Copyright 2000 Federal News Service, Inc.
Federal News Service
May 24, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 5735 words
HEADLINE:
PREPARED TESTIMONY OF JAY HAKES ADMINISTRATOR ENERGY INFORMATION ADMINISTRATION
DEPARTMENT OF ENERGY
BEFORE THE HOUSE COMMERCE
COMMITTEE ENERGY AND POWER SUBCOMMITTEE
BODY:
(NOTE: Figures not transmittable)
Summary Petroleum
consumption in the United States is projected by the Energy Information
Administration to increase at an average annual rate of 1.3 percent. Most of the
increase in petroleum consumption occurs in the transportation sector and more
than 90 percent of the growth is projected to be "light products." Domestic
petroleum supply--including refinery gain and natural gas plant liquids--is
projected to remain nearly flat. As a result, net imports are expected to
continue to rise throughout the forecast period. In 1998, net imports of
petroleum reached 52 percent of domestic petroleum consumption. This figure is
projected to increase, reaching 64 percent in 2020 in the reference case. The
United States is one of the top oil producing countries in the world (behind
only Saudi Arabia and Russia). Although imports are projected to grow throughout
the forecast period, domestic supply remains a significant source (36 percent in
2020) of total petroleum supply throughout the forecast period. Natural gas
consumption is expected to rise at a rate of 1.8 percent annually from 1998 to
2020-faster than any other major fuel source. This growth will be largely driven
by the demand for electricity, with gas consumption by electricity generators
forecast to increase more than two and one half times. Domestic gas production
is expected to increase (by an average of 1.5 percent per year) more slowly than
consumption (which is projected to increase by an average of 1.8 percent per
year) over the forecast period, rising from 19 tcf in 1998 to 26 tcf in 2020.
Because they are generally expected to be lower priced than competing domestic
sources, natural gas imports are expected to rise to make up the difference
between production and consumption, resulting in an increase from 14.6 percent
of consumption in 1998 to 16.3 percent in 2020. Although LNG imports are
projected to increase, natural gas imports continue to be dominated by pipeline
imports from Canada. In spite of forecast growth in natural gas imports, current
estimates of technically-recoverable natural gas resources indicate that the
resource base is expected to be adequate to sustain growing production volumes
for many years. Additionally, as technology improves, it is expected to become
economical to produce a larger share of the technically recoverable resource.
*************
Mr. Chairman and Members of the Committee:
I appreciate the opportunity to appear before you today to discuss the
views of the Energy Information Administration (EIA) on prospects for oil and
natural gas supply and demand.
EIA is an independent statistical and
analytical agency within the Department of Energy. We are charged with providing
objective, timely, and relevant data, analysis, and projections for the use of
the Energy Department, other agencies, the Congress, and the public. We do not
take positions on policy issues, but we do produce data and analysis reports
that are meant to help policy makers decide energy policy. Because we have an
element of statutory independence with respect to the analyses that we publish,
our views are strictly those of EIA. We do not speak for the Department, nor for
any particular point of view with respect to energy policy, and our views should
not be construed as representing those of the Department or the Administration.
Today's analysis is based on EIA's Annual Energy Outlook, which provides
projections and analysis of domestic energy consumption, supply, prices, and
carbon emissions through 2020. These projections are not meant to be exact
predictions of the future but represent a likely future, assuming known trends
in demographics and technology improvements, and also assuming no change in
current law, regulation, and policy. EIA does not propose, advocate, or
speculate on changes in laws and regulations. So, one of our key assumptions is
that all current laws and regulations remain as they were on July 1, 1999. That
means, for example, that the Tier 2 vehicle emission and gasoline sulfur
standards are not included in the reference case because the regulation was not
finalized until December 1999.
Oil
Petroleum consumption in the
United States increased sharply in the 1970's (Figure 1). From an average of
14.7 million barrels per day in 1970, petroleum consumption rose to 18.9 million
barrels per day in 1978, a level that would not be reached again for the next 20
years. More than half(57 percent) of the increase was in the transportation
sector and nearly 40 percent of the growth was attributable to motor gasoline.
Distillate and residual fuel consumption grew by 0.9 and 0.8 million barrels per
day, respectively, between 1970 and 1978.
