www.eia.gov U.S. Energy Information Administration Independent Statistics & Analysis

The Changing Role of Natural Gas in the United States

Environmental Initiative Katherine Teller, Energy Information Administration September 21, 2012 | St. Paul, Minnesota

U.S. Energy Information Administration

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The U.S. Energy Information Administration (EIA) is the statistical and analytical agency within the U.S. Department of Energy. EIA collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment. EIA is the Nation's premier source of energy information and, by law, its data, analyses, and forecasts are independent of approval by any other officer or employee of the U.S. Government.

Katherine Teller, St. Paul, Minnesota, September 21, 2012

Overview

Katherine Teller, St. Paul, Minnesota, September 21, 2012 3

•  Current natural gas markets and history

•  Short-term outlook

•  Long-term outlook

•  Questions

Current Natural Gas Markets

Katherine Teller, St. Paul, Minnesota, September 21, 2012 4

•  The past several years have been characterized by high supply and relatively low prices.

•  Contributing factors to low 2012 prices included strong supply and weak demand resulting from a very warm winter.

•  Production has remained high despite lower prices.

•  Use of natural gas for electric power generation has increased substantially.

Natural Gas Prices, 2002 – 2012

Katherine Teller, St. Paul, Minnesota, September 21, 2012 5

0

2

4

6

8

10

12

14

16

Jan-

02

Jun-

02

Nov

-02

Apr

-03

Sep

-03

Feb-

04

Jul-0

4 D

ec-0

4 M

ay-0

5 O

ct-0

5 M

ar-0

6 A

ug-0

6 Ja

n-07

Ju

n-07

N

ov-0

7 A

pr-0

8 S

ep-0

8 Fe

b-09

Ju

l-09

Dec

-09

May

-10

Oct

-10

Mar

-11

Aug

-11

Jan-

12

Jun-

12

dollars per MMBtu

Source: Reuters

Growth in shale production has driven strength in supply

Katherine Teller, St. Paul, Minnesota, September 21, 2012 6

Source: Lippman Consulting

0

5,000

10,000

15,000

20,000

25,000

30,000 Ja

n-07

M

ar-0

7 M

ay-0

7 Ju

l-07

Sep

-07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8 S

ep-0

8 N

ov-0

8 Ja

n-09

M

ar-0

9 M

ay-0

9 Ju

l-09

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0 S

ep-1

0 N

ov-1

0 Ja

n-11

M

ar-1

1 M

ay-1

1 Ju

l-11

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Barnett Woodford Fayetteville Haynesville Eagle Ford Marcellus Other

MMcf/d

Natural Gas Prices, 2002 - 2012

Katherine Teller, St. Paul, Minnesota, September 21, 2012 7

•  Prices have created an environment conducive to fuel-switching; ie, displacement of coal generation with natural gas.

•  This has been particularly prevalent in the Southeast and Mid-Atlantic.

•  Most of the current combined-cycle generation capacity was added between 2000 and 2010. These additions have been increasingly utilized over the past six years.

Coal and Natural Gas-Fired Generation Were Equal in April

Katherine Teller, St. Paul, Minnesota, September 21, 2012 8

Source: U.S. Energy Information Administration

0

20

40

60

80

100

120

140

160

180

200

Jan-

07

Mar

-07

May

-07

Jul-0

7 S

ep-0

7 N

ov-0

7 Ja

n-08

M

ar-0

8 M

ay-0

8 Ju

l-08

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9 S

ep-0

9 N

ov-0

9 Ja

n-10

M

ar-1

0 M

ay-1

0 Ju

l-10

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1 S

ep-1

1 N

ov-1

1 Ja

n-12

M

ar-1

2

Coal

Natural Gas

Nuclear

Hydro

Other Renewables

Million megawatt hours

Short-Term Outlook

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Short-Term Outlook

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•  Natural gas prices rise to an average of $3.64 in 2013.

•  Production remains flat over the forecast period.

•  A more normal 2012-2013 winter implies higher residential and commercial consumption.

•  Electric power consumption declines in 2013 as a result of higher prices.

•  The storage injection season ends at 3,950 Bcf, a new record.

Consumption by Sector, 2010 - 2013

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Source: CFTC, Bloomberg

Short-Term Outlook

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•  The Short-Term Energy Outlook expects a decline of more than 2 Bcf/d in electric power consumption in 2013.

•  The decline is related to projected increases in natural gas prices, which make the relative price of coal less expensive.

•  The current STEO also predicts increases in coal-fired generation.

•  Despite the decrease in 2013, natural gas-fired generation will be at historically high levels.

Short-Term Outlook

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•  Commodity price forecasts are highly uncertain.

•  EIA considers a number of factors when forecasting prices, including weather, economic environment, and inventory levels.

Short-Term Outlook

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0

1

2

3

4

5

6

7

8

Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013 Jul 2013

dollars per million btu

Historical spot price STEO forecast price NYMEX futures price 95% NYMEX futures upper confidence interval 95% NYMEX futures lower confidence interval

Source: Short-Term Energy Outlook, September 2012

Note: Confidence interval derived from options market information for the 5 trading days ending September 6, 2012. Intervals not calculated for months with sparse trading in near-the-money options contracts.

Long-Term Outlook

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Long-Term Outlook

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•  The Annual Energy Outlook (AEO) projects out to 2035.

•  The AEO reference case is a “business as usual” case that takes into account current policies and technologies.

•  The AEO runs several side cases to account for uncertainties in policies, prices, and technology.

Katherine Teller, St. Paul, Minnesota, September 21, 2012

Long-Term Outlook

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•  Production increases over the forecast period, with shale gas leading growth in production.

•  Generation from natural gas increases, but coal remains the largest source of power generation.

•  Prices rise generally, varying with economic changes and the cost of production.

•  The U.S. becomes a net exporter of natural gas.

Katherine Teller, St. Paul, Minnesota, September 21, 2012

Natural gas prices, 2009 - 2035

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0

1

2

3

4

5

6

7

8

9

Reference Case High EUR Low EUR

Dollars per MMBtu

Source: Annual Energy Outlook 2012

Electricity generation by fuel, 2010 and 2035

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47% 41% 39% 43%

20% 24% 27% 20%

21% 20% 20% 21%

10% 14% 13% 15%

2010 Reference High EUR (High Shale) Low EUR (Low Shale)

Coal Natural Gas Nuclear Power Renewable Sources 2035

Source: Annual Energy Outlook 2012

Natural gas consumption is quite dispersed; electric power and industrial use drives much of the future demand growth

20

0

5

10

15

20

25

30

2005 2010 2020 2030 2035

U.S. dry gas consumption trillion cubic feet per year

*Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel. Source: EIA, Annual Energy Outlook 2012

Projections History

Industrial*

Electric power

Commercial

Residential

Transportation**

34%

17%

14%

32%

3%

31%

21%

13%

33%

3%

Katherine Teller, St. Paul, Minnesota, September 21, 2012

For more information

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

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

Annual Energy Outlook | www.eia.gov/aeo

International Energy Outlook | www.eia.gov/ieo

Monthly Energy Review | www.eia.gov/mer

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