EIA Reports

U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
DECEMBER 16, 2003

EIA Long-Run Forecast Sees Lower Natural Gas Use And Higher Natural Gas Prices Than Previously Projected

The Annual Energy Outlook 2004 (AEO2004), released today by the Energy Information Administration (EIA), forecasts lower natural gas demand and higher natural gas prices than last year’s long-run projections as EIA reevaluated expectations about the future role of natural gas in energy markets, the economics of natural gas exploration and development, and future natural gas price trends.

Total natural gas supply is projected to grow to 31.3 trillion cubic feet in 2025 (Figure 1), 3.3 trillion cubic feet less than in the AEO2003. Domestic natural gas production is projected to increase from 19.1 to 24.1 trillion cubic feet between 2002 and 2025, 2.8 trillion cubic feet less than in the forecast released last year. Conventional onshore production is lower because of slower reserve growth, fewer new discoveries, and higher exploration and development costs. Offshore natural gas production is also lower because of the tendency to find more oil than natural gas offshore and higher costs than previously anticipated.

Future growth in U.S. natural gas supplies will depend on unconventional domestic production, natural gas from Alaska, and liquefied natural gas (LNG) imports. Total nonassociated unconventional natural gas production is projected to grow from 5.9 trillion cubic feet in 2002 to 9.2 trillion cubic feet in 2025. With completion of an Alaskan natural gas pipeline in 2018, total Alaskan production is projected to increase from 0.4 trillion cubic feet in 2002 to 2.7 trillion cubic feet in 2025. Total net LNG imports are projected to increase from 0.2 trillion cubic feet in 2002 to 4.8 trillion cubic feet in 2025, more than double the AEO2003 projection.

Average natural gas prices are projected to increase from $2.95 per thousand cubic feet (2002 dollars) in 2002 to $4.40 per thousand cubic feet in 2025 (equivalent to about $8.50 per thousand cubic feet in nominal dollars) (Figure 2). At $4.40 per thousand cubic feet, the 2025 wellhead natural gas price in AEO2004 is 44 cents higher than in the forecast released last year.

he changes lead to a revised expectation about the fuel mix of future electric generating capacity additions and generation. Coal is now projected to play a more important role, particularly in the later years of the forecast. Cumulative projected additions of natural-gas-fired generating capacity are lower in the AEO2004 than they were in the AEO2003, and more additions of coal and renewable generating capacity are projected (Figure 3).

The higher natural gas prices also impact the demand for natural gas in the industrial sector, particularly in the energy-intensive industries. Total industrial demand for natural gas is projected to increase from 7.2 trillion cubic feet in 2002 to 10.3 trillion cubic feet by 2025, 0.7 trillion cubic feet less in 2025 than in the forecast released last year. While industrial natural gas demand is lower in the AEO2004 due to the higher natural gas prices, output in the energy intensive manufacturing industries still grows at 1.6 percent per year from 2002 to 2025. The non-energy intensive manufacturing industries grow at a rate of 3.2 percent per year over the same period.

Other forecast highlights include:

Total energy demand is projected to increase from 97.7 to 136.5 quadrillion British thermal units (Btu) between 2002 and 2025, an average annual increase of 1.5 percent, in a scenario where the U.S. economy grows at an average annual rate of 3.0 percent

The average world oil price is projected to decline to $23.30 per barrel (2002 dollars) in 2005. It then rises slowly to $27.00 per barrel by 2025, largely due to the impact of higher projected world oil demand. In nominal dollars, the average world oil price reaches about $52.00 per barrel in 2025.

U.S. petroleum demand is expected to become increasingly dependent on imports. Net petroleum imports, including both crude oil and refined products, are expected to account for 70 percent of total petroleum demand by 2025, up from 54 percent in 2002 (Figure 4).

Coal remains the primary fuel for electricity generation through 2025. The coal share is projected to increase from 50 percent in 2002 to 52 percent in 2025. 112 gigawatts of new coal-fired generating capacity are expected to be constructed between 2002 and 2025.

While no new nuclear plants have been built in many years in the U.S., existing facilities have substantially improved their performance and reduced operating costs. While no new nuclear units are built in AEO2004, no existing nuclear facilities are retired and 3.4 gigawatts are added via uprates.

Total renewable electricity generation, including combined heat and power (CHP), is projected to increase from 339 to 518 billion kilowatt-hours between 2002 and 2025, an increase of 1.9 percent per year. Renewable technologies are projected to grow slowly because of the relatively low cost of fossil-fired generation. State renewable portfolio standards, which specify a minimum share of generation or sales from renewable sources, are included in the forecast, but no extension of the Federal Production Tax Credit for wind and closed-loop biomass, which under current law expires at the end of 2003, is assumed.

Average real (2002 dollars) electricity prices are projected to decline from 7.2 cents per kilowatthour in 2002 to a low of 6.6 cents per kilowatthour by 2007 due to cost reductions in an increasingly competitive market faced with excess generating capacity resulting from the recent boom in construction and the continued decline in coal prices. After 2007, average real electricity prices are projected to increase, reaching 6.8 cents per kilowatthour by 2025 (the equivalent of 13.2 cents per kilowatthour in nominal dollars) due mainly to increased generation costs.

Consistent with the requirement that EIA provide a projection that reflects existing laws and regulations, the forecast does not assume future policy actions that might be taken to reduce emissions of carbon dioxide or other gases. Carbon dioxide emissions from energy use are projected to increase from 5,729 to 8,142 million metric tons between 2002 and 2025, an average annual increase of 1.5 percent. The carbon intensity of the economy, measured as energy-related carbon dioxide emissions per dollar of gross domestic product, declines at an average annual rate of 1.5 percent per year through 2025.

Reference case projections from the Annual Energy Outlook 2004 and an overview of the results can be accessed on EIA’s Internet site at www.eia.doe.gov/oiaf/aeo/index.html. The full report, including projections with differing assumptions on the price of oil, the rate of economic growth, and the characteristics of new technologies, will be released in January 2004, along with regional projections and a report on the major assumptions underlying the projections.

The report described in this press release was prepared by the Energy Information Administration, the independent statistical and analytical agency within the U.S. Department of Energy. The information contained in the report and the press release should be attributed to the Energy Information Administration and should not be construed as advocating or reflecting any policy position of the Department of Energy or any other organization.

EIA Program Contact: Mary Hutzler, 202/586-2222, mary.hutzler@eia.doe.gov

EIA Press Contact: National Energy Information Center, 202/586-8800, inforctr@eia.doe.gov

EIA-2003-19

File Last Modified: December 16, 2003

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