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Increased natural gas production will meet most demand

Hydrocarbon Engineering,

According to the US Energy Information Administration (EIA), increased natural gas production is projected to satisfy 60 – 80% of a potential increase in demand for LNG exports from the lower 48 states. A recent report by the EIA, ‘Effect of Increased Levels of Liquefied Natural Gas Exports on US Energy Market’, considered the long term effects of several LNG export scenarios specified by the Department of Energy’s Office of Fossil Fuel Energy (FE). The study also considered implications for natural gas prices, consumption, primary energy use, and energy related emissions. Effects on overall economic growth were positive but modest.

In the export scenarios that EIA was asked to analyse, LNG exports from the lower 48 states start in 2015 and increase at a rate of 2 billion ft3/d per year, ultimately reaching 12, 16 or 20 billion ft3/d. EIA also included a 20 billion ft3/d export scenario (Alt 20 billion ft3/d) with a delayed ramp up to identify the effect of higher LNG exports implemented at a more credible pace.

EIA looked at these scenarios in the context of five cases from its Annual Energy Outlook 2014 (AEO2014) that reflect different supply and demand assumptions. The cases used in the study were: EIA’s Reference, Low Oil and Gas Resource (LOGR), High Oil and Gas Resources (HOGR), High Economic Growth (HEG), and Accelerated Coal and Nuclear Retirements (ACNR). The five AEO2014 cases used as baselines in the study already include some amount of LNG exports from the lower 48 states. The LNG exports in the AEO2014 baseline cases, rather than the scenarios specified for this study, reflect EIA’s own views on future LNG exports.

LNG exports from the lower 48 states in the baselines have projected 2040 levels ranging from 3.3 billion ft3/d (LOGR case) to 14.0 billion ft3/d (HOGR case). Estimated price and market responses to each pairing of a specified export scenario and a baseline will reflect the additional amount of LNG exports needed to reach the targeted export level starting from that baseline.

With the exception of one baseline/scenario pairing, higher natural gas production satisfies 60 – 80% of the increase in natural gas demand from LNG exports during 2015 – 2040. With the exception of the HOGR case, more than 70% of the increased production comes from shale resources.

Natural gas used in the electric power sector accounts for 52 – 69% of the decline in consumption that occurs when implementing the export scenarios, contributing 9 – 17% to volumes needed to support increased LNG export demand (excluding the HOGR 12 billion ft3/d scenario). The electric generation mix shifts towards other generation sources, including coal and renewables, with some decrease in total generation as electricity prices rise.

Projected average natural gas prices at the producer level are 4 – 11% above the Reference case across the export scenarios during 2015 – 2040. Generally, natural gas prices increase relative to their respective base cases, with the greatest impact during the 2015 – 2025 timeframe when LNG exports are ramping up. The least and greatest price changes occur when the export scenarios are considered using HOGR and LOGR baselines, respectively, because implementing the export scenarios from these baselines requires the least and greatest change in export levels.

Although the increases in natural gas prices at the producer level translate to similar absolute increases in delivered prices to customers, the percentage change in prices that industrial and electric customers pay tends to be somewhat lower than the change in the producer price, according to the EIA. And the percentage change in prices that residential and commercial customers pay is significantly lower.

These lower values are because delivered prices include transportation charges (for most customers) and distribution charges (especially for residential and commercial customers) that do not vary significantly across export scenarios. For example, while the natural gas supply price increases across the three export scenarios range from 4 – 11% in the Reference case, the corresponding percentage increases residential prices range from 2 - 5%.

On average, from 2015 – 2040, natural gas bills paid by end use consumers in the residential, commercial, and industrial sectors combined increase 1 – 8% across pairings of exports scenarios and baselines. Increases in electricity bills paid by end use customers range from 0 – 3%.

Adapted from a press release by Emma McAleavey.

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