‹ Analysis & Projections

Annual Energy Outlook 2014

Release Dates: April 7 - 30, 2014   |  Next Early Release Date: December 2014   |  See schedule

Natural Gas from Executive Summary

The United States becomes a net exporter of natural gas


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U.S. dry natural gas production increases 1.3 percent per year throughout the Reference case projection, outpacing domestic consumption by 2019 and spurring net exports of natural gas (Figure 2). Higher volumes of shale gas production are central to higher total production volumes and a transition to net exports. As domestic supply has increased in recent years, natural gas prices have declined, making the United States a less attractive market for imported natural gas and more attractive for export.

U.S. net exports of natural gas grow to 3.6 trillion cubic feet in 2040 in the Reference case. Most of the projected growth in U.S. exports consists of pipeline exports to Mexico, which increase steadily as growing volumes of imported natural gas from the United States fill the widening gap between Mexico's production and consumption. Declining natural gas imports from Canada also contribute to the growth in U.S. net exports. Net U.S. imports of natural gas from Canada decline sharply from 2016 to 2022, then stabilize somewhat before dropping off again in the final years of the projection, as continued growth in domestic production mitigates the need for imports.

Continued low levels of liquefied natural gas (LNG) imports in the projection period, combined with increased U.S. exports of domestically sourced LNG, position the United States as a net exporter of LNG by 2016. U.S. exports of domestically sourced LNG (excluding exports from the existing Kenai facility in Alaska) begin in 2016 and rise to a level of 1.6 trillion cubic feet per year in 2027. One-half of the U.S. exports of LNG originate from the Lower 48 states and the other half from Alaska. The prospects for exports are highly uncertain, however, depending on many factors that are difficult to gauge, such as the development of new production capacity in foreign countries, particularly from deepwater reservoirs, shale gas deposits, and the Arctic. In addition, future U.S. exports of LNG depend on a number of other factors, including the speed and extent of price convergence in global natural gas markets and the extent to which natural gas competes with liquids in domestic and international markets.

In the High Oil and Gas Resource case, with more optimistic resource assumptions, U.S. LNG exports grow to more than 4 trillion cubic feet in 2040. Most of the additional exports originate from the Lower 48 states.

Coal's share of electric power generation falls over the projection period


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Although coal is expected to continue its important role in U.S. electricity generation, there are many uncertainties that could affect future outcomes. Chief among them are the relationship between coal and natural gas prices and the potential for policies aimed at reducing greenhouse gas (GHG) emissions. In 2012, natural gas prices were low enough for a few months for power companies to run natural gas-fired generation plants more economically than coal plants in many areas. During those months, coal and natural gas were nearly tied in providing the largest share of total electricity generation, something that had never happened before. In the Reference case, existing coal plants recapture some of the market they recently lost to natural gas plants because natural gas prices rise more rapidly than coal prices. However, the rise in coal-fired generation is not sufficient for coal to maintain its generation share, which falls to 35 percent by 2040 as the share of generation from natural gas rises to 30 percent.


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In the alternative High Oil and Natural Gas Resource case, with much lower natural gas prices, natural gas supplants coal as the top source of electricity generation (Figure 3). In this case, coal accounts for only 27 percent of total generation in 2040, while natural gas accounts for 43 percent. However, while natural gas generation in the power sector surpasses coal generation in 2016 in this case, more coal energy than natural gas energy is used for power generation until 2035 because of the higher average thermal efficiency of the natural gas-fired generating units. Coal use for electric power generation falls to 14.7 quadrillion Btu in 2040 in the High Oil and Natural Gas Resource case (compared with 18.7 quadrillion Btu in the Reference case), while natural gas use rises to 15.1 quadrillion Btu in the same year (Figure 4). Natural gas use for electricity generation is 9.7 quadrillion Btu in 2040 in the Reference case.


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Coal's generation share and the associated carbon dioxide (CO2) emissions could be further reduced if policies aimed at reducing GHG emissions were enacted (Figure 5). For example, in the GHG15 case, which assumes a fee on CO2 emissions that starts at $15 per metric ton in 2014 and increases by 5 percent per year through 2040, coal's share of total generation falls to 13 percent in 2040. Energy-related CO2 emissions also fall sharply in the GHG15 case, to levels that are 10 percent, 15 percent, and 24 percent lower than projected in the Reference case in 2020, 2030, and 2040, respectively. In 2040, energy-related CO2 emissions in the GHG15 case are 28 percent lower than the 2005 total. In the GHG15 case, coal use in the electric power sector falls to only 6.1 quadrillion Btu in 2040, a decline of about two-thirds from the 2011 level. While natural gas use in the electric power sector initially displaces coal use in this case, reaching more than 10 quadrillion Btu in 2016, it falls to 8.8 quadrillion Btu in 2040 as growth in renewable and nuclear generation offsets natural gas use later in the projection period.

Natural gas consumption grows in industrial and electric power sectors as domestic production also serves an expanding export market


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Relatively low natural gas prices, maintained by growing shale gas production, spur increased use in the industrial and electric power sectors, particularly over the next decade. In the Reference case, natural gas use in the industrial sector increases by 16 percent, from 6.8 trillion cubic feet per year in 2011 to 7.8 trillion cubic feet per year in 2025. After 2025, the growth of natural gas consumption in the industrial sector slows, while total U.S. consumption continues to grow (Figure 7). This additional growth is mostly for use in the electric power sector. Although natural gas 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 (needing less fuel per unit of power output). The natural gas share of generation rose from 16 percent of generation in 2000 to 24 percent in 2011 and increases to 27 percent in 2025 and 30 percent in 2040. Natural gas use in the residential and commercial sectors remains nearly constant, as increasing end-use demand is balanced by increasing end-use efficiency.

Natural gas consumption also grows in other markets in the Reference case, including heavy-duty freight transportation (trucking) and as a feedstock for GTL production of diesel and other fuels. Those uses account for 6 percent of total U.S. natural gas consumption in 2040, as compared with almost nothing in 2011.

Natural gas use in the electric power sector grows even more sharply in the High Oil and Natural Gas Resource case, as the natural gas share of electricity generation grows to 39 percent, reaching 14.8 trillion cubic feet in 2040, more than 55 percent greater than in the Reference case. Industrial sector natural gas consumption growth is also stronger in this case, with growth continuing after 2025 and reaching 13.0 trillion cubic feet in 2040 (compared to 10.5 trillion cubic feet in 2040 in the Reference case). Much of the industrial growth in the High Oil and Natural Gas Resource case is associated with natural gas use for GTL production and increased lease and plant use in natural gas production.

Renewable fuel use grows at a faster rate than fossil fuel use


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The share of U.S. electricity generation from renewable energy grows from 13 percent in 2011 to 16 percent in 2040 in the Reference case. Electricity generation from solar and, to a lesser extent, wind energy sources grows as their costs decline, making them more economical in the later years of the projection. However, the rate of growth in renewable electricity generation is sensitive to several factors, including natural gas prices and the possible implementation of policies to reduce GHG emissions. If future natural gas prices are lower than projected in the Reference case, as illustrated in the High Oil and Gas Resource case, the share of renewable generation would grow more slowly, to only 14 percent in 2040. Alternatively, if broad-based policies to reduce GHG emissions were enacted, renewable generation would be expected to grow more rapidly. In three cases that assume GHG emissions fees that range from $10 to $25 per metric ton in 2014 and rise by 5 percent per year through 2040 (GHG10, GHG15, and GHG25), the renewable share of total U.S. electricity generation in 2040 ranges from 23 percent to 31 percent (Figure 8).

The AEO2013 Reference case reflects a less optimistic outlook for advanced biofuels to capture a rapidly growing share of the liquid fuels market than earlier Annual Energy Outlooks. As a result, biomass use in the Reference case totals 5.9 quadrillion Btu in 2035 and 7.1 quadrillion Btu in 2040, up from 4.0 quadrillion Btu in 2011.

Natural Gas from Market Trends

Energy expenditures decline relative to gross domestic product and gross output


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Total U.S. energy expenditures decline relative to GDP [125] in the AEO2013 Reference case (Figure 47). The projected ratio of energy expenditures to GDP averages 6.8 percent from 2011 to 2040, which is below the historical average of 8.8 percent from 1970 to 2010.


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Figure 48 shows nominal energy expenditures relative to U.S. gross output, which roughly correspond to sales in the U.S. economy. Thus, the figure gives an approximation of total energy expenditures relative to total sales. Energy expenditures as a share of gross output show nearly the same pattern as their share of GDP, declining through 2040. The average shares of gross output relative to expenditures for total energy, petroleum, and natural gas, at 3.5 percent, 2.2 percent, and 0.4 percent, are close to their historical averages of 4.2 percent, 2.1 percent, and 0.7 percent, respectively.

Production of liquid fuels from biomass, coal, and natural gas increases


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In 2011, world production of liquid fuels from biomass, coal, and natural gas totaled 2.1 million barrels per day, or about 2 percent of the energy supplied by all liquid fuels. In the AEO2013 Reference case, production from the three sources grows to 5.7 million barrels per day in 2040 (Figure 51), or about 4 percent of the energy supplied by all liquid fuels.

In the Low Oil Price case, production of liquid fuels from these sources grows to 6.7 million barrels per day in 2040, as technology development is faster than projected in the Reference case, making the liquids easier to produce at lower cost, and demand for ethanol for use in existing blend ratios is higher. In the High Oil Price case, production grows to 9.1 million barrels per day in 2040, as higher prices stimulate greater investment in advanced liquid fuels technologies.

Across the three oil price cases, the largest contributions to production of advanced liquid fuels come from U.S. and Brazilian biofuels. In the Reference case, biofuel production totals 4.0 million barrels per day in 2040, and production of gas-to-liquids (GTL) and coal-to-liquids (CTL) fuels accounts for 1.7 million barrels per day of additional production in 2040. Biofuels production in 2040 totals 5.5 million barrels per day in the Low Oil Price case and 5.9 million barrels per day in the High Oil Price case. The projections for CTL and GTL production are more sensitive to world oil prices, varying from 1.2 million barrels per day in the Low Oil Price case to 3.3 million barrels per day in the High Oil Price case in 2040. In the Reference case, the U.S. share of world GTL production in 2040 is 36 percent, as recent developments in domestic shale gas supply have contributed to optimism about the long-term outlook for U.S. GTL plants.

Renewables and natural gas lead rise in primary energy consumption


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The aggregate fossil fuel share of total energy use falls from 82 percent in 2011 to 78 percent in 2040 in the Reference case, while renewable use grows rapidly (Figure 54). The renewable share of total energy use (including biofuels) grows from 9 percent in 2011 to 13 percent in 2040 in response to the federal renewable fuels standard; availability of federal tax credits for renewable electricity generation and capacity during the early years of the projection; and state renewable portfolio standard (RPS) programs.

Natural gas consumption grows by about 0.6 percent per year from 2011 to 2040, led by the increased use of natural gas in electricity generation and, at least through 2020, the industrial sector. Growing production from tight shale keeps natural gas prices below their 2005-2008 levels through 2036. In the AEO2013 Reference case, the amount of liquid fuels made from natural gas (360 trillion Btu) is about three times the amount made from coal.

Increased vehicle fuel economy offsets growth in transportation activity, resulting in a decline in the petroleum and other liquids share of fuel use even as consumption of liquid biofuels increases. Biofuels, including biodiesel blended into diesel, E85, and ethanol blended into motor gasoline (up to 15 percent), account for 6 percent of all petroleum and other liquids consumption by energy content in 2040.

Coal consumption increases at an average rate of 0.1 percent per year from 2011 to 2040, remaining below 2011 levels until 2030. By the end of 2015, a total of 6.1 gigawatts of coal-fired power plant capacity currently under construction comes on line, and another 1.5 gigawatts is added after 2016 in the Reference case, including 0.9 gigawatts with carbon sequestration capability. Additional coal is consumed in the CTL process and to produce heat and power (including electricity generation at CTL plants).

Reliance on natural gas, natural gas liquids, and renewables rises as industrial energy use grows


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Much of the growth in industrial energy consumption in the AEO2013 Reference case is accounted for by natural gas use, which increases by 18 percent from 2011 and 2025 and by 6 percent from 2025 to 2040 (Figure 64). With domestic natural gas production increasing sharply in the projection, natural gas prices remain relatively low. The mix of industrial fuels changes relatively slowly, however, reflecting limited capability for fuel switching in most industries.

Consumption of renewable fuels in the industrial sector grows by 22 percent from 2011 to 2025 in the Reference case and by 37 percent from 2025 to 2040. The paper industry remains the predominant consumer of renewable energy (mostly biomass) in the industrial sector. Industrial consumption of natural gas liquids (NGL) increases by 21 percent from 2011 to 2025, followed by a 9-percent decline from 2025 to 2040. NGL are consumed predominantly as feedstocks in the bulk chemicals industry and for process heat in other industries. NGL use declines starting in 2025 as shipments of bulk chemicals begin to decline in the face of increased international competition. Industrial coal use drops by less than 1 percent from 2011 to 2040, and the use of petroleum and other liquid fuels increases by 6 percent.

