At the request of the Subcommittee on Energy and Mineral Resources of the U.S. House Committee on Resources, the Energy Information Administration (EIA) has analyzed four scenarios with restricted future natural gas supply. The results are published in the Service Report "Analysis of Restricted Natural Gas Supply Cases."

The four cases examined in this study have progressively greater impacts on overall natural gas supply, consumption, and prices. Compared to the Annual Energy Outlook 2004 (AEO2004) reference case, the no Alaska pipeline case has the least impact; the low liquefied natural gas (LNG) case has more impact; the low ultimate gas recovery per unconventional gas well (UGR) case has even more impact; and the combined case has the most impact.

Electricity Generation by Fuel, 2002 and 2025 Combined Gas Restricted Case and AEO2004 Reference Case (Trillion Kilowatthours)
Source: Energy Information Administration.

In 2025, consumption ranges from 700 billion cubic feet (bcf) lower than the reference case in the no Alaska case to 4.5 trillion cubic feet (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 impact on average wellhead prices in the 48 States 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 variations 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 production in the 48 States increase.

In the low LNG case, Canadian and Mexican imports and production in the 48 States increase and an Alaska natural gas pipeline begins operating in 2017, 1 year earlier than in the reference case. In the low UGR case, imports and conventional production in the 48 States increase and an Alaska natural gas pipeline begins operating in 2013.

In the combined case, expansion is limited to conventional production in the 48 States 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 natural 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 the analysis, the impacts of these restricted gas supply cases on electric generation and wellhead gas prices would both tend to be reduced.

The combined case is a severely restricted natural gas supply scenario that goes beyond what might be plausibly expected in the future. Model projections for this case are especially uncertain. In addition to the possibility of significant shutdowns in gas-intensive industries, the high sustained gas prices that are projected might lead to considerably more energy conservation, to more extensive fuel switching, or to the construction of additional LNG facilities in Canada or Mexico.

Analysis of Restricted Natural Gas Supply Cases, SR/OAIF/2004-03.