New technology increases available oil, natural gas, and gas plant liquids
The United States is about to begin a new era as a net energy exporter, according to U.S. Energy Department projections. The shift will snap a 67-year streak of being a net energy importer, going back to 1953.
The change will occur in 2020, according to the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2019 (AEO2019), released in January 2019. The country will maintain that status through 2050, AEO2019 says.
“The United States becomes a net energy exporter in 2020 and remains so throughout the projection period as a result of large increases in crude oil, natural gas, and natural gas plant liquids (NGPL) production coupled with slow growth in U.S. energy consumption,” according to a report summary. “Of the fossil fuels, natural gas and NGPLs have the highest production growth, and NGPLs account for almost one-third of cumulative U.S. liquids production during the projection period.”
Projections in AEO2019 are not predictions of what will happen “but rather modeled projections of what may happen given certain assumptions and methodologies,” the agency said. AEO2019 provides various modeled projections of U.S. energy markets. It includes cases with different assumptions of economic growth, world oil prices, technology progress and energy policies. It was developed using the National Energy Modeling System (NEMS), intended to capture interactions of economic changes and energy supply, demand and prices.
Energy market projections are subject to uncertainty because many of the events that shape energy markets as well as future developments in technologies, demographics, and resources cannot be foreseen with certainty. AEO2019 includes a Reference case and six side cases that systematically vary important underlying assumptions. The report was published to satisfy the Department of Energy Organization Act of 1977, which requires the administrator of the U.S. Energy Information Administration to prepare annual reports on trends and projections for energy use and supply.
The AEO2019 Reference case represents EIA’s ”best assessment” of how U.S. and world energy markets will operate through 2050, based on various key assumptions. For instance, the Reference case projection assumes “improvement in known energy production, delivery, and consumption technology trends,” according to the report. “The economic and demographic trends reflected in the Reference case reflect current views of leading economic forecasters and demographers.”
The Reference case generally assumes that current laws and regulations that affect the energy sector, including laws that have end dates, are unchanged throughout the projection period. That assumption permits EIA to use the Reference case as a benchmark to compare policy-based modeling. The potential impacts of proposed legislation, regulations, or standards are not included in the AEO2019 cases. The Reference case should be interpreted as a reasonable baseline case that can be compared with the cases that include alternative assumptions.
Side cases in AEO2019 show the effect that changing important model assumptions have on the projections when compared with the Reference case. Two AEO2019 side cases are the High and Low Oil Price cases, which represent international conditions outside the United States that may drive prices to extreme, sustained deviations from the Reference case price path. Additional AEO2019 side cases are the High and Low Oil and Gas Resource and Technology cases, where production costs and resource availability within the United States are varied, allowing for more or less production at given world oil and natural gas prices.
Two AEO2019 side cases that vary the effects of economic assumptions on energy consumption are the High and Low Economic Growth cases. They modify population growth and productivity assumptions throughout the projection period to yield higher or lower compound annual growth rates for U.S. gross domestic product than in the Reference case.
AEO2019 anticipates that continued growth in petroleum and natural gas exports results in the United States becoming a net energy exporter by 2020 in all cases.
In the Reference case, the United States becomes a net exporter of petroleum liquids after 2020 as U.S. crude oil production increases and domestic consumption of petroleum products falls. Near the end of the projection period, the United States returns to being a net importer of petroleum and other liquids on an energy basis as a result of increasing domestic gasoline consumption and falling domestic crude oil production in those years.
The U.S. became a net natural gas exporter on an annual basis in 2017 and continued to export more natural gas than it imported in 2018. In the Reference case, U.S. natural gas trade, which includes shipments by pipeline from and to Canada and to Mexico as well as exports of liquefied natural gas (LNG), will be increasingly dominated by LNG exports to more distant destinations. The country remains a net exporter of coal, including coal coke, through 2050 in the Reference case, but coal exports are not expected to increase because of competition from other suppliers closer to major world markets.
In the Reference case, U.S. crude oil production continues to set annual records through 2027 and remains greater than 14 million barrels per day through 2040. Onshore tight oil development in the Lower 48 states continues to be the main source of growth in total U.S. crude oil production, according to the report. The continued development of tight oil and shale gas resources supports growth in natural gas plant liquids (NGPL) production, which reaches six million barrels a day by 2029 in the Reference case.
Also, in the Reference case, U.S. crude oil production continues to set annual records through 2027 and remains greater than 14 million barrels per day (b/d) through 2040. Lower 48 onshore tight oil development continues to be the main source of growth in total U.S. crude oil production. The continued development of tight oil and shale gas resources supports growth in natural gas plant liquids (NGPL) production, which reaches 6 million b/d by 2029 in the Reference case.
The percentage of dry natural gas production from oil formations increased from 8 percent in 2013 to 17 percent in 2018 and remains near this percentage through 2050 in the Reference case. Growth in drilling in the Southwest region, particularly in the Wolfcamp formation in the Permian basin, is the main driver for natural gas production growth from tight oil formations.
In the Reference case, U.S. liquefied natural gas (LNG) exports and pipeline exports to Canada and to Mexico increase until 2030 and then flatten through 2050 as relatively low, stable natural gas prices make U.S. natural gas competitive in North American and global markets. After LNG export facilities currently under construction are completed by 2022, U.S. LNG export capacity increases further. Asian demand growth allows U.S. natural gas to remain competitive there. After 2030, U.S. LNG is no longer as competitive because additional suppliers enter the global LNG market, reducing LNG prices and making additional U.S. LNG export capacity uneconomical.
