natural gas markets: recent changes and key drivers

www.eia.govU.S. Energy Information Administration Independent Statistics & Analysis

Natural Gas Markets: Recent Changes and Key Drivers

for

LDC Gas Forum

September 11, 2012| Chicago, Il

by

Howard Gruenspecht, Deputy Administrator

U.S. Natural Gas Injection Season 1999-2012Billion Cubic Feet

Source: U.S. Energy Information Administration Short Term Energy Outlook

2Howard Gruenspecht, LDC Forum September 11, 2012

Natural Gas use for electric powerBillion cubic feet per day

Source: U.S. Energy Information Administration based on Bentek Energy, LLC


U.S. Electricity Output from Natural Gas and Coal

Gigawatthours

Source: U.S. Energy Information Administration Electric Power Monthly


Electric Power Sector Natural Gas Consumption: Sept thru March

Billion cubic feet



Henry Hub Natural Gas Price

Dollars per million btu



Probability of the December 2012 Henry Hub contract expiring above price levels

7

Source: U.S. Energy Information Administration, based on the CME Group

Howard Gruenspecht, LDC Forum September 11, 2012

September Probability Distributions of December Future Contracts With Actual Contract Prices Traded in September

Source: U.S. Energy Information Administration based on Bloomberg, LLC


Primary energy use by fuel, 1980-2035

9

U.S. energy consumption

quadrillion Btu

Source: EIA, Annual Energy Outlook 2012

ProjectionsHistory 2010

Other Renewables

Liquid biofuels

Petroleum and other liquids

Coal

Nuclear

Natural gas

21%

37%

9%

25%

2%

1%

20%

32%

9%

26%

6%4%

Share of total U.S. energy use


Wind, solar, geothermal and biomass

5%

Technically recoverable dry gas resources

Howard Gruenspecht, LDC Forum September 11, 2012 10

U.S. dry gas resources

trillion cubic feet

*Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in previously published documentation.


Domestic natural gas production grows faster than consumption

U.S. dry gas

trillion cubic feet per year



Consumption

Domestic supply

Net imports


273

482

1,460

Global spot natural gas and crude oil prices vary widely

Source: EIA based on Bloomberg as of 6/25/2012

Global spot natural gas and crude oil pricesU.S. dollars per million British thermal unit


2%

Shale gas offsets declines in other U.S. natural gas production sourcesU.S. dry gas production



Non-associated offshore

ProjectionsHistory

Associated with oilCoalbed methane

Non-associated onshore

Shale gas

2010

10%

6%

9%

7%

21%

23%

9%

9%

6%

49%

Alaska 1%

Tight gas26%

22%


Electric power and industrial use drives much of the future domestic natural gas demand growth in the Reference caseU.S. dry gas consumption


*Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel.


ProjectionsHistory

Industrial*

Electricpower

Commercial

Residential

Transportation**

34%

17%

14%

32%

3%

31%

21%

13%

33%

3%


U.S. production of shale gas in four cases, 2000-2035

15

dry natural gas production

trillion cubic feet



High EUR

Reference

Low EUR

High TRR

2010History Projections

Technically Recoverable Resource (TRR)Estimated Ultimate Recovery (EUR)

16

lower-48 average natural gas wellhead price

2010 dollars per thousand cubic feet


Natural gas price projections vary based on resource base assumptions

Low EUR

Reference

High EUR


High TRR


Operating costs: existing plants with and without a value on carbon

• The “crossover point” for least-cost dispatch of coal and natural gas capacity depends on both fuel prices and the carbon value. At lower natural gas prices, the “crossover” occurs at a lower carbon value.

• Environmental operating costs and retrofit costs for pollution controls at existing coal-fired plants can “raise the bar” for their continued operation.

– For retrofit decisions, the unit’s perceived “useful life,” which plays a critical role, can be affected by views regarding future climate policies

Coal at $3

Natural GasCC at $7

Natural Gas CC at $3

Natural GasCC at $4

2010 dollars per megawatthour

Fuel Cost for Existing Coal and Combined Cycle Natural Gas Units with a Value Placed on Carbon Dioxide Emissions

Coal at $2


While electricity consumption grows by 21% over the projection, the annual rate of growth slowspercent growth (3-year rolling average)

Projections

HistoryPeriod Annual Growth1950s 9.81960s 7.31970s 4.71980s 2.91990s 2.42000-2010 1.02010-2035 0.8

Structural Change in Economy - Higher prices - Standards - Improved efficiency

2010



18%

15%

Electricity mix gradually shifts to lower-carbon options, led by growth in renewables and natural gas electricity net generation

trillion kilowatthours per year


2010

24%

20%

45%

10%

1%

38%

28%

1%

Nuclear

Oil and other liquids

Natural gas

Coal

Renewables


The ratio of oil to natural gas prices remains high through 2035 in EIA’s AEO2012 Reference case projection

ratio of oil price to natural gas price


History Projections2010

Oil and natural gas prices2010 dollars per million Btu

History Projections2010

20


For more information

Howard Gruenspecht August 28, 2012 21

U.S. Energy Information Administration home page | www.eia.gov

Today In Energy | www.eia.gov/todayinenergy

Short-Term Energy Outlook | www.eia.gov/steo

Annual Energy Outlook | www.eia.gov/aeo

Monthly Energy Review | www.eia.gov/mer

Howard Gruenspecht August 28, 2012

U.S. Energy Breakdown by Fuel and Sector

22

Source: EIA Annual Energy Review 2010

Underground sources of natural gas

Source: modified from U.S. Geological Survey Fact Sheet 0113-01.

23Howard Gruenspecht Washington, DC - May 16, 2011

Working Underground Natural Gas Storage Capacity Additions, 2008- 2011

Billion cubic feet

Source: U.S. Energy Information Administration Peak Underground Working Natural Gas Storage Capacity Report


natural gas markets: recent changes and key drivers

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