Figure 1. Petroleum Supply,
Consumption, and Imports, 1970-1998 (million barrels per day)
Domestic
oil supply (including crude oil, lease condensate, natural gas liquids, other
liquids and processing gains) peaked in 1972 at 11.9 million barrels per day
then declined slowly in part because of price controls and aging fields in the
Lower 48 States. Completion of the Trans-Alaska Pipeline System brought about a
1.0 million barrel per day increase in domestic oil production in 1978. The
rising consumption combined with relatively flat supply resulted in a dramatic
increase in net petroleum imports, from 3.1 million barrels per day in 1970 to
8.5 million barrels per day in 1977. Ninety percent of the increase in net
imports from 1970 to 1977 came from OPEC countries, as OPEC's share of U.S.
imports rose from 42 percent to 72 percent.
From 1978 to 1980, world oil
prices nearly doubled (Figure 2), resulting in a sharp decline in consumption.
From the 1978 peak of 18.9 million barrels per day, consumption fell to 15.2
million barrels per day in 1983, a decline of 20 percent. Residual fuel led the
decline as industrial users and electric utilities switched to alternative fuel
sources. Residual fuel use fell 1.6 million barrels per day over the 5-year
period, followed by gasoline (0.8 million barrels per day) and distillate fuel
(0.7 million barrels per day.) By 1983, petroleum consumption in the United
States had returned to the level of 1971.
Figure 2. World Oil Prices in
Three Cases, 1970-2020 (1998 dollars per barrel) Domestic supply remained fairly
stable from 1978 to 1983, with rising Alaskan production making up for
production declines in the Lower 48 States.
Reduced consumption, along
with steady supply levels, resulted in a decline in net imports from the 1977
peak of 8.5 million barrels per day to 4.3 million barrels per day in 1983. The
decline in petroleum net imports from OPEC countries fell by slightly more than
the total decrease as non-OPEC net imports increased slightly during this
period. OPEC's share of U.S. petroleum net imports declined to 43 percent in
1983.
The sharp decline in U.S. and world petroleum consumption resulted
in lower demand for OPEC oil, which in turn led to reductions in the world oil
prices. From the 1980 peak of $63.30 per barrel, the average
world oil price fell to $19.57 per barrel in 1986 (measured in
1998 dollars). The lower prices and growing economy stimulated petroleum
consumption growth. With the exception of 1991, petroleum consumption has
remained the same or increased each year since 1983. In 1998, petroleum
consumption reached 18.9 million barrels per day, slightly exceeding the
previous peak in 1978. In contrast to the increase in the 1970' s, the rise in
consumption from 1983 to 1998 was almost exclusively among the lighter petroleum
products (gasoline, distillate, jet fuel, etc). Residual fuel consumption
continued to decline during this period.
After remaining stable from
1978 to 1985, domestic supply again started to decline in 1985 due in part to
the much lower oil prices. By 1998, supply had fallen to 9.2 million barrels per
day from 11.4 million barrels per day in 1985. Increasing petroleum consumption
and declining supply led to rising net import levels that, in 1996, surpassed
the 1977 peak. By 1998, petroleum net imports reached 9.8 million barrels per
day, comprising 52 percent of domestic petroleum consumption. Net imports from
OPEC countries contributed 56 percent of the rise in total net imports from 1983
to 1998, in contrast to the 1970's when they contributed 90 percent of the
increase. Net imports from Canada and Mexico made up 24 percent of the increase
from 1983 to 1998, and in 1998, these two countries provided 26 percent of U.S.
petroleum net imports compared to 50 percent from OPEC countries.
Projected Prices
Just as the historical record shows substantial
variability in world oil prices, there is considerable uncertainty about future
prices. Three AEO2000 cases with different price paths allow an assessment of
alternative views on the course of future oil prices. For the reference case,
prices are projected to rise by about 2.8 percent a year, reaching
$22.04 in 2020 (all prices in 1998 dollars unless otherwise
noted). In nominal dollars, the reference case price exceeds
$36 in 2020. The low price case has prices declining, after the
current price rise, to $14.90 by 2005 and remaining at about
that level out to 2020. The high price case has prices reaching
$28 by 2015 before leveling off. The leveling off in the high
price case is due to the market penetration of alternative energy supplies that
could become economically viable at that price, if it is sustained. The AEO2000
price paths do not attempt to predict volatility. Oil prices have been quite
volatile in the past, principally as a result of unforeseen political and social
circumstances. The oil market volatility over the past 2 years has been the
result of oil market fundamentals that are reasonably well understood but nearly
impossible to predict. OPEC and some other producers responded to the low prices
of 1998 by cutting back on production in the spring of 1999. This occurred just
as several countries in Asia began to recover from their financial crisis and to
increase oil consumption. The combination of lower production and higher
consumption brought inventories down rapidly and, as inventories got to very low
levels, prices rose sharply.