Low natural gas prices and increased availability of biomass contribute to growth in the use of combined heat and power (CHP). A small decline in the purchased electricity share of industrial energy consumption (less than 1 percent from 2011 to 2040) reflects growth in CHP, as well as efficiency improvements resulting from rising standards for electric motors

Heavy-duty vehicles dominate natural gas consumption in the transportation sector


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Natural gas, as compressed natural gas (CNG) and liquefied natural gas (LNG), is the fastest-growing fuel in the transportation sector, with an average annual growth rate of 11.9 percent from 2011 to 2040 (Figure 74). HDVs—which include tractor trailers, vocational vehicles, buses, and heavy-duty pickups and vans with a gross vehicle weight rating (GVWR) of 10,001 pounds or more—lead the growth in natural gas demand throughout the projection period. Natural gas fuel consumption by HDVs increases from almost zero in 2011 to more than 1 quadrillion Btu in 2040, at an average annual growth rate of 14.6 percent.

Although HDVs fueled by natural gas have significant incremental costs in comparison with their diesel-powered counterparts, the increase in natural gas consumption for HDVs is spurred by low prices of natural gas compared with diesel fuel, as well as purchases of natural gas vehicles for relatively high-VMT applications, such as tractor trailers.

The total number of miles traveled annually by HDVs grows by 82 percent in the Reference case, from 240 billion miles in 2011 to 438 billion miles in 2040, for an average annual increase of 2.1 percent. HDVs, those with a GVWR greater than 26,000 pounds (primarily tractor trailers), account for about three-fourths of truck VMT and 91 percent of natural gas consumption by all HDVs in 2040. The rise in VMT is supported by rising economic output over the projection period and an increase in the number of trucks on the road, from 9.0 million in 2011 to 13.7 million in 2040.

Industrial and electric power sectors lead U.S. growth in natural gas consumption


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U.S. total natural gas consumption grows from 24.4 trillion cubic feet in 2011 to 29.5 trillion cubic feet in 2040 in the AEO2013 Reference case. Natural gas use increases in all the end-use sectors except residential (Figure 85), where consumption declines as a result of improvements in appliance efficiency and falling demand for space heating, attributable in part to population shifts to warmer regions of the country.

Despite falling early in the projection period from a spike in 2012, which resulted from very low natural gas prices relative to coal, consumption of natural gas for power generation increases by an average of 0.8 percent per year, with more natural gas used for electricity production as relatively low prices make natural gas more competitive with coal. Over the projection period, the natural gas share of total power generation grows, while the coal share declines.

Natural gas consumption in the industrial sector increases by an average of 0.5 percent per year from 2011 to 2040. This includes 0.7 trillion cubic feet of natural gas used in GTL, which is largely consumed in the transportation sector. Industrial output grows as the energy-intensive industries take advantage of relatively low natural gas prices, particularly through 2025. After 2025, growth in the sector slows in response to rising prices and increased international competition.

Although vehicle uses currently account for only a small part of total U.S. natural gas consumption, the projected percentage growth in natural gas demand by vehicles is the largest percentage growth in the projection. With incentives and low natural gas prices leading to increased demand for natural gas as a fuel for HDVs, particularly after 2025, consumption in vehicles increases from about 40 billion cubic feet in 2011 to just over 1 trillion cubic feet in 2040.

Natural gas prices rise with an expected increase in production costs after 2015


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U.S. natural gas prices have remained relatively low over the past several years as a result of abundant domestic supply and efficient methods of production. However, the cost of developing new incremental production needed to support continued growth in natural gas consumption and exports rises gradually in the AEO2013 Reference case, leading to an increase in the Henry Hub spot price. Henry Hub spot prices for natural gas increase by an average of about 2.4 percent per year, to $7.83 per million Btu (2011 dollars) in 2040 (Figure 86).

As of January 1, 2011, total proved and unproved U.S. natural gas resources (total recoverable resources) were estimated to total 2,327 trillion cubic feet. Over time, however, the depletion of resources in inexpensive areas leads producers to basins where recovery of the gas is more difficult and more expensive, causing the cost of production to rise gradually.

In the Reference case, natural gas prices remain low at the beginning of the projection period, as producers continue to extract natural gas resources from the most productive and inexpensive areas. Drilling activity remains robust despite the relatively low prices (below $4 per million Btu), particularly as producers extract natural gas from areas with high contents of NGL or oil. Prices begin to rise after 2015, and they continue rising in the projection through 2040.

Energy from natural gas remains far less expensive than energy from oil through 2040


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The ratio of oil prices to natural gas prices is defined in terms of the Brent crude oil price and the Henry Hub spot natural gas price on an energy-equivalent basis. U.S. natural gas prices are determined largely on a regional basis, in response to supply and demand conditions in North America. Oil prices are more responsive to global supply and demand. A 1:1 ratio indicates that crude oil and natural gas cost the same in terms of energy content. On that basis, crude oil remains far more expensive than natural gas through 2040 (Figure 87), but the difference in the costs of the two fuels narrows over time.

With rising demand and production costs, both crude oil and natural gas prices increase through 2040; however, the oil price rises more slowly than the natural gas price, bringing the oil-to-gas price ratio down from its 2012 level. Low natural gas prices, the result of abundant domestic supply and weak winter demand, combined with high oil prices, caused a sharp rise in the oil-to-gas price ratio in 2012.

Natural gas prices nearly double in the AEO2013 Reference case, from $3.98 per million Btu in 2011 to $7.83 in 2040 (2011 dollars), and oil prices increase by about 50 percent, to $28.05 per million Btu in 2040. Over the entire period, the ratio remains well above the levels of the two previous decades. Oil and natural gas prices were more strongly aligned until about 2006, and the ratio of oil prices to natural gas prices was lower. Since 2006, however, natural gas prices have fallen as a result of abundant domestic supplies and production. In contrast, oil prices have increased and remained relatively high as global demand has increased over the past several years.

Natural gas prices depend on economic growth and resource recovery rates among other factors


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Future levels of natural gas prices depend on many factors, including macroeconomic growth rates and expected rates of resource recovery from natural gas wells. Higher rates of economic growth lead to increased consumption of natural gas (primarily in response to higher levels of housing starts, commercial floorspace, and industrial output), causing more rapid depletion of natural gas resources and a more rapid increase in the cost of developing new production, which push natural gas prices higher. The converse is true in the Low Economic Growth case (Figure 88).

A lower rate of recovery from oil and gas wells implies higher costs per unit and higher prices. A higher rate of recovery implies lower costs per unit and lower prices. In comparison with the Reference case, the Low Oil and Gas Resource case assumes lower estimated ultimate recovery (EUR) from each shale well or tight well. The High Oil and Gas Resource case represents a more extreme case, with higher estimates for recoverable crude oil and natural gas resources in tight wells and shale formations and for offshore resources in the lower 48 states and Alaska.

In both cases, there are mitigating effects that dampen the initial price response from the demand or supply shift. For example, lower natural gas prices lead to an increase in natural gas exports, which places some upward pressure on natural gas prices. In addition, lower prices are likely to lead to less drilling for natural gas and lower production potential, placing some upward pressure on natural gas prices.

With production outpacing consumption, U.S. exports of natural gas exceed imports


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The United States consumed more natural gas than it produced in 2011, with net imports of almost 2 trillion cubic feet. As domestic supply has increased, however, natural gas prices have declined, making the United States a less attractive market and reducing U.S. imports. Conversely, lower prices have made purchases of U.S. natural gas more attractive, increasing exports. In the AEO2013 Reference case, the United States becomes a net exporter of natural gas by 2020 (Figure 89).

Production growth, led by increased development of shale gas resources, outpaces consumption growth in the Reference case—a pattern that continues through 2040. As a result, exports continue to grow at a rate of about 17.7 percent per year from 2020 to 2040. Net exports in 2020 are less than 1 percent of total consumption; in 2040 they are 12 percent of consumption.

U.S. natural gas production increases by about 1 percent per year from 2011 to 2040 in the Reference case, meeting domestic demand while also allowing for more exports. The prospects for future exports are highly uncertain, however, depending on many factors that are difficult to anticipate, such as the development of new production capacity in foreign countries, particularly from deepwater reservoirs, shale gas deposits, and the Arctic.

U.S. natural gas production is affected by oil prices through consumption and exports


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U.S. natural gas production is affected by crude oil prices primarily through changes in natural gas consumption and exports. Across the AEO2013 oil price cases, the largest changes in natural gas use occur in natural gas converted into liquid fuels via GTL, directly consumed in transportation as CNG or LNG, and exported as LNG. Because world LNG prices are directly affected by crude oil prices, depending on regional market conditions, crude oil prices are important to the market value of LNG exported from the United States.

The profitability of using natural gas as a transportation fuel, or for exporting LNG, depends largely on the price differential between crude oil and natural gas. The greater the difference between crude oil and natural gas prices, the greater the incentive to use natural gas. For example, in the Low Oil Price case, average oil prices are about $7.80 per million Btu higher than natural gas prices from 2012 through 2040—a relatively low price differential that leads to virtually no use of natural gas for transportation and very little for LNG exports. In the High Oil Price case, the average price difference is about $24.30 per million Btu from 2012 through 2040, providing the incentives necessary to promote natural gas use in transportation applications and for export.

Across the price cases, total natural gas production varies by 5.6 trillion cubic feet in 2040 (Figure 90). Changes in LNG exports account for 3.6 trillion cubic feet of the difference. Direct consumption of natural gas for transportation varies by 2.1 trillion cubic feet between the two cases, and consumption for GTL production varies by 1.1 trillion cubic feet. Across the price cases, as natural gas production rises, so do natural gas prices; and as natural gas prices rise, consumption in the other end-use sectors falls by as much as 2.5 trillion cubic feet.

Shale gas provides the largest source of growth in U.S. natural gas supply


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The 44-percent increase in total natural gas production from 2011 through 2040 in the AEO2013 Reference case results from the increased development of shale gas, tight gas, and coalbed methane resources (Figure 91). Shale gas production, which grows by 113 percent from 2011 to 2040, is the greatest contributor to natural gas production growth. Its share of total production increases from 34 percent in 2011 to 50 percent in 2040. Tight gas and coalbed methane production also increase, by 25 percent and 24 percent, respectively, from 2011 to 2040, even as their shares of total production decline slightly. The growth in coalbed methane production is not realized until after 2035, when natural gas prices and demand levels are high enough to spur more drilling.

Offshore natural gas production declines by 0.3 trillion cubic feet from 2011 through 2014, as offshore exploration and development activities are directed toward oil-prone areas in the Gulf of Mexico. After 2014, offshore natural gas production recovers as prices rise, growing to 2.8 trillion cubic feet in 2040. As a result, from 2011 to 2040, offshore natural gas production increases by 35 percent.

Alaska natural gas production also increases in the Reference case with the advent of Alaska LNG` exports to overseas customers beginning in 2024 and growing to 0.8 trillion cubic feet per year (2.2 billion cubic feet per day) in 2027. In 2040, Alaska natural gas production totals 1.2 trillion cubic feet.

Although total U.S. natural gas production rises throughout the projection, onshore nonassociated conventional production declines from 3.6 trillion cubic feet in 2011 to 1.9 trillion cubic feet in 2040, when it accounts for only about 6 percent of total domestic production, down from 16 percent in 2011.

Pipeline exports increase as Canadian imports fall and exports to Mexico rise


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With relatively low natural gas prices in the AEO2013 Reference case, the United States becomes a net exporter of natural gas in 2020, and net exports grow to 3.6 trillion cubic feet in 2040 (Figure 92). Most of the projected growth in U.S. exports consists of pipeline exports to Mexico, which increase steadily over the projection period, as increasing volumes of imported natural gas from the United States fill the growing gap between Mexico's production and consumption. Exports to Mexico increase from 0.5 trillion cubic feet in 2011 to 2.4 trillion cubic feet in 2040.

U.S. exports of domestically sourced LNG (excluding existing exports from the Kenai facility in Alaska, which fall to zero in 2013) begin in 2016 and rise to a level of 1.6 trillion cubic feet per year in 2027. One-half of the projected increase in U.S. exports of LNG originate in the Lower 48 states and the other half from Alaska. Continued low levels of LNG imports through the projection period position the United States as a net exporter of LNG by 2016. In general, future U.S. exports of LNG depend on a number of factors that are difficult to anticipate, including the speed and extent of price convergence in global natural gas markets, the extent to which natural gas competes with oil in domestic and international markets, and the pace of natural gas supply growth outside the United States.

Net natural gas imports from Canada decline sharply from 2016 to 2022, then stabilize somewhat before dropping off again in the final years of the projection, as continued growth in domestic production mitigates the need for imports. Even as overall consumption exceeds supply in the United States, some natural gas imports from Canada continue, based on regional supply and demand conditions.

Coal-fired plants continue to be the largest source of U.S. electricity generation


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Coal-fired power plants continue to be the largest source of electricity generation in the AEO2013 Reference case (Figure 76), but their market share declines significantly. From 42 percent in 2011, coal's share of total U.S. generation declines to 38 percent in 2025 and 35 percent in 2040. Approximately 15 percent of the coal-fired capacity active in 2011 is expected to be retired by 2040 in the Reference case, while only 4 percent of new generating capacity added is coal-fired. Existing coal-fired units that have undergone environmental equipment retrofits continue to operate throughout the projection.

Generation from natural gas increases by an average of 1.6 percent per year from 2011 to 2040, and its share of total generation grows from 24 percent in 2011 to 27 percent in 2025 and 30 percent in 2040. The relatively low cost of natural gas makes the dispatching of existing natural gas plants more competitive with coal plants and, in combination with relatively low capital costs, makes plants fueled by natural gas an alternative choice for new generation capacity.

Generation from renewable sources grows by 1.7 percent per year on average in the Reference case, and the share of total generation rises from 13 percent in 2011 to 16 percent in 2040. The nonhydropower share of total renewable generation increases from 38 percent in 2011 to 65 percent in 2040.

