Analysis Summary

Table 1 displays the gas consumption, production, net imports, and wellhead price levels projected for each of the restricted supply cases and compares those projections to both 2002 levels and the levels in the AEO2004 reference case.

In 2025, consumption ranges from 700 billion cubic feet (bcf) lower than the reference case in the no Alaska case to 4.5 tcf lower in the combined case. Electric generator consumption of natural gas is most affected, with 3 tcf less consumption in 2025 in the combined case.

The lower-48 average wellhead price impact in 2025 ranges from 20 cents per thousand cubic feet (mcf) higher in 2002 dollars in the no Alaska case to $1.21 per mcf higher in the combined case. The effect on delivered natural gas prices to electric generators ranges from 19 cents per mcf higher in 2025 in the no Alaska case to $1.10 per mcf higher in the combined case. It is important to note that these price differences are average annual differences and that seasonal variation or other events causing volatility could result in higher prices.

Because the supply restrictions applied in the four scenarios result in higher prices for natural gas, gas supply tends to increase from those sources that are not restricted in each case. In the no Alaska case, imports and lower-48 production increase. In the low LNG case, Canadian and Mexican imports and lower 48 production increase and an Alaska gas pipeline begins operating in 2017, 1 year earlier than in the reference case. In the low UGR case, imports and conventional lower-48 gas production increase and an Alaska gas pipeline begins operating in 2013. In the combined case, expansion is limited to conventional lower 48 production and Canadian and Mexican imports (Mexican imports are mainly LNG facilities in Baja California, whose gas is piped to the western United States) because all other sources of gas supply are restricted.

The mix of fuels used for electric generation changes because of the impact of supply restrictions on natural gas prices, with increases in generation from coal and renewable energy. The share of electricity generated with natural gas in 2025 is reduced by between 1 percentage point (no Alaska case) and 8 percentage points (combined case). The coal generation share in 2025 increases by between 1 and 5 percentage points. In the combined case, oil-fired generation increases significantly because dual-fired units that can burn both oil and gas switch to oil when natural gas prices get sufficiently high.

The projected change in industrial gas use under the restricted supply scenarios is smaller than the projected change in gas use for electricity generation. This, in part, reflects an assumption that a widespread shutdown of U.S. capacity in gas-intensive sectors, such as fertilizer and bulk chemicals, is unlikely. In the combined case, energy expenditures are 6 percent higher in 2025, but still represent just 3.2 percent of annual manufacturing expenditures in that year. If, however, industrial demand for natural gas were more price sensitive than represented in this analysis, the impacts of these restricted gas supply cases on electric generation and wellhead gas prices would both tend to be reduced.

Table 1