All three price cases reflect considerable
optimism about the potential for worldwide petroleum supply, even in the face of
the substantial expected increase in demand. Production from countries outside
OPEC is expected to show a steady increase, exceeding 45 million barrels per day
by the turn of the century and increasing gradually thereafter to more than 56
million barrels per day by 2020.
Petroleum Consumption Expected to
Increase Steadily
Petroleum consumption in the United States is
projected to increase 6.2 million barrels per day, from 18.9 million barrels per
day in 1998 to 25.1 million barrels per day in 2020, an annual average rate of
1.3 percent (Figure 3). This compares to the average growth rates of 1.5 percent
per year from 1983 to 1998 and 3.2 percent per year from 1970 to 1978. Most of
the increase in petroleum consumption occurs in the transportation sector, which
accounted for two-thirds of U.S. petroleum use in 1998. Petroleum use for
transportation is projected to increase by 5.4 million barrels per day in the
reference case between 1998 and 2020.
Figure 3. Petroleum Supply,
Consumption, and Imports, 1970-2020 (million barrels per day)
In the
industrial sector, which accounts for more than a fifth of U.S. petroleum use,
consumption in 2020 is projected to be higher than the 1998 level by 1.2 million
barrels per day in the reference case. More than half the growth is expected in
the petrochemical, construction, and refining sectors. Petroleum use is expected
to decline in the residential, commercial, and electricity generator sectors,
where oil gives ground to natural gas. For electricity generation, our
projections show oil-fired steam plants being retired in favor of natural gas
combined-cycle units.
More than 90 percent of the projected growth in
petroleum consumption stems from increased consumption of "light products,"
including gasoline, diesel, heating oil, jet fuel, and liquefied petroleum
gases, which are more difficult and costly to produce than heavy products.
Although refinery investments and enhancements are expected to increase the
ability of domestic refineries to produce light products, they are projected to
compensate for less than half the additional demand; the remainder will be
imported.
In the forecast, gasoline continues to account for about 45
percent of all the petroleum used in the United States. Between 1998 and 2020,
U.S. gasoline consumption is projected to rise from 8.3 million barrels per day
to 11.4 million barrels per day. Increased air travel results in a near doubling
of projected jet fuel consumption from 1.6 million barrels per day in 1998 to
3.0 million barrels per day in 2020. Consumption of liquefied petroleum gases
(LPG's)--primarily in the industrial sector--also increases in the projections,
from 2.0 million barrels per day in 1998 to 2.5 million barrels per day in 2020.
Consumption of"other" petroleum products, mostly petrochemical feedstocks, still
gas used to fuel refineries, and asphalt and road oil used in road construction,
grows from 2.8 million to a projected 3.3 million barrels per day by 2020.
Distillate fuel consumption is projected to grow more slowly than other fuels,
because of increasing fuel efficiency. Residual fuel use, mainly for electricity
generation, is projected to decline by 250,000 barrels per day in the high oil
price case but projected to increase by 530,000 barrels per day in the low oil
price case.
Crude Oil Production Declines then Stabilizes, Total
Supplies Remain Flat
In the reference case, domestic petroleum supply is
projected to decline slightly from its 1998 level of 9.2 million barrels per day
to 9.1 million barrels per day in 2020. This is the result of two offsetting
factors. As U.S. crude oil production falls off, refinery gain and production of
natural gas plant liquids increase. In the low oil price case, domestic supply
is projected to drop to 8.3 million barrels per day in 2020. In the high oil
price case, domestic supply is projected to increase to 9.9 million barrels per
day in 2020.