Generation from U.S. nuclear power plants increases by 0.5 percent per year on average from 2011 to 2040, with most of the growth between 2011 and 2025, but the share of total U.S. electricity generation declines from 19 percent in 2011 to 17 percent in 2040, as the growth in nuclear generation is outpaced by growth in generation using natural gas and renewables.

Most new capacity additions use natural gas and renewables


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Decisions to add capacity, and the choice of fuel for new capacity, depend on a number of factors [134]. With growing electricity demand and the retirement of 103 gigawatts of existing capacity, 340 gigawatts of new generating capacity [135] is added in the AEO2013 Reference case from 2012 to 2040 (Figure 77).

Natural gas-fired plants account for 63 percent of capacity additions from 2012 to 2040 in the Reference case, compared with 31 percent for renewables, 3 percent for coal, and 3 percent for nuclear. Escalating construction costs have the largest impact on capital-intensive technologies, which include nuclear, coal, and renewables. However, federal tax incentives, state energy programs, and rising prices for fossil fuels increase the competitiveness of renewable and nuclear capacity. Current federal and state environmental regulations also affect the use of fossil fuels, particularly coal. Uncertainty about future limits on GHG emissions and other possible environmental programs also reduces the competitiveness of coal-fired plants (reflected in the AEO2013 Reference case by adding 3 percentage points to the cost of capital for new coal-fired capacity).

Uncertainty about electricity demand growth and fuel prices also affects capacity planning. Total capacity additions from 2012 to 2040 range from 252 gigawatts in the Low Economic Growth case to 498 gigawatts in the High Economic Growth case. In the Low Oil and Gas Resource case, natural gas prices are higher than in the Reference case, and new natural gas-fired capacity added from 2012 to 2040 totals 152 gigawatts, or 42 percent of total additions. In the High Oil and Gas Resource case, delivered natural gas prices are lower than in the Reference case, and 311 gigawatts of new natural gas-fired capacity is added from 2012 to 2040, accounting for 82 percent of total new capacity

Additions to power plant capacity slow after 2012 but accelerate beyond 2023


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Typically, investments in electricity generation capacity have gone through boom-and-bust cycles. Periods of slower growth have been followed by strong growth in response to changing expectations for future electricity demand and fuel prices, as well as changes in the industry, such as restructuring (Figure 78). A construction boom in the early 2000s saw capacity additions averaging 35 gigawatts a year from 2000 to 2005. Since then, average annual builds have dropped to 18 gigawatts per year from 2006 to 2011.

In the AEO2013 Reference case, capacity additions from 2012 to 2040 total 340 gigawatts, including new plants built not only in the power sector but also by end-use generators. Annual additions in 2012 and 2013 remain relatively high, averaging 22 gigawatts per year. Of those early builds, 51 percent are renewable plants built to take advantage of federal tax incentives and to meet state renewable standards.

Annual builds drop significantly after 2013 and remain below 9 gigawatts per year until 2023. During that period, existing capacity is adequate to meet growth in demand in most regions, given the earlier construction boom and relatively slow growth in electricity demand after the economic recession. Between 2025 and 2040, average annual builds increase to 14 gigawatts per year, as excess capacity is depleted and the rate of total capacity growth is more consistent with electricity demand growth. About 68 percent of the capacity additions from 2025 to 2040 are natural gas-fired, given the higher construction costs for other capacity types and uncertainty about the prospects for future limits on GHG emissions.

Costs and regulatory uncertainties vary across options for new capacity


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Technology choices for new generating capacity are based largely on capital, operating, and transmission costs [136]. Coal, nuclear, and wind plants are capital-intensive (Figure 80), whereas operating (fuel) expenditures make up most of the costs for natural gas plants. Capital costs depend on such factors as equipment costs, interest rates, and cost recovery periods, which vary with technology. Fuel costs vary with operating efficiency, fuel price, and transportation costs.

In addition to considerations of levelized costs [137], some technologies and fuels receive subsidies, such as production or ITCs. Also, new plants must satisfy local and federal emissions standards and must be compatible with the utility's load profile.

Regulatory uncertainty also affects capacity planning. New coal plants may require carbon control and sequestration equipment, resulting in higher material, labor, and operating costs. Alternatively, coal plants without carbon controls could incur higher costs for siting and permitting. Because nuclear and renewable power plants (including wind plants) do not emit GHGs, their costs are not directly affected by regulatory uncertainty in this area.

Capital costs can decline over time as developers gain technology experience, with the largest rate of decline observed in new technologies. In the AEO2013 Reference case, the capital costs of new technologies are adjusted upward initially to compensate for the optimism inherent in early estimates of project costs, then decline as project developers gain experience. The decline continues at a progressively slower rate as more units are built. Operating efficiencies also are assumed to improve over time, resulting in reduced variable costs unless increases in fuel costs exceed the savings from efficiency gains.

Energy-related carbon dioxide emissions remain below their 2005 level through 2040


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On average, energy-related CO2 emissions in the AEO2013 Reference case decline by 0.2 percent per year from 2005 to 2040, as compared with an average increase of 0.9 percent per year from 1980 to 2005. Reasons for the decline include: an expected slow and extended recovery from the recession of 2007-2009; growing use of renewable technologies and fuels; automobile efficiency improvements; slower growth in electricity demand; and more use of natural gas, which is less carbon-intensive than other fossil fuels. In the Reference case, energy-related CO2 emissions in 2020 are 9.1 percent below their 2005 level. Energy-related CO2 emissions total 5,691 million metric tons in 2040, or 308 million metric tons (5.1 percent) below their 2005 level (Figure 108).

Petroleum remains the largest source of U.S. energy-related CO2 emissions in the projection, but its share falls to 38 percent in 2040 from 44 percent in 2005. CO2 emissions from petroleum use, mainly in the transportation sector, are 448 million metric tons below their 2005 level in 2040.

Emissions from coal, the second-largest source of energy-related CO2 emissions, are 246 million metric tons below the 2005 level in 2040 in the Reference case, and their share of total energy-related CO2 emissions declines from 36 percent in 2005 to 34 percent in 2040. The natural gas share of total CO2 emissions increases from 20 percent in 2005 to 28 percent in 2040, as the use of natural gas to fuel electricity generation and industrial applications increases. Emissions levels are sensitive to assumptions about economic growth, fuel prices, technology costs, and policies that are explored in many of the alternative cases completed for AEO2013.

Energy-related carbon dioxide emissions are sensitive to potential policy changes


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Although the AEO2013 Reference case assumes that current laws and regulations remain in effect through 2040, the potential impacts of a future fee on CO2 emissions are examined in three carbon-fee cases, starting at $10, $15, and $25 per metric ton CO2 in 2014 and rising by 5 percent per year annually thereafter. The three fee cases were combined with the Reference case and also, because of uncertainty about the growing role of natural gas in the U.S. energy landscape and how it might affect efforts to reduce GHG emissions, with the High Oil and Gas Resource case (Figure 111).

Emissions fees would have a significant impact on U.S. energy-related CO2 emissions. They would encourage all energy producers and consumers to shift to lower-carbon or zero-carbon energy sources. Relative to 2005 emissions levels, energy-related CO2 emissions are 14 percent, 19 percent, and 28 percent lower in 2025 in the $10, $15, and $25 fee cases using Reference case resources, respectively, and 17 percent, 28 percent, and 40 percent lower in 2040. When combined with High Oil and Gas Resource assumptions, the CO2 fees tend to lead to slightly greater emissions reductions in the near term and smaller reductions in the long term.

The alternative assumptions about natural gas resources have only small impacts on energy-related CO2 emissions in all the cases except the $25 fee cases. Although more abundant and less expensive natural gas in the High Oil and Gas Resource cases does lead to less coal use and more natural gas use, it also reduces the use of renewable and nuclear fuels and increases energy consumption overall. In the long run, the emissions reductions achieved by shifting from coal to natural gas are offset by the impacts of reduced use of renewables and nuclear power for electricity generation, and by higher overall levels of energy consumption.

Carbon dioxide fee cases generally increase the use of natural gas for electricity generation


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The role of natural gas in the CO2 fee cases varies widely over time and, in addition, over the range of assumptions about natural gas resources. When CO2 fees are assumed to be introduced in 2014, natural gas-fired generation increases sharply. The role of natural gas in the CO2 fee cases begins declining between 2025 and 2030, however, as power companies bring more new nuclear and renewable plants on line (Figure 112).

After accounting for about 50 percent of all U.S. electricity generation for many years, coal's share has declined over the past few years because of growing competition from efficient natural gas-fired plants with access to low-cost natural gas. In the Reference case, the share of generation accounted for by coal falls from 42 percent in 2011 to 38 percent in 2025 and 35 percent in 2040. Coal's share falls even further in the CO2 fee cases, to a range between 6 percent and 31 percent in 2025 and between 1 percent and 24 percent in 2040.

As the fee for CO2 emissions increases over time, power companies reduce their use of coal and increase their use of nuclear power, renewables, and natural gas. The nuclear and renewable shares of total generation increase in most of the CO2 fee cases, particularly in the later years of the projections. In the Reference case, nuclear generation accounts for 20 percent of the total in 2025 and 17 percent in 2040. In the CO2 fee cases, the nuclear share varies from 20 to 24 percent in 2025 and 18 to 37 percent in 2040. The renewable share of total generation in 2025 is 14 percent in the Reference case, increasing to 16 percent in 2040. In the CO2 fee cases the renewable share is generally higher, between 15 percent and 21 percent in 2025 and between 17 percent and 31 percent in 2040.

Natural Gas from Issues in Focus

3. U.S. reliance on imported liquid fuels in alternative scenarios

Liquid fuels [71] play a vital role in the U.S. energy system and economy, and access to affordable liquid fuels has contributed to the nation's economic prosperity. However, the extent of U.S. reliance on imported oil has often been raised as a matter of concern over the past 40 years. U.S. net imports of petroleum and other liquid fuels as a share of consumption have been one of the most watched indicators in national and global energy analyses. After rising steadily from 1950 to 1977, when it reached 47 percent by the most comprehensive measure, U.S. net import dependence declined to 27 percent in 1985. Between 1985 and 2005, net imports of liquid fuels as a share of consumption again rose, reaching 60 percent in 2005. Since that time, however, the trend toward growing U.S. dependence on liquid fuels imports has again reversed, with the net import share falling to an estimated 41 percent in 2012, and with EIA projecting further significant declines in 2013 and 2014. The decline in net import dependence since 2005 has resulted from several disparate factors, and continued changes in those and other factors will determine how this indicator evolves in the future. Key questions include:

  • What are the key determinants of U.S. liquid fuels supply and demand?
  • Will the supply and demand trends that have reduced dependence on net imports since 2005 intensify or abate?
  • What supply and demand developments could yield an outcome in which the United States is no longer a net importer of liquid fuels?

This discussion considers potential changes to the U.S. energy system that are inherently speculative and should be viewed as what-if cases. The four cases that are discussed include two cases (Low Oil and Gas Resources and High Oil and Gas Resources) in which only the supply assumptions are varied, and two cases (Low/No Net Imports and High Net Imports) in which both supply and demand assumptions change. The changes in these cases generate wide variation from the liquid fuels import dependence values seen in the AEO2013 Reference case, but they should not be viewed as spanning the range of possible outcomes. Cases in which both supply and demand assumptions are modified show the greatest changes. In the Low/No Net Imports case, the United States ceases to be a net liquid fuels importer in the mid-2030s, and by 2040 U.S. net exports are 8 percent of total U.S. liquid fuel production. In contrast, in the High Net Imports case, net petroleum import dependence is above 44 percent in 2040, higher than the Reference case level of 37 percent but still well below the 60-percent level seen in 2005. Cases in which only supply assumptions are varied show intermediate levels of change in liquid fuels import dependence.

As the case names suggest, the Low Oil and Gas Resource case incorporates less-optimistic oil and natural gas resource assumptions than those in the Reference case, while the High Oil and Gas Resource case does the opposite. The other two cases combine different oil and natural gas resource assumptions with changes in assumptions that influence the demands for liquid fuels. The Low/No Net Imports case simulates an environment in which U.S. energy production grows rapidly while domestic consumption of liquid fuels declines. Conversely, the High Net Imports case combines the Low Oil and Gas Resource case assumptions with demand-related assumptions including slower improvements in vehicle efficiency, higher levels of vehicle miles traveled (VMT) relative to the Reference case, and reduced use of alternative transportation fuels.

Resource assumptions

A key contributing factor to the recent decline in net import dependence has been the rapid growth of U.S. oil production from tight onshore formations, which has followed closely after the rapid growth of natural gas production from similar types of resources. Projections of future production trends inevitably reflect many uncertainties regarding the actual level of resources available, the difficulty in extracting them, and the evolution of the technologies (and associated costs) used to recover them. To represent these uncertainties, the assumptions used in the High and Low Oil and Gas Resource cases represent significant deviations from the Reference case.

Estimates of technically recoverable resources from the rapidly developing tight oil formations are particularly uncertain and change over time as new information is gained through drilling, production, and technology experimentation. Over the past decade, as more tight and shale formations have gone into commercial production, estimates of technically and economically recoverable resources have generally increased. Technically recoverable resource estimates, however, embody many assumptions that might not prove to be true over the long term, over the entire range of tight or shale formations, or even within particular formations. For example, the tight oil resource estimates in the Reference case assume that production rates achieved in a limited portion of a given formation are representative of the entire formation, even though neighboring tight oil well production rates can vary widely. Any specific tight or shale formation can vary significantly across the formation with respect to relevant characteristics [72], resulting in widely varying rates of well production. The application of refinements to current technologies, as well as new technological advancements, can also have a significant but highly uncertain impact on the recoverability of tight and shale crude oil.