The continuing decline in natural gas prices and increasing penetration of renewable electricity generation have resulted in lower wholesale electricity prices, changes in utilization rates, and operating losses for many baseload coal and nuclear generators. Generation from both coal and nuclear is expected to decline in all cases. In the Reference case, from a 28 percent share in 2018, coal generation drops to 17 percent of total generation by 2050. Nuclear generation declines from a 19 percent share of total generation in 2018 to 12 percent by 2050. The share of natural gas generation rises from 34 percent in 2018 to 39 percent in 2050, and the share of renewable generation increases from 18 percent to 31 percent.
The High Oil and Gas Resource and Technology case represents a potential upper bound for crude oil and NGPL production. Why? Additional resources and higher levels of technological advancement result in continued growth in crude oil and NGPL production. In the High Oil Price case, high crude oil prices lead to more drilling in the near term, but cost increases and fewer easily accessible resources decrease production of crude oil and NGPL.
Conversely, under conditions with fewer resources, lower levels of technological advancement, and lower crude oil prices, the Low Oil and Gas Resource and Technology case and the Low Oil Price case represent potential lower bounds for domestic crude oil and NGPL production. Changes in economic growth have little impact on domestic crude oil and NGPL production.
The Low Oil Price case, with the U.S. crude oil benchmark West Texas Intermediate (WTI, Cushing, Oklahoma) price at $58 per barrel or lower, is the only case in which natural gas production from oil formations is lower in 2050 than at current levels.
Crude oil prices are influenced more by international markets than by assumptions about domestic resources and technological advances. In the High Oil Price case, the price of Brent crude oil, in 2018 dollars, is projected to reach $212 a barrel by 2050 compared with $108 a barrel in the Reference case and $5 a barrel in the Low Oil Price case.
Natural gas prices are sensitive to factors that drive supply, such as domestic resource and technology assumptions, and less dependent on the international conditions that drive oil prices. In the High Oil and Gas Resource and Technology case, Henry Hub natural gas prices remain near $3 per million British thermal units ($/MMBtu) throughout the projection period, while in the Low Oil and Gas Resource and Technology case they rise to more than $8/MMBtu. Across most cases, by 2050, consumption of natural gas increases even as production expands into more expensive-to-produce areas, putting upward pressure on production costs.
The report warned of potentially volatile and uncertain factors.
For example, future oil prices are highly uncertain and are subject to international market conditions influenced by factors outside of the National Energy Modeling System. The High and Low Oil Price cases represent international conditions that could collectively drive prices to extreme, sustained deviations from the Reference case price path. Compared with the Reference case, in the High Oil Price case, non-U.S. demand is higher and non-U.S. supply is lower; in the Low Oil Price case, the opposite is true.
Projections of tight oil and shale gas production are uncertain because large portions of the known formations have relatively little or no production history, and extraction technologies and practices continue to evolve rapidly. In the High Oil and Gas Resource and Technology case, lower production costs and higher resource availability than in the Reference case allow for higher production at lower prices. In the Low Oil and Gas Resource and Technology case, assumptions of lower resources and higher production costs are applied. These assumptions are not extended outside the United States.
Economic growth particularly affects energy consumption, and this is addressed in the High and Low Economic Growth cases. These modify population growth and productivity assumptions throughout the projection period to yield higher or lower compound annual growth rates for U.S. gross domestic product than in the Reference case.
The passage of Public Law 115-97 required the Secretary of the Interior to establish a program to lease and develop oil and natural gas from the coastal plain (1002 Area) of the Arctic National Wildlife Refuge (ANWR). Previously, ANWR was effectively under a drilling moratorium. Opening ANWR is not expected to have a significant impact on crude oil production before the 2030s because of the time need to acquire leases, explore, and develop the required production infrastructure.
Alaskan crude oil production in AEO2019 is 90 percent higher (3.2 billion barrels) from 2031 to 2050 than previously forecasted for that period in last year’s AEO Reference case.
The ANWR projections are highly uncertain because of several factors that affect the timing and cost of development, little direct knowledge of the resource size and quality that exists in ANWR, and inherent uncertainty about market dynamics. Cumulative ANWR crude oil production from 2031 to 2050 is 6.8 billion barrels, 0.7 billion barrels, and zero in the High Oil and Gas Resource and Technology, Low Oil and Gas Resource and Technology, and Low Oil Price cases, respectively.
California, New Jersey, and Massachusetts enacted new policies since AEO2018 to increase renewable and/or non-emitting electric generation and, in New Jersey, to support operation of existing nuclear generators. The combined generation required to comply with all U.S. state-level renewable portfolio standards (RPS) is 704 billion kWh by 2050, but compliant renewable generation collectively exceeds these requirements in all AEO2019 cases in 2050, nearly double the requirement for 2050 in the Reference case.
Near-term expiration of tax credits for wind and solar photovoltaics (PV) spurs installation of these generating technologies through 2024. The continued decline in solar PV costs throughout the projection period encourages new additions beyond the existing RPS requirements. For AEO2019, pending formal rulemaking, EIA assumed that the 100 percent clean energy standard recently adopted in California also includes nuclear, large-scale hydroelectric, and fossil-fired plants with carbon sequestration as qualifying generation.