Projected domestic crude oil production continues its
historic decline through 2005. After 2005, technological improvements and rising
prices are projected to arrest the decline, leading to relatively stable lower
48 production in the remainder of the forecast. In 2020, the projected domestic
production level of 5.3 million barrels per day is 1 million barrels per day
less than the 1998 level. Conventional onshore production in the lower 48
States, which accounted for 46 percent of total U.S crude oil production in
1998, is projected to increase to a 49-percent share in 2020 because of
declining Alaskan production.
Crude oil production from Alaska is
expected to decline at an average annual rate of 3.7 percent between 1998 and
2020. The overall decrease in Alaska's oil production results from a continuing
decline in production from most of its oil fields and, in particular, from
Prudhoe Bay, the largest producing field, which historically has accounted for
more than 60 percent of total Alaskan production. Offshore production ranges
from 1.4 to 1.6 million barrels per day throughout the forecast. Technological
advances and lower costs for deep exploration and production in the Gulf of
Mexico help to offset a decline in production from shallow waters. Production
from enhanced oil recovery (EOR), which becomes less profitable as oil prices
fall, slows through 2006 and then increases along with projected world oil
prices through the remainder of the forecast. The projected EOR production in
2020 is close to the 1998 level.
Although the number of available
drilling rigs has been declining since 1982, price increases are a powerful
incentive for increased drilling and the purchase of new drilling equipment. The
number of available drilling rigs increased by almost 16 percent annually
between 1974 and 1982--from 1,767 to 5,644--as natural gas prices more than
quadrupled in real terms and oil prices more than doubled. This number dropped
off as prices generally declined, and about 1,700 drilling rigs were available
in the United States in 1998. Given the historical response to rising prices,
even a modest increase in prices is likely to make additional drilling rigs
available, and the forecast shows the number of rigs increasing to 1994 by 2020.
Both exploratory drilling and developmental drilling increase in the
forecast. With rising prices and declining drilling costs, successful crude oil
well completions increase on average by 0.1 and 3.3 percent per year in the low
and high oil price cases, respectively, compared with a 1.7 percent projected
increase in annual well completions in the reference case. For most of the past
two decades lower 48 production of crude oil has exceeded reserve additions and
production is expected to exceed reserve additions over the forecast period in
all cases, meaning that projected U.S. oil reserves in 2020 will be below 1998
levels.
Petroleum Imports Projected to Increase
With consumption
rising and production nearly flat, net imports are expected to continue to rise
throughout the forecast period. Petroleum net imports are projected to increase
to 16.0 million barrels per day in 2020 in the reference case from 9.8 million
barrels per day in 1998. In 1998, net imports of petroleum climbed to 52 percent
of domestic petroleum consumption and are projected to reach 64 percent in 2020
in the reference case. OPEC's share of the U.S. import market is expected to
increase to 52 percent in 2020 while the North America and Caribbean Share of
imports is projected to reach 33 percent. Total annual U.S. expenditures for
petroleum imports, which reached a historical peak of $133.7
billion (in 1998 dollars) in 1980, were $46.6 billion in
1998.Although crude oil is expected to continue as the major component of
petroleum imports, refined products represent a growing share. More imports of
refined products will be needed as growth in demand for refined products exceeds
the expansion of domestic refining capacity. Net refined products make up 28
percent of net imports in 2020 in the reference case, compared with 12 percent
in 1998.
The United States Remains One of the Top Producing Countries
The United States was by far the largest crude oil producing country in
the world in 1970, at 9.6 million barrels per day (Figure 4). The Soviet Union
followed with 7.0 million barrels per day followed by four members of OPEC. By
1999, Saudi Arabia's oil production had increased to 7.8 million barrels per
day, the only one of the top six producers in 1970 that had a higher production
level in 1999. The Soviet Union had broken apart but Russia remained in second
place in global oil production in 1999. The United States had fallen to third
and Iran fourth. China and Norway replaced Venezuela and Libya as the fifth and
sixth largest oil producers.
Figure 4. Top Six Crude Oil Producing
Countries, 1970 and 1999 (million barrels per day)
The top six countries
produced 29.6 million barrels per day of crude oil in 1999, down 1.7 million
barrels per day from the 1970 combined production level. However, crude oil
production has become much more widely dispersed than in 1970. The production
total of the top six producers amounted to 68 percent of the world's crude oil
produced in 1970, but in 1999, the top six countries produced just 45 percent of
the world total. Whereas four members of the top six in 1970 were members of
OPEC, just two of the top six were from OPEC in 1999.