As shown in Table 5, the High and Low Oil and Gas Resource cases were developed with alternative crude oil and natural gas resource assumptions giving higher and lower technically recoverable resources than assumed in the Reference case. While these cases do not represent upper and lower bounds on future domestic oil and natural gas supply, they allow for an examination of the potential effects of higher and lower domestic supply on energy demand, imports, and prices.

The Low Oil and Gas Resource case only reflects the uncertainty around tight oil and shale gas resources. The resource estimates in the Reference case are based on crude oil and natural gas production rates achieved in a limited portion of the tight or shale formation and are assumed to be representative of the entire formation. However, the variability in formation characteristics described earlier can also affect the estimated ultimate recovery (EUR) of wells. For the Low Oil and Gas Resource case, the EUR per tight and shale well is assumed to be 50 percent lower than in the AEO2013 Reference case. All other resource assumptions are unchanged from the Reference case.

The High Oil and Gas Resource case reflects a broad-based increase in crude oil and natural gas resources. Optimism regarding increased supply has been buoyed by recent advances in crude oil and natural gas production that resulted in an unprecedented annual increase in U.S. crude oil production in 2012. The AEO2013 Reference case shows continued near-term production growth followed by a decline in U.S. production after 2020. The High Oil and Gas Resource case presents a scenario in which U.S. crude oil production continues to expand after about 2020 due to assumed higher technically recoverable tight oil resources, as well as undiscovered resources in Alaska and the offshore Lower 48 states. In addition, the maximum annual penetration rate for GTL technology is doubled compared to the Reference case.

The tight and shale resources are increased by changing both the EUR per well and the well spacing. A doubling in tight and shale well EUR, when assumed to occur through raising the production type curves [73] across the board, is responsible for the significantly faster increases in production and is also a contributing factor in avoiding the production decline during the projection period. This assumption change is quite optimistic and may alternatively be considered as a proxy for other changes or combinations of changes that have yet to be observed.

Although initial production rates have increased over the past few years, it is too early to conclude that overall EURs have increased and will continue to increase. Instead, producers may just be recovering the resource more quickly, resulting in a more dramatic decline in production later, with little impact on the well's overall EUR. The decreased well spacing reflects less the capability to drill wells closer together (i.e., avoid interference) and instead more the discovery of and production from other shale plays that are not yet in commercial development. These may either be stacked in the same formation or reflect future technological innovations that would bring into production plays that are otherwise not amenable to current hydraulic fracturing technology.

Other resources also are assumed to contribute to supply, as technological or other unforeseen changes improve their prospects. The resource assumptions for the offshore Lower 48 states in the High Oil and Gas Resource case reflect the possibility that resources may be substantially higher than assumed in the Reference case. Resource estimates for most of the U.S. Outer Continental Shelf are uncertain, particularly for resources in undeveloped regions where there has been little or no exploration and development activity, and where modern seismic survey data are lacking [74]. The increase in crude oil resources in Alaska reflects the possibility that there may be more crude oil on the North Slope, including tight oil. It does not, however, reflect an opening of the Arctic National Wildlife Refuge to exploration or production activity. Finally, modest production from kerogen (oil shale) resources, which remains below 140,000 barrels per day through the 2040 projection horizon, is included in the High Oil and Gas Resource case.

Demand assumptions

Reductions in demand for liquid fuels in some uses, such as personal transportation and home heating, coupled with slow growth in other applications, have been another key contributing factor in the decline of the nation's net dependence on imported liquid fuels since 2005. As with supply assumptions, the key analytic assumptions that drive future trends in liquid fuels demand in EIA's projections are subject to considerable uncertainty. The most important assumptions affecting future demand for liquids fuels include:

  • The future level of activities that use liquid fuels, such as VMT
  • The future efficiency of equipment that uses liquid fuels, such as automobiles, trucks, and aircraft
  • The future extent of fuel switching that replaces liquid fuels with other fuel types, such as liquefied natural gas (LNG), biofuels, or electricity.

Two alternative sets of demand assumptions that lead to higher or lower demand for liquid fuels than in the AEO2013 Reference case are outlined below. The two alternative scenarios are then applied in conjunction with the High and Low Oil and Gas Resource cases to develop the Low/No Net Import and High Net Import cases.

Vehicle miles traveled

Projected fuel use by LDVs is directly proportional to light-duty VMT, which can be influenced by policy, but it is driven primarily by market factors, demography, and consumer preferences. All else being equal, VMT is more likely to grow when the driving-age population is growing, economic activity is robust, and fuel prices are moderate. For example, there is a strong linkage between economic activity, employment, and commuting. In addition, there is a correlation between income and discretionary travel that reinforces the economy-VMT link. Turning to demography, factors such as the population level, age distribution, and household composition are perhaps most important for VMT. For example, lower immigration would lead to a smaller U.S. population over time, lowering VMT. The aging of the U.S. population continues and will also have long-term effects on VMT trends, as older drivers do not behave in the same ways as younger or middle-aged drivers. At times, the factors that influence VMT intertwine in ways that change long-term trends in U.S. driving and fuel consumption. For example, the increase in two-income families that occurred beginning in the 1970s created a surge in VMT that involved both economic activity and demographics.

Alternative modes of travel affect VMT to the degree that the population substitutes other travel services for personal LDVs. The level of change is related to the cost, convenience, and geographic extent of mass transit, rail, biking, and pedestrian travel service options. Car-sharing services, which have grown in popularity in recent years, could discourage personal vehicle VMT by putting more of the cost of incremental vehicle use on the margin when compared with traditional vehicle ownership or leasing, where many of the major costs of vehicle use are incurred at the time a vehicle is acquired, registered, and insured. Improvements in the fuel efficiency of vehicles, however, could increase VMT by lowering the marginal costs of driving. In recent analyses supporting the promulgation of new final fuel economy and GHG standards for LDVs in MY 2017 through 2025, NHTSA and EPA applied a 10-percent rebound in travel to reflect the lower fueling costs of more efficient vehicles [75]. Both higher and lower values for the rebound have been advanced by various analysts [76].

Other types of technological change also can affect projected VMT growth. E-commerce, telework, and social media can supplant (or complement) personal vehicle use. Some analysts have suggested an association between rising interest in social media and a decline in the rates at which driving-age youth secure driver licenses; however, that decline also could be related to recent weakness in the economy.

Many of the factors reviewed above were also addressed in the August 2012 National Petroleum Council Future Transportation Fuels study [77]. That study considered numerous specific research efforts, as well as available summaries of the literature on VMT, and concluded that the economic and demographic factors remain dominant. The VMT scenario adopted for most of the analysis in that study reflected declining compound annual growth rates of VMT over time, with the growth rate in VMT, which was 3.1 percent in the 1971-1995 and 2.0 percent in the 1996-2007 periods, falling to under 1 percent after 2035.

In the AEO2013 Reference case, the compound annual rate of growth in light-duty VMT over the period from 2011 to 2040 is 1.2 percent—well below the historical record through 2005 but significantly higher than the average annual light-duty VMT growth rate of 0.7 percent from 2005 through 2011. The 2005-2011 period was marked by generally poor economic performance, high unemployment, and high liquid fuel prices, all of which likely contributed to lower VMT growth. While VMT growth rates are expected to rise as the economy and employment levels improve, it remains to be seen to what extent such effects might be counteracted or reinforced by some of the other market factors identified above.

The low demand scenario used in the Low/No Net Imports case holds the growth rate of light-duty VMT over the 2011-2040 period at 0.2 percent per year, lower than its 2005-2011 growth rate. The application of a lower growth rate over a 29-year projection period results in total light-duty VMT 26 percent below the Reference case level in 2040. With population growth at 0.9 percent per year, this implies a decline of 0.7 percent per year in VMT per capita. VMT per licensed driver, which increases by 0.3 percent per year in the AEO2013 Reference case, declines at a rate of 0.8 percent per year in the Low/No Net Imports case. In the High Net Imports case, which assumes more robust demand than in the Reference case, the VMT projection remains close to that in the Reference case, with higher demand resulting from other factors.

Vehicle efficiencies

Turning to vehicle efficiency, the rising fuel economy of new LDVs already has contributed to recent trends in liquid fuels use. Looking forward, the EPA and NHTSA have established joint CAFE and GHG emissions standards through MY 2025. The new CAFE standards result in a fuel economy, measured as a program compliance value, of 47.3 mpg for new LDVs in 2025, based on the distribution of production of passenger cars and light trucks by footprint in AEO2013. The EPA and NHTSA also have established a fuel efficiency and GHG emissions program for medium- and heavy-duty vehicles for MY 2014-18. The fuel consumption standards for MY 2014-15 set by NHTSA are voluntary, while the standards for MY 2016 and beyond are mandatory, except those for diesel engines, which are mandatory starting in 2017.

The AEO2013 Reference case does not consider any possible reduction in fuel economy standards resulting from the scheduled midterm review of the CAFE standards for MY 2023-25, or for any increase in fuel economy standards that may be put in place for model years beyond 2025. The low demand scenario in this article adopts the assumption that post-2025 LDV CAFE standards increase at an average annual rate of 1.4 percent, the same assumption made in the AEO2013 Extended Policies case. In contrast, the high demand scenario assumes some reduction in current CAFE standards following the scheduled midterm review.

Fuel switching

In the AEO2013 Reference case, fuel switching to natural gas in the form of compressed natural gas (CNG) and LNG already is projected to achieve significant penetration of natural gas as a fuel for heavy-duty trucks. In the Reference case, natural gas use in heavy-duty vehicles increases to 1 trillion cubic feet per year in 2040, displacing 0.5 million barrels per day of diesel use. The use of natural gas in the Reference case is economically driven. Even after the substantial costs of liquefaction or compression, fuel costs for LNG or CNG are expected to be well below the projected cost of diesel fuel on an energy-equivalent basis. The fuel cost advantage is expected to be large enough in the view of a significant number of operators to offset the considerably higher acquisition costs of vehicles equipped to use these fuels, in addition to offsetting other disadvantages, such as reduced maximum range without refueling, a lower number of refueling locations, reduced volume capacity in certain applications, and an uncertain resale market for vehicles using alternative fuels. For purposes of the low demand scenario for liquid fuels, factors limiting the use of natural gas in heavy-duty vehicles are assumed to be less significant, allowing for higher rates of market penetration.

Natural gas could also prove to be an attractive fuel in other transportation applications. The use of LNG as a fuel for rail transport, which had earlier been considered for environmental reasons, is now under active consideration by major U.S. railroads for economic reasons, motivated by the same gap between the cost of diesel fuel and LNG now and over the projection period. Because all modern railroad locomotives use electric motors to drive their wheels, a switch from diesel to LNG would entail the use of a different fuel to drive the onboard electric generation system. Retrofits have been demonstrated, but new locomotives with generating units specifically optimized for LNG could prove to be more attractive. Because railroads already maintain their own on-system refueling infrastructure, they may be less subject to the concern that truckers considering a switch to alternative fuel vehicles might have regarding the risks that natural gas refueling systems they require would not actually be built. The high concentration of ownership in the U.S. railroad industry could also facilitate a rapid switch toward LNG refueling, with the associated transition to new equipment, under the right circumstances because there are only a few owners making the decisions.

Marine operators have traditionally relied on oil-based fuels, with large oceangoing vessels almost exclusively fueled with heavy high-sulfur fuel oil that typically sells at a discount relative to other petroleum products. Under the International Maritime Organization's International Convention on the Prevention of Pollution from Ships agreement (MARPOL Annex VI) [78], the use of heavy high-sulfur fuel oil in international shipping started being phased out for environmental reasons in 2010. Although LNG is one possible option, there are many cost and logistical challenges, including the high cost of retrofits, the long lifetime of existing vessels, and relatively low utilization rates for many routes that will have adverse impacts on the economics of marine LNG refueling infrastructure. Unlike the heavy-duty truck market, there has not yet been an LNG-fueled product offered for general use by manufacturers of marine or rail equipment, making cost and performance comparisons inherently speculative.

In addition to the demand assumptions discussed above, other assumption changes were made to capture potential shifts in vehicle cost and consumer preference for LDVs powered by alternative fuels. In the Low/No Net Imports case, the costs of efficiency technologies and battery technologies were lowered, and the market penetration of E85 fuel was increased, relative to the Reference case levels. With regard to E85, assumptions about consumer preference for flex-fuel vehicles were altered to allow for increases in vehicle sales and E85 demand, leading to greater use of domestically-produced biofuel than projected in the Reference case.

Table 6 summarizes the demand-side assumptions in the alternative demand scenarios for liquid fuels. As with the supply assumptions, the assumptions used in the higher and lower demand cases represent substantial deviations from the AEO2013 Reference case, and they might instead be realized in terms of other, as-yet-unforeseen developments in technology, economics, or policy.

Results

The cases considered show how the future share of net imports in total U.S. liquid fuel use varies with changes in assumptions about the key factors that drive domestic supply and demand for liquid fuels (Figure 24). Some of the assumptions in the Low/No Net imports case, such as assumed increases in LDV fuel economy after 2025 and access to offshore resources, could be influenced by future energy policies. However, other assumptions in this case, such as the greater availability of onshore technically recoverable oil and natural gas resources, depend on geological outcomes that cannot be influenced by policy measures; and economic, consumer, or technological factors may likewise be unaffected or only slightly affected by policy measures.

