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Today in Energy

November 12, 2014

Increased natural gas production would meet most demand from added LNG exports

graph of change in natural gas supply and delivered end-use consumption in the four export scenarios relative to the Reference case baseline, as explained in the article text
Source: U.S. Energy Information Administration, Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Market
Note: Excludes natural gas used to fuel added liquefaction. Scenarios 12, 16, 20, and Alt 20 refer to different liquefied natural gas export scenarios, explained in the article text and in the full report. Reference Case baseline comes from EIA's Annual Energy Outlook 2014.

Increased natural gas production is projected to satisfy 60% to 80% of a potential increase in demand for added liquefied natural gas (LNG) exports from the Lower 48 states, according to recently released EIA analysis. The report, Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Market, considered the long-term effects of several LNG export scenarios specified by the Department of Energy's Office of Fossil Energy (FE). The study also considered implications for natural gas prices, consumption, primary energy use, and energy-related emissions. Effects on overall economic growth were positive but modest. A discussion of caveats and limitations of the analysis is also included.

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

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

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

Graph of change in natural gas supply in the 4 export scenarios relative to the 5 baselines, as described in the article text

Source: U.S. Energy Information Administration, Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Market
Note: Reference, HOGR, LOGR, HEG, and ACNR refer to scenarios in the Annual Energy Outlook 2014.

With the exception of one baseline/scenario pairing, higher natural gas production satisfies 60% to 80% of the increase in natural gas demand from LNG exports during 2015-40. With the exception of the HOGR case, more than 70% of the increased production comes from shale resources.

Graph of change in natural gas consumption in the 4 export scenarios relative to the 5 baselines, as described in the article text

Source: U.S. Energy Information Administration, Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Market
Note: Reference, HOGR, LOGR, HEG, and ACNR refer to scenarios in the Annual Energy Outlook 2014.

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

Projected average natural gas prices at the producer level are 4% to 11% above the Reference case across export scenarios during 2015-40. Generally, natural gas prices increase relative to their respective base cases, with the greatest impact during the 2015-25 timeframe when LNG exports are ramping up. The least and greatest price changes occur when the export scenarios are considered using the HOGR and LOGR baselines, respectively, because implementing the export scenarios from these baselines requires the least and greatest change in export levels.

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

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

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

More detailed results on delivered prices and other report results can be found in the standard National Energy Modeling System (NEMS) output tables.

Principal contributor: Angelina LaRose