U.S. production
has fallen, because production elsewhere has been less costly. The United States
has remained a major producer, however, because of a relatively low tax regime
and innovative use of advanced technology.
Strategic Petroleum Reserve
The United States began putting crude oil into the Strategic Petroleum
Reserve (SPR) in 1977 (Figure 5). The SPR is considered the first line of
defense against an interruption in oil supplies and, therefore, is also
considered a deterrent to possible oil import cutoffs. Between 1980 and 1985,
inputs into the SPR averaged more than 200,000 barrels per day. By 1990, the
inventory level had reached 586 million barrels. Since then, sales and additions
have resulted in relatively small fluctuations in the total stockpile.
Figure 5. Strategic Petroleum Reserve Crude Oil Stocks, 1977-1999
(million barrels) 1999 end-of-year inventory amounted to 567 million barrels.
Natural Gas
The Demand for natural gas, with increases
principally from the electric generation sector, is expected to rise to more
than 30 trillion cubic feet (tcf) in 2020. As demand increases, pressure on
natural gas supply will grow. These demand-side pressures will begin to raise
questions like: Is there enough gas to meet demand at affordable prices? and Can
we produce the gas fast enough to keep up with demand?
Last year U.S.
natural gas consumption was just over 21tcf and accounted for 24 percent of
domestic energy consumption. Gas consumption is expected to grow 1.8 percent
annually from 1998 to 2020--faster than any other major fuel source, mainly
because of the growth in gas-fired electricity generation. Domestic gas
production is expected to increase a bit more slowly than consumption over the
forecast, rising from 19 Tcf in 1998 to 26 Tcf in 2020. Growing production
reflects rising wellhead prices, relatively abundant natural gas resources, and
improvements in technologies, particularly for producing offshore and
unconventional gas.
Net imports are expected to rise to make up the
difference between domestic production and consumption, because they are
generally expected to be lower priced than competing domestic sources (Figure
6). Net imports are expected to climb from 3.0 Tcf in 1998 to 5.0 Tcf in
2020-somewhat faster than the growth in overall consumption. Projected imports
continue to be dominated by pipeline imports from Canada over the forecast
period.
Figure 6. Natural Gas Production, Consumption, and Net Imports,
1970- 2020 (trillion cubic feet)Rising Natural Gas Demand
The industrial
sector is the largest gas-consuming sector, with significant amounts of gas used
in the bulk chemical, refining, and metal durables sectors. Industrial gas
consumption is expected to increase by 1.8 Tcf over the forecast--less than 1
percent per year-- particularly in the refining and metal durables sectors,
because of relatively low and stable gas prices. Combined, the residential and
commercial sectors add 1.8 trillion cubic feet from 1998 to 2020. Gas demand in
the residential and commercial sectors is driven by increasing population and
declining consumer prices for delivered gas. The declines in prices paid by the
consumer reflect expected gas distribution efficiencies in an increasingly
competitive market.
Projected gas consumption by electric generators,
not including industrial cogenerators, increases more than two and one half
times during the forecast, from 3.7 trillion cubic feet in 1998 to 9.3 trillion
cubic feet in 2020. The significant growth in gas-fired generation is partly
driven by electric industry restructuring, but is mainly spurred by the addition
of new gas turbines and combined-cycle facilities and increased utilization of
existing gas-fired power plants. Lower capital costs, short lead times, and
projected improvements in gas turbine heat rates give gas an advantage over coal
for new generation in most regions of the United States. In 1998 electricity
generators were the third-largest natural gas consuming sector. By 2020,
however, the projected enormous growth in gas-fired generation makes electricity
generators the second largest gas- consuming sector-rising to within 1 tcf of
the industrial sector. Over the entire forecast, natural gas consumption is
projected to grow by more than 10 tcf, and more than half of the increase comes
from the electric generation sector.
Through 2020, the share of
electricity produced with natural gas rises from 14 percent to 31 percent of the
total, while the coal share declines from 52 percent to 49 percent. Nuclear
power declines as a source of electric power--from 19 percent to 9 percent of
electricity generation as no new nuclear power plants are expected to be brought
on line between 1998 and 2020 and 40 percent of the current stock retires.