Net imports and prices

In the Low/No Net Imports case, U.S. net imports of liquid fuels are eliminated in the mid-2030s, and the United States becomes a modest net exporter of those fuels by 2040. As discussed above, this case combines optimistic assumptions about the availability of domestic oil and natural gas resources with assumptions that lower demand for liquid fuels, including a decline in VMT per capita, increased switching to natural gas fuels for transportation (including heavy-duty trucks, rail, boats, and ships), continued significant improvements in the fuel efficiency of new vehicles beyond 2025, wider availability and lower costs of electric battery technologies, and greater market penetration of biofuels and other nonpetroleum liquids. Although other combinations of assumptions, or unforeseen technology breakthroughs, might produce a comparable outcome, the assumptions in the Low/No Net Imports case illustrate the magnitude and type of changes that would be required for the United States to end its reliance on net imports of liquid fuels, which began in 1946 and has continued to the present day. Moreover, regardless of how much the United States is able to reduce its reliance on imported liquids, it will not be entirely insulated from price shocks that affect the global oil market [79].

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As shown in Figure 24, the supply assumptions of the High Oil and Gas Resource case alone result in a decline in net import dependence to 7 percent in 2040, compared to 37 percent in the Reference case, with U.S. crude oil production rising to 10.2 million barrels per day in 2040, or 4.1 million barrels per day above the Reference case level. Tight oil production accounts for more than 77 percent (or 3 million barrels per day) of the difference in production between the two cases. Production of NGL in the United States also exceeds the Reference case level.

As a result of higher U.S. liquid fuels production, Brent crude oil prices in the High Oil and Gas Resource case are lower than in the Reference case, which also lowers motor gasoline and diesel prices to the transportation sector, encouraging greater consumption and partially dampening the projected decline in net dependence on liquid fuel imports. In the High Oil and Gas Resource case, the reduction in motor fuels prices increases fuel consumption in 2040 by 350 thousand barrels per day in the transportation sector and 230 thousand barrels per day in the industrial sector, which accounts for nearly all of the increase in total U.S. liquid fuels consumption (600 thousand barrels per day) relative to the Reference case total in 2040.

Global market, the economy, and refining

The addition of assumptions that slow the growth of demand for liquid fuels in the Low/No Net Imports case more than offsets the increase in demand that results from lower liquid fuel prices, so that total liquid fuels consumption in 2040 is 2.1 million barrels per day lower than projected in the Reference case. The combination of high crude oil and natural gas resources and lower demand for liquid fuels pushes Brent crude oil prices to $29 per barrel below the Reference case level in 2040. However, given the cumulative impact of factors that tend to raise world oil prices in real terms over the projection period, inflation-adjusted crude oil prices in the Low/No Net Imports case are still above today's price level.

One of the most uncertain aspects of the analysis concerns the effect on the global market for liquid fuels, which is highly integrated. Although the analysis reflects price effects that are based on the relative scale of the changes in U.S. domestic supply and net U.S. imports of liquid fuels within the overall international crude oil market, strategic choices made by the leading oil-exporting countries could result in price and quantity effects that differ significantly from those presented here. Moreover, regardless of how much the United States reduces its reliance on imported liquids, consumer prices will not be insulated from global oil prices if current policies and regulations remain in effect and world markets for crude oil streams of sulfur quality remain closely aligned absent transportation bottlenecks [80].

Although the focus is mainly on liquid fuels markets, the more optimistic resource assumptions in the High Oil and Gas Resource case also lead to more natural gas production. The higher productivity of shale and tight gas wells puts downward pressure on natural gas prices and thus encourages increased domestic consumption of natural gas (38 trillion cubic feet in the High Oil and Gas Resource case, compared to 30 trillion cubic feet in the Reference case in 2040) and higher net exports (both pipeline and LNG) of natural gas. As a result, projected domestic natural gas production in 2040 is considerably higher in the High Oil and Gas Resource case (45 trillion cubic feet) than in the Reference case (33 trillion cubic feet).

The Low Oil and Gas Resource case illustrates the implications of an outcome in which U.S. oil and gas resources turn out to be smaller than expected in the Reference case. In this case, domestic crude oil production peaks in 2016 at 6.9 million barrels per day, declines to 5.9 million barrels per day in 2028, and remains relatively flat (between 5.8 and 6.0 million barrels per day) through 2040. The lower well productivity in this case puts upward pressure on natural gas prices, resulting in lower natural gas consumption and production. In 2040, U.S. natural gas production is 27 trillion cubic feet in the Low Oil and Gas Resource case, compared with 33 trillion cubic feet in the Reference case.

These alternative cases may also have significant implications for the broader economy. Liquid fuels provide power and raw materials (feedstocks) for a substantial portion of the U.S. economy, and the macroeconomic impacts of both the High Oil and Gas Resource case and the Low/No Net Imports case suggest that significant economic benefits would accrue if some version of those futures were realized (see discussion of NGL later in "Issues in focus"). This is in spite of the fact that petroleum remains a global market in each of the scenarios, which limits the price impacts for gasoline, diesel, and other petroleum-derived fuels. In the High Oil and Gas Resource case, increasing energy production has immediate benefits for the economy. U.S. industries produce more goods with 12 percent lower energy costs in 2025 and 15 percent lower energy costs in 2040. Consumers see roughly 10 percent lower energy prices in 2025, and 13 percent lower energy prices in 2040, as compared with the Reference case. Cheaper energy allows the economy to expand further, with real GDP attaining levels that are on average about 1 percent above those in the Reference case from 2025 through 2040, including growth in both aggregate consumption and investment.

The alternative cases also imply substantial changes in the future operations of U.S. petroleum refineries, as is particularly evident in the Low/No Net Imports case. Drastically reduced product consumption and increased nonpetroleum sources of transportation fuels, taken in isolation, would tend to reduce utilization of U.S. refineries. The combination of higher domestic crude supply and reduced crude runs in the refining sector would sharply reduce or eliminate crude oil imports and could potentially create market pressure for crude oil exports to balance crude supply with refinery runs. However, under current laws and regulations, crude exports require licenses that have not been issued except in circumstances involving exports to Canada or exports of limited quantities of specific crude streams, such as California heavy oil [81].

Rather than assuming a change in current policies toward crude oil exports, and recognizing the high efficiency and low operating costs of U.S. refineries relative to global competitors in the refining sector, exports of petroleum products, which are not subject to export licensing requirements, rise significantly to avoid the uneconomical unloading of efficient U.S. refinery capacity, continuing a trend that has already become evident over the past several years. Product exports rise until the incremental refining value of crude oil processed is equivalent to the cost of crude imports. To balance the rest of the world as a result of increased U.S. product exports, it is assumed that the increased volumes of U.S. liquid fuel product exports would result in a decrease in the volume of the rest of the world's crude runs, and that world consumption, net of U.S. exports, would also be reduced by an amount necessary to keep demand and supply volumes in balance.

Projected carbon dioxide emissions

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Total U.S. CO2 emissions show the impacts of changing fuel prices through all the sectors of the economy. In the High Oil and Gas Resource case, the availability of more natural gas at lower prices encourages the electric power sector to increase its reliance on natural gas for electricity generation. Coal is the most affected, with coal displaced over the first part of the projection, and new renewable generation sources also affected after 2030 or so, resulting in projected CO2 emissions in the High Oil and Gas Resource case that exceed those in the Reference case after 2035 (Figure 25). With less-plentiful and more-expensive natural gas in the Low Oil and Gas Resource and High Net Imports cases, the reverse is true, with fewer coal retirements leading to higher CO2 emissions than in the Reference case early in the projection period. Later in the projection, however, the electric power sector turns first to renewable technologies earlier in the Low Oil and Gas Resource and High Net Imports cases, and after 2030 invests in more nuclear plants, reducing CO2 emissions from the levels projected in the Reference case. In the Low Oil and Gas Resource case, CO2 emissions are lower than in the Reference case starting in 2026. In the Low/No Net Imports case, annual CO2 emissions from the transportation sector continue to decline as a result of reduced travel demand; these emissions are conversely higher in the High Net Imports case. Figure 25 summarizes the CO2 emissions projections in the cases completed for this analysis.

4. Competition between coal and natural gas in the electric power sector

Over the past 20 years, natural gas has been the go-to fuel for new electricity generation capacity. From 1990 to 2011, natural gas-fired plants accounted for 77 percent of all generating capacity additions, and many of the plants added were very efficient combined-cycle plants. However, with slow growth in electricity demand and spikes in natural gas prices between 2005 and 2008, much of the added capacity was used infrequently. Since 2009 natural gas prices have been relatively low, making efficient natural gas-fired combined-cycle plants increasingly competitive to operate in comparison with existing coal-fired plants, particularly in the Southeast and other regions where they have been used to meet demand formerly served by coal-fired plants. In 2012, as natural gas prices reached historic lows, there were many months when natural gas displacement of coal-fired generation was widespread nationally.

In the AEO2013 Reference case, the competition between coal and natural gas in electricity generation is expected to continue in the near term, particularly in certain regions. However, because natural gas prices are projected to increase more rapidly than coal prices, existing coal plants gradually recapture some of the market lost in recent years. Natural gas-fired plants continue to be the favored source for new generating capacity over much of the projection period because of their relatively low costs and high efficiencies. The natural gas share of total electricity generation increases in the Reference case from 24 percent in 2011 to 30 percent in 2040. Coal remains the largest source of electricity generation, but its share of total electricity generation, which was 51 percent in 2003, declines from 42 percent in 2011 to 35 percent in 2040.

At any point, short-term competition between existing coal- and gas-fired generators—i.e., the decisions determining which generators will be dispatched to generate electricity—depends largely on the relative operating costs for each type of generation, of which fuel costs are a major portion. A second aspect of competition occurs over the longer term, as developers choose which fuels and technologies to use for new capacity builds and whether or not to make mandated or optional upgrades to existing plants. The natural gas or coal share of total generation depends both on the available capacity of each fuel type (affected by the latter type of competition) and on how intensively the capacity is operated.

There is significant uncertainty about future coal and natural gas prices, as well as about future growth in electricity demand, which determines the need for new generating capacity. In AEO2013, alternative cases with higher and lower coal and natural gas prices and variations in the rate of electricity demand growth are used to examine the potential impacts of those uncertainties. The alternative cases illustrate the influence of fuel prices and demand on dispatch and capacity planning decisions.

Recent history of price-based competition

In recent years, natural gas has come into dispatch-level competition with coal as the cost of operating natural gas-fired generators has neared the cost of operating coal-fired generators. A number of factors led to the growing competition, including:

  • A build-out of efficient combined-cycle capacity during the early 2000s, which in general was used infrequently until recently
  • Expansion of the natural gas pipeline network, reducing uncertainty about the availability of natural gas
  • Gains in natural gas production from domestic shale formations that have contributed to falling natural gas prices
  • Rising coal prices.

Until mid-2008, coal-fired generators were cheaper to operate than natural gas-fired generators in most applications and regions. Competition between available natural gas combined-cycle generators (NGCC) and generators burning eastern (Appalachian) and imported coal began in southeastern electric markets in 2009. Rough parity between NGCC and more expensive coal-fired plants continued until late 2011, when increased natural gas production led to a decline in the fuel price and, in the spring of 2012, a dramatic increase in competition between natural gas and even less expensive types of coal. With natural gas-fired generation increasing steadily, the natural gas share of U.S. electric power sector electricity generation was almost equal to the coal share for the first time in April 2012.

The following discussion focuses on the electric power sector, excluding other generation sources in the residential, commercial, and industrial end-use sectors. The industrial sector in particular may also respond to changes in coal and natural gas fuel prices by varying their level of development, but industrial users typically do not have the option to choose between the fuels as in the power sector, and there are fewer opportunities for direct competition between coal and natural gas for electricity generation.

Outlook for fuel competition in power generation.

The difference between average annual prices per million Btu for natural gas and coal delivered to U.S. electric power plants narrowed substantially in 2012, so that the fuel costs of generating power from NGCC units and coal steam turbines per megawatthour were essentially equal on a national average basis (Figure 26), given that combined-cycle plants are much more efficient than coal-fired plants. When the ratio of natural gas prices to coal prices is approximately 1.5 or lower, a typical natural gas-fired combined-cycle plant has lower generating costs than a typical coal-fired plant. In the Reference case projection, natural gas plants begin to lose competitive advantage over time, as natural gas prices increase relative to coal prices. Because fuel prices vary by region, and because there is also considerable variation in efficiencies across the existing fleet of both coal-fired and combined-cycle plants, dispatch-level competition between coal and natural gas continues.

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In the Reference case, coal-fired generation increases from 2012 levels and recaptures some of the power generation market lost to natural gas in recent years. The extent of that recovery varies significantly, however, depending on assumptions about the relative prices of the two fuels. The following alternative cases, which assume higher or lower availability or prices for natural gas and coal than in the Reference case are used to examine the likely effects of different market conditions:

  • The Low Oil and Gas Resource case assumes that the EUR per shale gas, tight gas, or tight oil well is 50 percent lower than in the Reference Case. In 2040, delivered natural gas prices to the electric power sector are 26 percent higher than in the Reference case.
  • The High Oil and Gas Resource case assumes that the EUR per shale gas, tight gas, or tight oil well is 100 percent higher than in the Reference case, and the maximum well spacing for shale gas, tight gas, and tight oil plays is assumed to be 40 acres. This case also assumes that the EUR for wells in the Alaska offshore and the Federal Gulf of Mexico is 50 percent higher than in the Reference case, that there is development of kerogen resources in the lower 48 states, and that the schedule for development of Alaskan resources is accelerated. In 2040, delivered natural gas prices are 39 percent lower than projected in the Reference case.
  • The High Coal Cost case assumes lower mine productivity and higher costs for labor, mine equipment, and coal transportation, which ultimately result in higher coal prices for electric power plants. In 2040, the delivered coal price is 77 percent higher than in the Reference case.
  • The Low Coal Cost case assumes higher mining productivity and lower costs for labor, mine equipment, and coal transportation, leading to lower coal prices for electric power plants. In 2040, the delivered coal price is 41 percent lower than in the Reference case.

