The U.S. Energy Information Administration has released its yearly long-term outlook of energy markets. EIA, the federal agency in charge of energy statistics and forecasts, uses its Annual Energy Outlook to present its view of energy consumption and production in the United States from now until 2035. They unveiled the 2012 Early Release yesterday, and a few high-level points are worth mentioning:
1. Natural gas production rises over projection period and shale comes to represent half of all dry gas production.
EIA sees shale as a growing and increasingly important resource of natural gas for the county; that there is a lot of gas, and it will be produced. In EIA’s view, shale gas is expected to grow to nearly half of all natural gas production by 2035, spurred by new technology, and a greater push toward more liquids-rich plays due to higher oil prices. In the last few years, natural gas production from shale has propelled from nearly nothing to 5.0 trillion cubic feet in 2010, making it 23 percent of all U.S. gas production that year. Data for 2011 indicates that shale production grew again last year. In the outlook, EIA sees continued growth in shale gas production, increasing to an incredible 13.6 trillion cubic feet in 2035, making it 49 percent of the total U.S. dry gas production.
Natural gas consumption is projected to grow also. More gas will be used for electricity generation, the greatest area growth of gas consumption according to EIA. The agency remains bearish on natural gas for transportation and distributed generation applications like combined heat and power; certainly, natural gas consumption will grow more than EIA’s base case projection if these opportunities are realized. Yet, despite growth in natural gas use, production will exceed consumption. The resulting gap will be filled by greater exports of gas. Exports will increase as the U.S. becomes a net LNG exporter by 2016 and net pipeline exporter by 2021. What does this mean for natural gas prices? EIA’s view is average annual wellhead prices will remain $5 per thousand cubic feet through 2023 and reach $6.52 per thousand cubic feet in 2035. This is still well below price levels seen only a few years ago.In sum, shale gas production will grow faster than end use consumption and the U.S. will move toward being a net shipper of gas to Canada and overseas. Despite this change in dynamics, prices will remain relatively low – which of course is good for consumers and industry here at home.
2. Total U.S. energy-related carbon dioxide emissions remain relatively flat and stay below 2005 levels through 2035.
This strikes me as a remarkable departure from history. From 2010 to 2035, the outlook for energy-related greenhouse gas emissions projects a 3 percent increase in total emissions to 5,806 million metric tons. Why the flattening profile and lack of growth in emissions? Three reasons: 1) Energy efficiency improvements like the corporate average fuel economy standards (CAFE) and appliance and equipment efficiency standards will lower energy consumption. Greater investment in this area could further accelerate these trends. 2) State renewable portfolio standards are increasing renewable build-out and, combined with efficiency improvements, are lessening the carbon intensity of the electric system. And 3) low-cost, competitive natural gas will be substituted for coal-fired electricity generation. New environmental regulations will drive more coal retirements.
A couple key pieces of regulation aren’t included as part of the projection, and it’s possible we might see even lower carbon dioxide emissions projected when the full report, which will include these regulatory additions in the modeling, is released in April. First, the complete Mercury and Air Toxics Standards issued by the U.S. Environmental Protection Agency would likely lead to more coal power plant retirement and thus greater use of lower-carbon natural gas as a substitute. Secondly, proposed fuel economy standards for post-2017 would likely reduce transportation demand in the out years.
One last point I’ll touch on is that the increase in natural gas & oil production means the U.S. will decrease its reliance on foreign oil and increase energy security here at home. As domestic crude oil production increases from 5.5 million barrels today to 6.7 million barrels by 2020, in EIA’s view, net petroleum imports will decrease from 49 percent to 36 percent. By reducing oil exports and producing natural gas energy here at home, we can move toward lower reliance on foreign energy – and perhaps even be a provider of that energy – and increase energy security here at home.
So that’s my quick look at a couple aspects of the AEO early release. There is a lot more in the AEO early release in terms of electricity markets, oil, renewables, and of course natural gas that you can check out here. I’ll try to share more as I page through the Early Release more and find some good nuggets.