Before the advent of natural gas combined-cycle plants, fossil-fired
baseload capacity additions were limited primarily to pulverized-coal steam
units; today, however, combined-cycle plants cost about half as much and are
about 40 percent more efficient than new coal plants. The lower capital costs
and higher efficiencies of combined-cycle plants offset their higher fuel costs
(Figure 7).
Figure 7. Electricity Generation Costs, 2005 and 2020 (1998
mills per kilowatthour)
To meet the new demand growth, utilities can be
expected to use existing plants more intensively, import power from Canada and
Mexico, and purchase power from cogenerators and wholesale generators. Even so,
300 gigawatts of new capacity will be needed from 1998 to 2020 to meet projected
demand. Of that new capacity, 90 percent is projected to be combined-cycle or
combustion turbine technology fueled primarily by natural gas. In other words,
more than 900 of the 1,000 new power plants--assuming an average plant capacity
of 300 megawatts--that are expected to be built between now and 2020 are
projected to be gas- fired. New coal plants are not projected to be
cost-competitive until 2010, when rising natural gas
prices exceed the price of coal by $2 per million BTU,
leading to the projected construction of new coal- steam power plants in some
regions.
Many of the new gas-fired plants built over the next 20 years
will replace nuclear power plants. In AEO2000 about 40 percent of the existing
nuclear capacity is expected to be taken out of service by 2020. No new nuclear
units are expected to become operable by 2020, because natural gas and
coal-fired plants are projected to be more economical.
Growing Natural
Gas Supply
Over the forecast period, increased U.S. natural gas
production comes primarily from lower 48 onshore conventional nonassociated
sources. Conventional onshore production accounted for 35 percent of total U.S.
domestic production in 1998 and is expected to increase to 41 percent in 2020.
Offshore production, mainly from wells in the Gulf of Mexico, also rises.
Innovative, cost-saving technology and large finds, particularly in the deep
waters of the Gulf, have encouraged interest in this area. Lower-48 offshore
Gulf Coast natural gas production increased to 5.7 tcf in 1997--the highest yet
recorded -- and dropped off slightly in 1998 to 5.6 tcf. Unconventional gas
production increases at the fastest rate of any other source over the forecast
period, largely because of expanded tight sands gas production in the Rocky
Mountain region.
The Rocky Mountain (primarily unconventional sources)
and offshore Gulf of Mexico regions are expected to account for just over half
of the incremental natural gas production between 1998 and 2020, as improvements
in both unconventional and offshore technologies continue. Increased production
from the offshore Gulf Coast and onshore Southwest regions account for almost
one-third of the total increase in the same period. Alaskan gas is not expected
to be transported to the lower 48 States through 2020,because projected natural
gas prices are not high enough to support the required transportation system.
One of the key activities in producing natural gas is drilling. With
rising prices and generally declining drilling costs, drilling in 2020 is
expected to reach 22,600 wells in the reference case and result in 16,900
successful natural gas well completions. This level of drilling is below the
level reached in 1981 of more than 29,000 total wells drilled (just under 20,000
successful), but represents approximately a 15-percent increase over current
levels.
Figure 8. Total Natural Gas Wells Drilled, 1970-2020 (thousands
of wells)
Technological Development
Technology improvements have
both reduced effective exploration and development costs, and increased the
recoverability of in-place resources. Major advances in data acquisition, data
processing, and the technology of displaying and integrating seismic data with
other geologic data-combined with lower cost computer power and experience
gained using new techniques-have exerted downward pressure on costs.
Uncertainties about the pace of technological development are one of the
key factors that could affect natural gas production and prices. Alternative
cases were used to assess the sensitivity of the projections to changes in
success rates, exploration and development costs, and finding rates as a result
of technological progress. The assumed technology improvement rates were
increased and decreased by approximately one-third in the rapid and slow
technology cases.
Changes in production in the alternative technology
cases reflect the benefits of lower costs and higher productivity for
conventionally recoverable gas, as well as an array of technological
enhancements for unconventional gas recovery. The changes in supply lead to
price changes that affect new investment in gas-fired technologies, especially
in the industrial and electricity generation sectors. Rapid technology
improvements yield benefits in the form of both lower prices and increased
production to meet higher consumption requirements.