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Figure 27 compares the ratio of average per-megawatthour fuel costs for NGCC plants and coal steam turbines at the national level across the cases. It illustrates the relative competitiveness of dispatching coal-fired steam turbines versus NGCC plants, including the differences in efficiency (heat rates) of the two types of generators. The ratio of natural gas to coal would be about 1.5 without considering the difference in efficiency. Higher coal prices or lower natural gas prices move the ratio closer to the line of competitive parity, where NGCC plants have more opportunities to displace coal-fired generators. In contrast, when coal prices are much lower than in the Reference case, or natural gas prices are much higher, the ratio is higher, indicating less likelihood of dispatch-level competition between coal and natural gas. In both the High Oil and Gas Resource case and the High Coal Cost case, the average NGCC plant is close to parity with, or more economical than, the average coal-fired steam turbine.

Capacity by plant type

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In all five cases, coal-fired generating capacity in 2025 (Figure 28) is below the 2011 total and remains lower through 2040 (Figure 29), as retirements outpace new additions of coal-fired capacity. Coal and natural gas prices are key factors in the decision to retire a power plant, along with environmental regulations and the demand for electricity. In the Low Oil and Gas Resource case and Low Coal Cost case, there are slightly fewer retirements than in the Reference case, as a higher fuel cost ratio for power generation is more favorable to coal-fired power plants. In the High Oil and Gas Resource case and High Coal Cost case, coal-fired plants are used less, and more coal-fired capacity is retired than in the Reference case. In the Reference case, 49 gigawatts of coal-fired capacity is retired from 2011 to 2040, compared with a range from 38 gigawatts to 73 gigawatts in the alternative cases. The interaction of fuel prices and environmental rules is a key factor in coal plant retirements. AEO2013 assumes that all coal-fired plants have flue gas desulfurization equipment (scrubbers) or dry sorbent injection systems installed by 2016 to comply with the Mercury and Air Toxics Standards. Higher coal prices, lower wholesale electricity prices (often tied to natural gas prices), and reduced use may make investment in such equipment uneconomical in some cases, resulting in plant retirements.

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In all the cases examined, new additions of coal-fired capacity from 2012 to 2040 total less than 15 gigawatts. For new builds, natural gas and renewables generally are more competitive than coal, and concerns surrounding potential future GHG legislation also dampen interest in new coal-fired capacity [82]. New capacity additions are not the most important factor in the competition between coal and natural gas for electricity generation. There is also significant dispatch-level competition in determining how intensively to operate existing coal-fired power plants versus new and existing natural gas-fired plants.

New natural gas-fired capacity, including combined-cycle units and combustion turbines, comprises the majority of new additions in the Reference case. The total capacity of all U.S. natural gas-fired power plants grows in each of the cases, but the levels vary depending on the relative fuel prices projected. Across the resource cases, NGCC capacity in 2025 ranges between 227 and 243 gigawatts, and in 2040 it ranges between 262 and 344 gigawatts, reflecting the impacts of fuel prices on the operating costs of new capacity.

New nuclear capacity and renewable capacity are affected primarily by changes in natural gas prices, with substantial growth in both technologies occurring in the Low Oil and Gas Resource case. Most of the increase occurs after 2025, when delivered natural gas prices in that case exceed $7 per million Btu, and the costs of the nuclear and renewable technologies have fallen from current levels. In this case, higher natural gas prices reduce the competitiveness of natural gas as a fuel for new capacity builds, leading to higher prices and lower demand for electricity. Total generating capacity is similar in the Reference case and the Low Oil and Gas Resource case, but the large amount of renewable capacity built in the Low Oil and Gas Resource case—particularly wind and solar—does not contribute as much generation as NGCC capacity toward meeting either electricity demand or reserve margin requirements.

Generation by fuel

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In the Reference case, coal-fired generation increases by an average of 0.2 percent per year from 2011 through 2040. Even though less capacity is available in 2040 than in 2011, the average capacity utilization of coal-fired generators increases over time. In recent years, as natural gas prices have fallen and natural gas-fired generators have displaced coal in the dispatch order, the average capacity factor for coal-fired plants has declined substantially. The coal fleet maintained an average annual capacity factor above 70 percent from 2002 through 2008, but the capacity factor has declined since then, falling to about 57 percent in 2012. As natural gas prices increase in the AEO2013 Reference case, the utilization rate of coal-fired generators returns to previous historical levels and continues to rise, to an average of around 74 percent in 2025 and 78 percent in 2040. Across the alternative cases, coal-fired generation varies slightly in 2025 (Figure 30) and 2040 (Figure 31) as a result of differences in plant retirements and slight differences in utilization rates. The capacity factor for coal-fired power plants in 2040 ranges from 69 percent in the High Oil and Gas Resource case to 81 percent in the Low Oil and Gas Resource case.

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Natural gas-fired generation varies more widely across the alternative cases, as a result of changes in the utilization of NGCC capacity, as well as the overall amount of combined-cycle capacity available. In recent years, the utilization rate for NGCC plants has increased, while the utilization rate for coal-fired steam turbines has declined. Capacity factors for the two technologies were about equal at approximately 57 percent in 2012. As natural gas prices rise in the Reference case, the average capacity factor for combined-cycle plants drops below 50 percent in the near term and remains between 48 percent and 54 percent over the remainder of projection period. In the High Oil and Gas Resource case, where combined-cycle generation is more competitive with existing coal-fired generation and the largest amount of new combined-cycle capacity is added, the average capacity factor for combined-cycle plants rises to 70 percent in the middle years of the projection period and remains about 63 percent through the remainder of the projection period. In the Low Oil and Gas Resource case, generation from combined-cycle plants is 37 percent lower in 2040 than in the Reference case, and the capacity factor for NGCC plants declines from around 45 percent in the mid term to 36 percent in 2040. Natural gas-fired generation in the Low Oil and Gas Resource case is replaced primarily with generation from new nuclear and renewable power plants. Similar fluctuations in natural gas-fired generation, but smaller in magnitude, are also seen across the coal cost cases.

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The coal and natural gas shares of total electricity generation vary widely across the alternative cases. The coal share of total generation varies from 30 percent to 43 percent in 2025 and from 28 percent to 40 percent in 2040. The natural gas share varies from 22 percent to 36 percent in 2025 and from 18 percent to 42 percent in 2040. In the High Oil and Gas Resource case, natural gas becomes the dominant generation fuel after 2015, and its share of total generation is 42 percent in 2040 (Figure 32).

Regional impacts

Competition in the southeastern United States

While examining the national-level results is useful, the competition between coal and natural gas is best examined in a region that has significant amounts of both coal-fired and natural gas-fired capacity, such as the southeastern United States. In the southeastern subregion of the SERC Reliability Corporation (EMM Region 14), the ratio of average fuel costs for NGCC plants to average fuel costs for coal-fired steam turbines in both the High Coal Cost case and the High Oil and Gas Resource case is below that in the Reference case (Figure 33). In this region, which has a particularly efficient fleet of NGCC plants, the fuel cost ratios in both the High Coal Cost case and the High Oil and Gas Resource case remain near or below competitive parity for the majority of the projection period, indicating continued strong competition in the region. While average coal steam turbine heat rates remain largely static over the projection period, the average NGCC heat rates in this region drop appreciably by 2040, and are among the lowest in the nation.

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The delivered cost of coal in the region is somewhat higher than in many other regions. Central Appalachian and Illinois Basin coals must be transported by rail or barge to the Southeast, and coal from the Powder River Basin must travel great distances by rail. The region also uses some imported coal, typically along the Gulf Coast, which tends to be more expensive.

In the High Oil and Gas Resource case, retirements of coal-fired generators in this region total 8 gigawatts in 2016 (5 gigawatts higher than in the Reference case) and remain at that level through 2040. Lower fuel prices for new natural gas-fired capacity, along with requirements to install environmental control equipment on existing coal-fired capacity, leads to additional retirements of coal-fired plants. As a result, the coal share of total capacity in the region drops from 39 percent in 2011 to 23 percent in 2040 in the High Oil and Gas Resource case, and the NGCC share rises from 24 percent in 2011 to 40 percent in 2040, when it accounts for the largest share of total generating capacity.

The capacity factors of coal-fired and NGCC power plants also vary across the cases, resulting in a significant shift in the shares of generation by fuel. The natural gas share of total electric power generation in the SERC southeast subregion grows from 31 percent in 2011 to 36 percent in 2040 in the Reference case, as compared with 56 percent in 2040 in the High Oil and Gas Resource case. Conversely, the coal share drops from 47 percent in 2011 to 40 percent in 2040 in the Reference case, compared with 20 percent in 2040 in the High Oil and Gas Resource case.

Competition in the Midwest

In the western portion of the ReliabilityFirst Corporation (RFC) region (EMM Region 11), which covers Ohio, Indiana, and West Virginia as well as portions of neighboring states, the ratio of the average fuel cost for natural gas-fired combined-cycle plants to the average fuel cost for coal-fired steam turbines approaches parity in the High Coal Cost case and the High Oil and Gas Resource case (Figure 34). The RFC west subregion is more heavily dependent on coal, with coal-fired capacity accounting for 58 percent of the total in 2011. The coal share of total capacity falls to 48 percent in 2040 in the Reference case with the retirement of nearly 15 gigawatts of coal-fired capacity from 2011 to 2017. NGCC capacity, which represented only 7 percent of the region's total generating capacity in 2011, accounts for 11 percent of the total in 2040 in the Reference case.

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In the High Coal Cost case, only a limited amount of shifting from coal to natural gas occurs in this region, which has a large amount of existing coal-fired capacity and access to multiple sources of coal, including western basins as well as the Illinois and Appalachian basins. Higher transportation rates in this case deter the use of Western coal in favor of more locally sourced Interior and Appalachian coal. The ability to switch coal sources to moderate fuel expenditures reduces the economic incentive to build new NGCC plants, even with coal prices that are higher than those in the Reference case. The NGCC share of the region's total capacity does increase in the High Oil and Gas Resource case relative to the Reference case, to 16 percent in 2040. In all the cases, however, coal-fired generating capacity makes up more than 42 percent of the total in 2040.

The different capacity factors of coal-fired steam turbines and NGCC capacity contribute to a shift in the generation fuel shares, but the lower levels of natural gas-fired capacity in the region limit the impacts relative to those seen in the Southeast. The natural gas share of total generation in the region grows from 6 percent in 2011 to 8 percent in 2040 in the Reference case, 10 percent in 2040 in the High Coal Cost case, and 18 percent in 2040 the High Oil and Gas Resource case. Coal's share of the region's electric power sector generation declines from 66 percent in 2011 to 64 percent in 2040 in the Reference case, and to 54 percent in both the High Coal Cost case and the High Oil and Gas Resource case. In the High Coal Cost case, much of the coal-fired generation is replaced with biomass co-firing rather than natural gas, because without the lower natural gas prices in the High Oil and Gas Resource case, it is more economical to use biomass in existing coal-fired units than to build and operate new natural gas-fired generators.

Other factors affecting competition

In addition to relative fuel prices, a number of factors influence the competition between coal-fired steam turbines and natural gas-fired combined-cycle units. One factor in the dispatch-level competition is the availability of capacity of each type. In New England, for example, competition between coal and natural gas is not discussed, because very little coal-fired capacity exists or is projected to be built in that region, even in the AEO2013 alternative fuel price cases. New England is located far from coal sources, and a regional cap on GHG emissions is in place, which makes investment in new coal-fired capacity unlikely. In the southeastern United States, however, there is more balance between natural gas-fired and coal-fired generating resources.

Further limitations not discussed above include:

  • Start-up and shutdown costs. In general, combined-cycle units are considered to be more flexible than steam turbines. They can ramp their output up and down more easily, and their start-up and shutdown procedures involve less time and expense. However, plants that are operated more flexibly (i.e., ramping up and down and cycling on and off) often have higher maintenance requirements and higher maintenance costs.
  • Emission rates and allowance costs. Another component of operating costs not mentioned above is the cost of buying emissions allowances for plants covered by the Acid Rain Program and Clean Air Interstate Rule. In recent years, allowance prices have dropped to levels that make them essentially negligible, although for many years they were a significant component of operating costs.
  • Transmission constraints on the electricity grid and other reliability requirements. Certain plants, often referred to as reliability must-run plants, are located in geographic areas where they are required to operate whenever they are available. In other cases, transmission limitations on the grid at any given time may determine maximum output levels for some plants.

6. Effect of natural gas liquids growth

Background

NGL include a wide range of components produced during natural gas processing and petroleum refining. As natural gas production in recent years has grown dramatically, there has been a concurrent rapid increase in NGL production. NGL include ethane, propane, normal butane (n-butane), isobutane, and pentanes plus. The rising supply of some NGL components (particularly ethane and propane) has led to challenges, in finding markets and building the infrastructure necessary to move NGL to the new domestic demand and export markets. This discussion examines recent changes in U.S. NGL markets and how they might evolve under several scenarios. The future disposition of U.S. NGL supplies, particularly in international markets, is also discussed.

