No Alaska Pipeline Case and AEO2004 Reference Case

The no Alaska pipeline case is projected to change the natural gas supply and demand balance only after 2017, because the AEO2004 reference case projects the pipeline to become operational in 2018. In 2025, the absence of the Alaska gas pipeline reduces Alaska gas supplies to the lower 48 by 2 tcf.

The lack of Alaska gas supplies to the lower 48 raises gas prices, which reduces consumption and stimulates higher lower 48 gas production and higher net gas imports (Figure 1). In 2025, gas consumption is 2 percent lower, 0.7 tcf, while lower 48 gas production is nearly 3 percent higher (0.7 tcf). Because the reduction in consumption and the increase in lower 48 production do not meet the shortfall in Alaska gas, net gas imports also rise by 9 percent (0.6 tcf).

The largest reductions in end-use consumption occur in the electric generation and industrial sectors, with gas consumption reduced in these sectors by 4 percent (0.3 tcf) and 1 percent (0.1 tcf), respectively, in 2025.

An increase in net gas imports is projected to occur for all major sources of gas imports, when an Alaska gas pipeline is not allowed. In 2025, net LNG imports are projected to show the greatest increase (0.3 tcf greater than in the reference case). In 2025, net Canadian gas imports are projected to be 0.2 tcf higher, while net gas exports to Mexico are projected to be 0.1 tcf less (Figure 2).

In 2025, lower 48 gas production in the no Alaska pipeline case is projected to be 21.9 tcf, compared with 21.3 in the reference case, raising both conventional and unconventional gas production in the lower 48 States (Figure 3).

In 2025, conventional lower 48 gas production is projected to be 12.3 tcf in the no Alaska pipeline case, compared to 12.1 tcf in the reference case. In 2025, unconventional lower 48 gas production is projected to be 9.6 tcf in the no Alaska pipeline case, compared with 9.2 tcf in the reference case.

The reference case projects that the operation of the Alaska gas pipeline would cause wellhead gas prices to drop from $4.23 per mcf in 2002 dollars in 2017 to $4.13 per mcf by 2019, then rise to $4.40 per mcf in 2025 (Figure 4).

The no Alaska pipeline case eliminates this initial drop in prices and projects wellhead gas prices to continue to increase immediately after 2017. Prices peak in 2021 in the no Alaska pipeline case and remain about level as electricity generation from coal and renewables increases. In 2025, the no Alaska pipeline case projects a wellhead gas price of $4.60 per mcf, which is 20 cents per mcf greater than the price projected in the reference case.

The higher wellhead gas price in the no Alaska pipeline case is projected to result in lower gas consumption and higher lower 48 gas production and net gas imports, relative to those projected in the reference case.

The higher gas prices projected in the no Alaska pipeline case reduce both the construction of new gas-fired electricity generation and the utilization of existing gas-fired electricity capacity. In 2025, gas-fired electricity generation is projected to be 1,257 billion kilowatthours in the no Alaska pipeline case, compared with 1,304 billion kilowatthours in the reference case (Figure 5).

The primary beneficiary of lower gas-fired power generation is coal, which is projected to increase its power generation in 2025 to 3,053 billion kilowatthours in the no Alaska pipeline case, compared to 3,029 billion kilowatthours in the reference case. Renewable energy power generation also increases slightly in 2025, from 509 billion kilowatthours in the reference case to 513 billion kilowatthours in the no Alaska pipeline case.

Busbar electricity prices are relatively unchanged in the no Alaska pipeline case. In 2025, the electricity price is 6.94 cents per kilowatthour (2002 dollars), compared to 6.91 cents per kilowatthour in the reference case. This small change in the electricity price is due both to the modest change in 2025 wellhead prices (20 cents per mcf) and the fact that gas-fired electricity generation is less than 25 percent of total U.S. generation. The change in gas prices is minimized by the large availability of non-gas-fired electricity generation, whose price did not change.