Production from
unconventional gas resources (tight sands, shales, and coalbeds) is particularly
responsive to changes in the assumed levels of technological progress. Whereas
the reference case projects total U.S. natural gas production in 2020 at 26.4
trillion cubic feet, the rapid technology case projects 28.1 trillion cubic feet
of production in 2020, with the increase coming primarily from offshore and
unconventional sources.
Offshore gas production in the Gulf of Mexico is
expected to grow from 5.5 trillion cubic feet in 1998 to a peak of 6.7 trillion
cubic feet in 2015 in the reference case. In the rapid technology case, however,
offshore Gulf of Mexico production peaks at 7.7 trillion cubic feet in 2017, and
projected cumulative offshore production between 1998 and 2020 is 148.3 trillion
cubic feet, compared with 137.1 trillion cubic feet in the reference case. The
rapid technology assumption has a similar but less dramatic, effect on
unconventional gas recovery (UGR). Cumulative UGR production between 1998 and
2020 is projected to be 132.9 trillion cubic feet in the rapid technology case,
compared with 129.5 trillion cubic feet in the reference case. Changes in
production in the alternative technology cases reflect the benefits of lower
costs and higher finding rates for conventionally recoverable gas, as well as an
array of technological enhancements for unconventional gas recovery.
Slowly Rising Natural Gas Wellhead Prices
Wellhead prices for
natural gas in the lower 48 States increase on average by 1.7 percent a year in
the reference case to $2.81 per thousand cubic feet in 1998
dollars (Figure 9). The increase reflects rising demand for natural gas and the
impact of the progression of discoveries from larger and more profitable fields
to smaller, less economical ones. The natural gas price projections are highly
sensitive to changes in the assumptions about technological progress. Over the
projection period, lower 48 wellhead prices increase at an average annual rate
of 3.0 percent in the slow technology case, rising fairly steadily to
$3.74 (1998 dollars) per thousand cubic feet in 2020. In the
rapid technology case, average natural gas wellhead prices remain below 1997
level of $2.39 through 2020.
Figure 9. Lower 48 Natural
Gas Wellhead Prices in Three Cases,1970- 2020 (1998 dollars per thousand cubic
feet)
Natural Gas Imports
Net natural gas imports are expected
to grow slightly in the forecast from 14 percent of total gas consumption in
1998 to 16 percent in 2020. Most of the increase is attributable to imports from
Canada, primarily from western Canada, although some new gas is also expected
from Sable Island in the offshore Atlantic. Gas trade with Mexico is expected to
consist primarily of exports. Conversion of power plants from heavy fuel oil to
natural gas, in compliance with Mexico's environmental regulations, is expected
to gain momentum and it is uncertain whether indigenous production can be
increased enough to satisfy rising demand. LNG provides another source of gas
imports, and gross LNG imports are expected to grow at a rate of 7.2 percent a
year, reaching a level of 390 bcf by 2020.
Summary
In summary,
over the next 20 years petroleum consumption in the United States is expected to
be driven primarily by the demand for "light products" in the transportation
sector. Petroleum consumption is expected to rise to over 25 million barrels per
day in 2020, and domestic petroleum supply--including refinery gain and natural
gas plant liquids--is projected to decline slightly to just over 9 million
barrels per day in 2020. Net imports are projected to increase to 16 million
barrels per day in 2020. Continued dependence on petroleum imports is projected,
reaching 64 percent in 2020. Although imports are projected to grow, the United
States is one of the largest oil producing countries in the world, and domestic
production is expected to remain a significant source of petroleum supply.
Over the next 20 years the U.S. natural gas market is expected to be
largely driven by the demand for electricity. From now through 2020 gas
consumption by electricity generators is expected to increase more than two and
one half times. Total gas consumption is expected to rise to more than 31 tcf in
2020, and U.S. production is expected to increase to 26 tcf. Net imports,
primarily from Canada, are projected to increase to 5 tcf by 2020. In spite of
this increase, technically- recoverable natural gas resources are believed to be
adequate to sustain growing production volumes for many years without dramatic
price increases.
END
LOAD-DATE: May 25, 2000