Recent growth in NGL production (Figure 39) has resulted largely from strong growth in shale gas production. The lightest NGL components, ethane and propane, account for most of the growth in NGL supply between 2008 and 2012. With the exception of propane, the main source of NGL is natural gas processing associated with growing natural gas production. That growth has led to logistical problems in some areas. For example, much of the increased ethane supply in the Marcellus region is stranded because of the distance from petrochemical markets in the Gulf Coast area.

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The uses of NGL are diverse. The lightest NGL component, ethane, is used almost exclusively as a petrochemical feedstock to produce ethylene, which in turn is a basic building block for plastics, packaging materials, and other consumer products. A limited amount of ethane can be left in the natural gas stream (ethane rejection) if the value of ethane sinks too close to the value of dry natural gas, but the amount of ethane mixed in dry natural gas is small. Propane is the most versatile NGL component, with applications ranging from residential heating, to transportation fuel for forklifts, to petrochemical feedstock for propylene and ethylene production (nearly one-half of all propane use in the United States is as petrochemical feedstock). Butanes are produced in much smaller quantities and are used mostly in refining (for gasoline blending or alkylation) or as chemical feedstock. The heaviest liquids, known as pentanes plus, are used as ethanol denaturant, blendstock for gasoline, chemical feedstock, and, more recently, as diluent for the extraction and pipeline movement of heavy crude oils from Canada.

Unlike the other NGL components, a large proportion of propane is produced in refineries (which is mixed with refinery-marketed propylene). Given that refinery production of propane and propylene has been largely unchanged since 2005 at about 540 thousand barrels per day, the growth of propane/propylene supply shown in Figure 39 is solely a result of increased propane yields from natural gas processing plants.

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International demand for NGL has provided an outlet for growing domestic production, and after years of being a net importer, the United States became a net exporter of propane in 2012 (Figure 40). Although the quantities shown in Figure 40, based on EIA data, represent an aggregated mixture of propane and propylene, other sources indicate that U.S. propylene exports have been on the decline since 2007 [110], implying that the recent change to net exporter status is the result of increased supplies of propane from natural gas processing plants.

Current developments in NGL markets

The market currently is reacting to the growing supply of ethane and propane by expanding both domestic use of NGL and export capacity. On the domestic side, much of the U.S. petrochemical industry can absorb ethane and propane by switching from heavier petroleum-based naphtha feedstock in ethylene crackers to lighter feedstock, and recent record low NGL prices have motivated petrochemical companies to maximize the amount of ethane and propane in their feedstock slate. To take advantage of the expected growth in supplies of light NGL components resulting from shale gas production, multiple projects and expansions of petrochemical crackers have been announced (Table 7).

Although the proposed projects shown in Table 7 will largely take advantage of the growing ethane supply, a few petrochemical projects that will use propane directly as a propylene feedstock through propane dehydrogenation also have been announced [111]. Although expanded feedstock use is expected to be by far the largest source of expanded demand for NGL, increased use of NGL as a fuel, especially propane, also is expected—including the marketing of propane as an alternative vehicle fuel [112] and for agricultural use, with propane suppliers currently offering incentives for farmers to use propane as a fuel to power irrigation systems [113].

Notwithstanding the efforts to encourage the use of propane as a fuel in the United States, and despite current low prices, opportunities to expand the market for propane in uses other than as feedstock are limited. Therefore, producers, gas processors, and fractionators are looking for a growing export outlet for both ethane and liquefied petroleum gases (LPG—a mixture of propane and butane). Export capacity is being expanded, both on the U.S. Gulf Coast (Targa's expansion of both its gas processing and fractionation capability at Mont Belvieu and its export facility at Galena Park [114]) and on the U.S. East Coast (Sunoco Logistics' Mariner East project to supply propane and ethane to Philadelphia's Marcus Hook terminal [115, 116]). Exports of ethane from the Marcellus shale to chemical facilities in Sarnia, Ontario, via the Mariner West pipeline system, and from the Bakken formation to a NOVA Chemical plant near Joffre, Alberta, via the Vantage pipeline [117], are expected by the end of 2013. In addition to planned exports to Canada, a pipeline is being developed to transport ethane from the Marcellus to the Gulf Coast to relieve oversupply. The midstream sector's rapid buildup and expansion of natural gas processing, pipeline, and storage capacity have accommodated increasing volumes of NGL resulting from the sharp growth in shale gas production.

AEO2013 projections

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AEO2013 projects continued growth in both natural gas production and NGL supplies, with NGL prices determined in large part by Brent crude oil prices and Henry Hub spot prices for natural gas (Figure 41). In the AEO2013 Reference, Low Oil and Gas Resource, and High Oil and Gas Resource cases, industrial propane prices in 2040 range from $22.13 per million Btu (2011 dollars) in the High Oil and Gas Resource case to $27.48 per million Btu in the Low Oil and Gas Resource case, a difference of approximately 24 percent. The difference between the propane prices in the High and Low Oil and Gas Resource cases increases from $3.49 per million Btu in 2015 to $7.00 per million Btu in 2025 as natural gas prices and NGL production diverge in the two cases. Over time, however, as the divergence in NGL production narrows between the cases, the influence of oil prices on propane prices increases, and the difference in the propane prices narrows in the cases.

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Production of NGPL, which are extracted from wet natural gas by gas processors, rises more steeply than natural gas production in the first half of the projection period as a result of increased natural gas and oil production from shale wells, which have relatively high liquids contents. As shale gas plays mature, NGPL production levels off or declines even as dry natural gas production increases (Figure 42).

Variations in NGL supplies and prices contribute to variations in demand for NGL. In the High Oil and Gas Resource case, propane demand in all sectors is higher than projected in the Reference case, and in the Low Oil and Gas Resource case propane demand is lower than in the Reference case. Some of the difference results from changes in the expected energy efficiency of space heating equipment in the residential sector, and possibly some fuel switching, in response to different price levels in the three cases. The remainder is attributed to variations in NGL feedstock consumption in the bulk chemicals sector, where the use of NGL as a fuel and feedstock varies with different price levels. In addition, because NGL feedstock competes with petroleum naphtha in the petrochemical industry, lower NGL prices relative to oil prices lead to more NGL consumption in the petrochemical industry.

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The LPG import-export balance changes rapidly when domestic supply exceeds demand. This trend continues in the near term in all three cases. In the High Oil and Gas Resource case, however, with more LPG production, net exports continue to grow throughout the projection (Figure 43). Propane accounts for most of the higher export volumes, which also include smaller amounts of butane and ethane. Currently, most U.S. exports of LPG go to Latin America, where LPG is used for heating and cooking.

International implications

The projected growth in NGL demand both for U.S. domestic uses and for export depends heavily on international markets. Current plans for ethane exports are limited to pipelines to Canada, and to date ethane is not shipped by ocean-going vessels. There is room for growth in propane exports, however, because propane is a far more versatile fuel. Propane exports to Latin America are expected to continue, along with some expansion into European markets. In addition, growing markets in Africa [118] for propane used in heating and cooking, along with continued demand from Asia (for fuel and feedstock), are expected to support exports of propane from both the United States and the Middle East. It remains to be seen how the market for propane exports will develop in the long term, and how the United States will seek value for its propane—converting it into chemicals for domestic use or for export, or exporting raw propane.

International markets also play a role in increased domestic consumption, particularly for expanded petrochemical feedstock consumption. The declining price of ethane improves the economics of ethylene crackers, as indicated by the planned capacities shown in Table 7. The new capacity suggests that companies are planning to gain a greater market share of ethylene demand in Asia, especially in China, which continues to be a growing importer of ethylene [119]. However, that economic advantage has to be weighed against the massive growth in chemical manufacturing complexes in the Middle East, as well as expansions in Asia. Feedstock availability will not be a concern in the Middle East, but most petrochemical plants in China and other Asian countries rely heavily on naphtha as a feedstock, and naphtha is produced from crude oil, which China imports. China is making efforts to diversify its feedstock slate and has announced plans to build coal-to-olefins plants [120]. In addition, China may develop its own shale gas resources over the next 10 to 15 years, which could provide less expensive supplies of ethane and propane. The advantage in the Middle East is its long-term access to feedstocks. Whether the United States can further capitalize on growth in basic chemical production (ethylene, propylene) to build up its higher-value chemical base, and how the production cost of those higher value chemicals would compete with those from Asia and the Middle East, is an open question.

Future plans for U.S. propane disposition will be based on the balance between growth in domestic demand and exports. Rising exports of propane and butane raise issues as well. For example, both propane and butane can be used not only as feedstock in ethylene crackers, but also as feedstock for specific chemical product. For example, dehydrogenation processes can make propylene from propane [121] and butadiene from butane [122]. The economic value of those chemicals (which would depend on both local and global markets), weighed against the export value of the NGL inputs (propane and butane), will need to be assessed. In addition, the value of derivatives (such as polyethylene and polypropylene) will be considered from the perspective of both their export value and their production costs, which will be tied directly to the price of their precursor inputs, ethylene and propylene. Finally, U.S. refineries produce a significant amount of propylene. There is some degree of flexibility within refineries' fluid catalytic cracker units to produce propylene [123], and future refinery production of propylene will depend on the value of propylene itself, the value of its co-products (mostly gasoline and propane), and refining costs.

Natural gas from Comparison with other projections

5. Natural gas

Projections for natural gas consumption, production, imports, and prices differ significantly among the outlooks compared in Table 12. The variations result, in large part, from differences in underlying assumptions. For example, the AEO2013 Reference case assumes that current laws and regulations are unchanged through the projection period, whereas some of the other projections include assumptions about anticipated policy developments over the next 25 years. In particular, the AEO2013 Reference case does not incorporate any future changes in policy directed at carbon emissions or other environmental issues, whereas ExxonMobil and some of the other outlooks include explicit assumptions about policies aimed at reducing carbon emissions.

IHSGI and ICF project large increases in natural gas production and consumption over the projection period. IHSGI projects that, as production increases, prices will remain low and U.S. consumers, particularly in the electric power sector, will continue to benefit from an abundance of relatively inexpensive natural gas. In contrast, ICF projects that prices will rise at a more rapid rate than in the IHSGI projection. EVA projects growth in natural gas production, but at lower rates than IHSGI and ICF. Both EVA and ExxonMobil also project strong growth in natural gas consumption in the electric power sector through 2035. EVA differs from the others, however, by projecting strong growth in natural gas consumption despite a rise in natural gas prices to $8.00 per million Btu in 2035. Timing of the growth in consumption is somewhat different between the ExxonMobil projection and the other outlooks. ExxonMobil expects consumption to increase only through 2025, after which it remains relatively flat. The AEO2013 Reference case projects a smaller increase in natural gas consumption for electric power generation than in the other outlooks, with additional natural gas production allowing for a sharp increase in net exports, particularly as liquefied natural gas (LNG). The INFORUM projection shows a smaller rise in production and consumption of natural gas than in any of the other projections.

Production

All the outlooks shown in Table 12 project increases in natural gas production from the 2011 production level of 23.0 trillion cubic feet. IHSGI projects the largest increase, to 36.1 trillion cubic feet in 2035—13.1 trillion cubic feet or 57 percent more than the 2011 levels—with most of the increase coming in the near term (9.3 trillion cubic feet from 2011 to 2025). An additional 1.5 trillion cubic feet of natural gas production is added from 2035 to 2040. In the ICF projection, natural gas production grows by 12.5 trillion cubic feet over the period from 2011, to 35.5 trillion cubic feet in 2035. More than one-half of the increase (6.5 trillion cubic feet) occurs before 2020. INFORUM projects the smallest increase in natural gas production, at only 4.9 trillion cubic feet from 2011 to the 2035 total of 27.9 trillion cubic feet.

The AEO2013 Reference case and EVA project more modest growth in natural gas production. In the AEO2013 Reference case and EVA projections, natural gas production grows to 31.4 trillion cubic feet in 2035, an increase of 8.4 trillion cubic feet from 2011 levels. The AEO2013 Reference case and EVA projections show slower growth in natural gas production from 2011 to 2025, at 5.6 trillion cubic feet and 6.9 trillion cubic feet, respectively. Although the AEO2013 Reference case shows the least aggressive near-term growth in natural gas production, it shows the strongest growth from 2025 to 2035 among the projections, with another increase of 1.8 trillion cubic feet from 2035 to 2040.

Net imports/exports

Differences among the projections for natural gas production generally coincide with differences in total natural gas consumption or net imports/exports. EVA projects positive growth in net imports throughout the projection period, driven by strong growth in natural gas consumption. Although the EVA projection shows significant growth in pipeline imports, it shows no growth in net LNG exports. In contrast, the IHSGI, ICF, and AEO2013 Reference case projections show net exports of natural gas starting on or before 2020. The AEO2013 Reference case projects the largest increase in net exports of natural gas, with net pipeline exports increasing alongside steady growth in net LNG exports. In the ICF projection, the United States becomes a net exporter of natural gas by 2020 but remains a net importer of pipeline through 2035. Combined net exports of natural gas grow to 0.7 trillion cubic feet in 2035 in the ICF projection, with all the growth accounted for by LNG exports, which increase by 1.5 trillion cubic feet from 2011 to 2035. IHSGI projects a U.S. shift from net importer to net exporter of natural gas after 2017, with net exports declining after 2024.

Consumption

All the projections show total natural gas consumption growing throughout the projection periods, and most of them expect the largest increases in the electric power sector. IHSGI projects the greatest growth in natural gas consumption for electric power generation, driven by relatively low natural gas prices, followed by ExxonMobil and EVA, with somewhat higher projections for natural gas prices. The ICF projection shows less growth in natural gas consumption for electric power generation, despite lower natural gas prices, than in the EVA projection. In the AEO2013 Reference case and INFORUM projections, natural gas consumption for electric power generation is somewhat less than in the other outlooks. Some of that variation may be the result of differences in assumptions about potential fees on carbon emissions. For example, the ExxonMobil outlook assumes a tax on carbon emissions, whereas the AEO2013 Reference case does not.

