markets, which in part is due to assumptions about policies and other market drivers such as trends in prices and economic growth.
Key updates made for the AEO2013 Reference case include:
- Extension of the projection period through 2040, an additional five years beyond AEO2012.
- A revised outlook for industrial production to reflect the impacts of increased shale gas production and lower natural gas prices, which result in faster growth for industrial production and energy consumption. The industries affected include, in particular, bulk chemicals and primary metals.
- Updated modeling of LNG export potential.
- Updated power generation unit costs that capture recent cost declines for some renewable technologies, which tend to lead to greater use of renewable generation, particularly solar technologies.
Natural gas output grows in latest projections
Natural gas production is higher throughout the AEO2013 Reference case projection than it was in AEO2012, with natural gas increasingly serving the industrial and electric power sectors, as well as an expanding export market. Relatively low natural gas prices, aided by growing shale gas production, spur increased use in the industrial and electric power sectors, particularly over the next 15 years. Natural gas use (excluding lease and plant fuel) in the industrial sector increases by 16%, from 6.8 trillion cubic feet per year in 2011 to 7.8 trillion cubic feet per year in 2025.
Although natural gas also continues to capture a growing share of total electricity generation, natural gas consumption by power plants does not increase as sharply as generation because new plants are very efficient, EIA noted. After accounting for 16% of total generation in 2000, the natural gas share of generation rose to 24% in 2010 and is expected to continue increasing, to 27% in 2020 and 30% in 2040.
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. The higher level of production leads to greater industrial natural gas demand (excluding lease and plant fuel), which grows to more than 8.3 quadrillion Btu in 2035 in AEO2013, compared to 7.2 quadrillion Btu in 2035 in AEO2012.
The share of generation from renewables grows from 13% in 2011 to 16% in 2040. Electricity generation from solar and, to a lesser extent, wind sources grows as recent cost declines make them more economical. However, the AEO2013 projection is less optimistic than AEO2012 about the ability of advanced biofuels to capture a rapidly growing share of the liquid fuels market. As a result, biomass use in AEO2013 totals 4.2 quadrillion Btu in 2035 (compared to 5.4 quadrillion Btu in AEO2012) and 4.9 quadrillion Btu in 2040, up from 2.7 quadrillion Btu in 2011.
With improved efficiency of energy use and a shift away from the most carbon-intensive fuels, U.S. energy-related CO2 emissions remain more than 5% below their 2005 level through 2040. Total U.S. energy-related CO2 emissions do not return to their 2005 level (5,997 million metric tons) by the end of the AEO2013 projection period. Emissions from coal use in the generation of electricity are lower as power generation shifts from coal to lower-carbon fuels, including natural gas and renewables.
With increasing natural gas production, reflecting continued success in tapping the nation’s extensive shale gas, Henry Hub spot natural gas prices remain below $4/mmBtu (2011 dollars) through 2018 in the AEO2013 Reference case. The resilience of drilling activity, 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), EIA noted.
Notable is that the $3-$4/mmBtu range for natural gas is about the breakeven point for coal-fired generation to compete with gas, so a long-term gas price hovering around $4/mmBtu leaves little margin for error for coal producers and coal-fired power generators.
After 2018, natural gas prices 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, EIA reported. Natural gas prices rise as lower cost resources are depleted and production gradually shifts to less productive and more expensive resources. Henry Hub spot natural gas prices (in 2011 dollars) reach $5.40/mmBtu in 2030 and $7.83/mmBtu in 2040.
Coal projected by EIA for moderate price increases
The average minemouth price of coal increases by 1.4% per year in the AEO2013 Reference case, from $2.04/mmBtu in 2011 to $3.08/mmBtu in 2040 (2011 dollars). The upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine, EIA said.
The upward trend in the minemouth price of coal in the AEO2013 Reference case is similar to the trend in the AEO2012 Reference case, but the average price through the projection period in AEO2013 is generally higher, primarily because of the smaller share of total coal output accounted for by production from lower-cost mines in the West and higher price projections for coking coal.
Following the recent rapid decline of natural gas prices, real average delivered electricity prices in the AEO2013 Reference case fall from 9.9 cents per kilowatthour in 2011 to as low as 9.2 cents per kilowatthour in 2015, as natural gas prices remain relatively low. The relationship between retail electricity prices and natural gas prices is complex, and many factors influence the degree to which and the timeframe over which they are linked, EIA said. These factors include the share of natural gas generation in a region, the level of costs associated with electricity transmission and distribution systems not directly linked to fuel costs, the mix of competitive versus cost-of-service pricing, and the number of customers that purchase power directly from wholesale power markets.
In the AEO2013 Reference case, electricity prices are lower throughout the projection than they were in the AEO2012 Reference case. Natural gas prices to electricity generators are significantly lower than those in AEO2012 in the first few years and are between 3% and 5% lower from 2025 to 2035, while the cost of coal is higher after 2015. As a result, reliance on gas-fired generation in the electric power sector increases, with lower operating costs per kilowatthour than in AEO2012. In the long term, however, both natural gas prices and electricity prices rise. Electricity prices in 2035 are 10.1 cents per kilowatthour (2011 dollars) in the AEO2013 Reference case, compared with 10.3 cents per kilowatthour in the AEO2012 Reference case. In AEO2013, the prices continue rising to 10.8 cents per kilowatthour in 2040.