Projections for natural gas consumption in the residential and commercial sectors are similar in the outlooks, with expected levels of natural gas use remaining relatively stable over time. The AEO2013 Reference case projects the lowest level of residential and commercial natural gas consumption, largely as a result of increases in equipment efficiencies, with projected consumption in those sectors falling by 0.1 trillion cubic feet from 2011 to 2040, to a level slightly below those projected by IHSGI and ICF. ExxonMobil projects a significant one-time decrease of 1.0 trillion cubic feet from 2020 to 2025.

The largest difference among the outlooks for natural gas consumption is in the industrial sector, where definitional differences can make accurate comparisons difficult. ExxonMobil and the AEO2013 Reference case both project increases in natural gas consumption in the industrial sector from 2011 to 2040 that are greater than 1.0 trillion cubic feet, with most of the growth in the AEO2013 Reference case occurring from 2015 to 2020. ICF projects the largest increase in industrial natural gas consumption, at 2.2 trillion cubic feet from 2011 to 2035, followed by EVA's projection of 1.8 trillion cubic feet over the same period. Although ExxonMobil projects a significant one-time decrease in industrial natural gas consumption—1.0 trillion cubic feet from 2025 to 2030—its projected level of industrial consumption in 2025, at 9.0 trillion cubic feet, is higher than in any of the other projections. Despite ExxonMobil's projected decrease in industrial natural gas consumption from 2025 to 2030, its projection for 2030 (8.0 trillion cubic feet) is second only to EVA's projection of 8.4 trillion cubic feet. IHSGI and INFORUM show modest increases in industrial natural gas consumption from their 2011 levels, to 6.9 trillion cubic feet in 2035 in both outlooks. Projected industrial natural gas consumption declines in the IHSGI projection after 2035, to 6.7 trillion cubic feet in 2040.

Prices

Only four of the outlooks included in Table 12 provide projections for Henry Hub natural gas spot prices. EVA shows the highest Henry Hub prices in 2035 and IHSGI the lowest. In the IHSGI projection, Henry Hub prices remain low through 2035, when they reach $4.98 per million Btu, compared with $3.98 per million Btu in 2011. Natural gas prices to the electric power sector rise from $4.87 per thousand cubic feet in 2011 to $5.47 per thousand cubic feet in 2035 in the IHSGI projection. The low Henry Hub prices in the IHSGI projection are supported by an abundant supply of relatively inexpensive natural gas, with only a small increase in net exports in comparison with the increase in the AEO2013 Reference case. EVA, in contrast, shows the Henry Hub price rising to a much higher level of $8.00 per million Btu in 2035, apparently as a result of stronger growth in natural gas consumption, particularly for electric power generation, and a lower level of natural gas exports. Indeed, the EVA outlook shows the U.S. remaining a net importer of natural gas through 2035.

Henry Hub natural gas prices in the ICF and AEO2013 Reference case projections for 2035—at $6.21 per million Btu and $6.32 per million Btu, respectively—fall within the price range bounded by IHSGI and EVA. In the AEO2013 Reference case, commercial, electric power, and industrial natural gas prices all rise by between $2 and $3 per thousand cubic feet from 2011 to 2035, while residential prices rise by $3.88 per thousand cubic feet over the same period. The residential sector is also the only sector for which the AEO2013 Reference case projects a decline in natural gas consumption to below 2011 levels in 2035. ICF projects a much smaller increase in delivered natural gas prices for the commercial, industrial, and electric power sectors, with prices rising to more than $2 per thousand cubic feet above 2011 levels by 2035 only in the electric power sector. With smaller price increases, ICF projects a much larger increase for natural gas consumption in the electric power and industrial sectors from 2011 to 2035 than in the AEO2013 Reference case.

Endnotes

71. Liquid fuels consists of crude oil and condensate to petroleum refineries, refinery gain, NGPL, biofuels, and other liquid fuels produced from non-crude oil feedstocks such as CTL and GTL.
72. Geologic characteristics relevant for hydrocarbon extraction include depth, thickness, porosity, carbon content, pore pressure, clay content, thermal maturity, and water content.
73. A production type curve represents the expected production each year from a well. A well’s EUR equals the cumulative production of that well over a 30-year productive life, using current technology without consideration of economic or operating conditions. A description of a production type curve is provided in the Annual Energy Outlook 2012 "Issues in focus" article, "U.S. crude oil and natural gas resource uncertainty," http://www.eia.gov/forecasts/archive/aeo12/IF_all.cfm#uscrude.
74. A more detailed analysis of the uncertainty in offshore resources is presented in the Annual Energy Outlook 2011 "Issues in focus" article, "Potential of offshore crude oil and natural gas resources," http://www.eia.gov/forecasts/archive/aeo11/IF_all.cfm#potentialoffshore.
75. U.S. Environmental Protection Agency and National Highway Transportation Safety Administration, "2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards: Final Rule," Federal Register, Vol. 77, No. 199 (Washington, DC: October 15, 2012), https://www.federalregister.gov/articles/2012/10/15/2012-21972/2017-and-later-model-year-light-duty-vehicle-greenhouse-gas-emissions-and-corporate-average-fuel.
76. K.A. Small and K.Van Dender, "Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect," University of California, Irvine, Department of Economics, Working Paper #05-06-03 (Irvine, CA: August 18, 2007), http://www.economics.uci.edu/files/economics/docs/workingpapers/2005-06/Small-03.pdf.
77. National Petroleum Council, "Advancing Technology for America’s Transportation Future" (Washington, DC: August 1, 2012), http://www.npc.org/FTF-report-080112/NPC-Fuels_Summary_Report.pdf.
78. International Maritime Organization, Information Resources on Air Pollution and Greenhouse Gas (GHG) Emissions from International Shipping (Marpol Annex VI (SOX, NOX, ODS, VOC) / Greenhouse Gas (CO2) and Climate Change) (London, United Kingdom: December 23, 2011),http://www.imo.org/KnowledgeCentre/InformationResourcesOnCurrentTopics/AirPollutionand
GreenhouseGasEmissionsfromInternationalShippping/Documents/Information%20Resources%20on%20AIR%20POLLUTION%20
AND%20GHG%20EMISSIONS%20FROM%20INTERNATIONAL%20SHIPPING.pdf
.
79. U.S. Energy Information Administration, Could the United States become the leading global producer of liquid fuels, and how much does it matter to U.S. and world energy markets?," This Week in Petroleum (Washington, DC: December 19, 2012), http://www.eia.gov/oog/info/twip/twiparch/2012/121219/twipprint.html.
80. U.S. Energy Information Administration, "Could the United States become the leading global producer of liquid fuels, and how much does it matter to U.S. and world energy markets?," This Week in Petroleum (Washington, DC: December 19, 2012), http://www.eia.gov/oog/info/twip/twiparch/2012/121219/twipprint.html.
81. The circumstances under which the United States can and cannot export crude oil under current law are more fully described in U.S. Energy Information Administration, "Market implications of increased domestic production of light sweet crude oil?," This Week in Petroleum (Washington, DC: November 28, 2012), http://www.eia.gov/oog/info/twip/twiparch/2012/121128/twipprint.html.
82.EPA's Proposed Carbon Pollution Standard for New Power Plants would require that new fossil fuel-fired power plants meet an output-based standard of 1,000 pounds of carbon dioxide per megawatthour of electricity generated. That standard would effectively prohibit the construction of new coal-fired power plants without carbon capture and storage. Currently, the EPA is evaluating comments and expects to issue a final rule in 2013. Because the rule is not yet final, it is not assumed to take effect in any of the AEO2013 cases.
110. Global Data, "Propylene Exports," Petrochemicals eTrack (March 2013), http://petrochemicalsetrack.com (subscription site).
111. A. Greenwood, "Tight US propylene may lead to two more PDH plants," ICIS News (June 25, 2012), http://www.icis.com/Articles/2012/06/25/9572490/tight-us-propylene-may-lead-to-two-more-pdh-plants.html.
112. J. Schroeder, "ProCOT Launches Propane Education Campaign," Ethanol Report (March 11, 2013), http://domesticfuel.com/2013/03/11/procot-launches-propane-education-campaign.
113. Propane Education and Research Council, "Programs and Incentives," http://www.agpropane.com/programs-and-incentives.
114. Targa Resources, "Targa Resources Partners LP Announces Project to Export International Grade Propane," Globe Newswire (Houston, TX: September 19, 2011), http://ir.targaresources.com/releasedetail.cfm?releaseid=606206.
115. A. Maykuth, "Former Sunoco Refinery in Marcus Hook Will Process Marcellus Shale Products," The Philadelphia Inquirer (Philadelphia, PA: September 28, 2012), http://articles.philly.com/2012-09-28/business/34128480_1_ethane-sunoco-logistics-sunoco-s-marcus-hook.
116. "More US Marcellus projects needed to absorb ethane production," ICIS News (Houston, TX: October 10, 2011), http://www.icis.com/Articles/2011/10/10/9498866/more-us-marcellus-projects-needed-to-absorb-ethane-production.html.
117. C.E. Smith, "US NGL Pipelines Expand to Match Liquids Growth," Oil and Gas Journal (May 7, 2012), http://www.ogj.com/articles/print/vol-110/issue-5/special-report-worldwide-gas/us-ngl-pipelines-expand.html (subscription site).
118. S. Williams, "LPG - the fuel for Africa," New African (December 2007), http://www.africasia.com/uploads/na_oilgas_1207.pdf.
119. "China's ethylene import dependency rises in January-May," ICIS C1Energy (July 17, 2012), http://www.c1energy.com/common/4162279,0,0,0,2.htm.
120. B. Thiennes, "Increased Coal-to-Olefins Processes in China," Hydrocarbon Processing (Houston, TX: October 1, 2012), http://www.hydrocarbonprocessing.com/Article/3096211/Increased-coal-to-olefins-processes-in-China.html.
121. A. Greenwood, "Tight US propylene may lead to two more PDH plants," ICIS News (June 25, 2012), http://www.icis.com/Articles/2012/06/25/9572490/tight-us-propylene-may-lead-to-two-more-pdh-plants.html.
122. J. Richardson, "Butadiene Oversupply Threat," ICIS Asian Chemical Connections (May 10, 2012), http://www.icis.com/blogs/asian-chemical-connections/2012/05/butadiene-oversupply-threat.html.
123. K.A. Couch et. al., "FCC propylene production," Petroleum Technology Quarterly (2007), http://www.uop.com/wp-content/uploads/2011/02/UOP-FCC-Propylene-Production-Tech-Paper.pdf.
125 These expenditures relative to GDP are not the energy-share of GDP, since expenditures include energy as an intermediate product. The energy-share of GDP corresponds to the share of value added due to domestic energy-producing sectors, which would exclude the value of energy as an intermediate product.
132. The factors that influence decisionmaking on capacity additions include electricity demand growth, the need to replace inefficient plants, the costs and operating efficiencies of different generation options, fuel prices, state RPS programs, and the availability of federal tax credits for some technologies.
133.Unless otherwise noted, the term capacity in the discussion of electricity generation indicates utility, nonutility, and CHP capacity.
134.Costs are for the electric power sector only.
135. The levelized costs reflect the average of regional costs. For detailed discussion of levelized costs, see U.S. Energy Information Administration, "Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013," http://www.eia.gov/forecasts/aeo/electricity_generation.cfm.

Executive Summary

Market Trends

Issues in Focus

Comparison with other projections

Reference Case Tables
Table 1. Total Energy Supply, Disposition, and Price Summary XLS
Table 13. Natural Gas Supply, Disposition, and Prices XLS
Table 14. Oil and Gas Supply XLS
Table 18. Energy-Related Carbon Dioxide Emissions by Sector and Source - United States XLS
Table 18.1. Energy-Related Carbon Dioxide Emissions by Sector and Source - New England XLS
Table 18.2. Energy-Related Carbon Dioxide Emissions by Sector and Source - Middle Atlantic XLS
Table 18.3. Energy-Related Carbon Dioxide Emissions by Sector and Source - East North Central XLS
Table 18.4. Energy-Related Carbon Dioxide Emissions by Sector and Source - West North Central XLS
Table 18.5. Energy-Related Carbon Dioxide Emissions by Sector and Source - South Atlantic XLS
Table 18.6. Energy-Related Carbon Dioxide Emissions by Sector and Source - East South Central XLS
Table 18.7. Energy-Related Carbon Dioxide Emissions by Sector and Source - West South Central XLS
Table 18.8. Energy-Related Carbon Dioxide Emissions by Sector and Source - Mountain XLS
Table 18.9. Energy-Related Carbon Dioxide Emissions by Sector and Source - Pacific XLS
Table 60. Lower 48 Crude Oil Production and Wellhead Prices by Supply Region XLS
Table 61. Lower 48 Natural Gas Production and Spot Prices by Supply Region XLS
Table 62. Oil and Gas End-of-Year Reserves and Annual Reserve Additions XLS
Table 63. Natural Gas Imports and Exports XLS
Table 64. Natural Gas Consumption by End-Use Sector and Census Division XLS
Table 65. Natural Gas Delivered Prices by End-Use Sector and Census Division XLS
Table 66. Primary Natural Gas Flows Entering NGTDM Region from Neighboring Regions XLS