# Presentation: 706376

## U.S.  Liquefied Natural Gas Outlook 

**Mark Rodekohr, Ph.D.**
**Energy Information Administration**
**mark.rodekohr@eia.doe.gov**

**14****th**** International Conference on Liquefied Natural Gas**
**March 23, 2004**
**Doha, Qatar**

**Notes:**
This afternoon I’m going to talk about EIA’s outlook for liquefied natural gas.   How much are we going to import?  Where are we going to build terminals?  And how much will it cost?  

These projections are from the Annual Energy Outlook 2004, which provides projections of domestic energy consumption, supply, prices, and carbon emissions.  They are the product of the Energy Information Administration, an independent analytical and statistical agency within the U.S. Department of Energy.  We do not speak for any particular point of view on energy policy, and our views should not be construed as representing those of the Department or the Administration. 

Assumptions are critical to any forecast.  The projections are not statements of what will happen but of what might happen, given certain assumptions. The reference case projections are business-as-usual forecasts, given known technology and technological trends, demographic trends, and current laws and regulations. 

EIA does not propose, advocate, or speculate on changes in laws and regulations.  So, one of our key assumptions is that all current laws and regulations remain as enacted.  For AEO2004, that means, for example, that provisions in the pending Senate energy bill, such as an Alaska natural gas pipeline loan guarantee, are not included in this forecast.

Let’s start by looking at the recent history LNG imports.

## Lower 48 Natural Gas Wellhead Prices, 1970-2025 (2002 dollars per thousand cubic feet)

**1995**

**2025**

**Reference case**
**(nominal dollars)**

**1.55**

**8.44**

**History**

**Projections**

**4.40**

**Notes:**
Lower 48 natural gas wellhead prices are projected to decline from the high levels of 2003, falling to $3.40 per thousand cubic feet in 2010, as Canadian imports peak and higher prices lead to increased exploratory drilling and the increased unconventional and liquefied natural gas.  After 2010, natural gas wellhead prices are projected to increase gradually, reaching $4.40 per thousand cubic feet in 2025 as increased LNG imports, technology improvements, and domestic production from unconventional sources and Alaska are unable to offset the impacts of resource depletion and increased demand. 

Prices are projected to increase in an uneven fashion as major new, large-volume supply projects temporarily depress prices when initially brought online.  In nominal dollars, the 2025 price is the equivalent of almost $8.50 per thousand cubic feet.  

Now let’s look at an overview of natural gas imports.

## EIA’s Natural Gas Outlook: Production, Consumption, and Imports, 

**23%**

**Net imports**

**1970**

**1980**

**1990**

**2000**

**2010**

**2025**

**0**

**8**

**16**

**24**

**32**

**EIA’s Natural Gas Outlook: Production, Consumption, and Imports, **
**                               ****1970-2025 (trillion cubic feet) **

**History**

**Projections**

**Production**

**Consumption**

**31.4 Tcf**

**24.0 Tcf**

**Notes:**
Total natural gas demand is expected to increase from 22.8 in 2002 to 31.4 trillion cubic feet, or 23 percent of U.S. energy consumption, in 2025.  The projected increase is primarily due to rapid growth in demand for electricity generation and industrial applications, which together account for almost 70 percent of the total growth over the forecast period.
Gas consumption by electric generators—not including end-use combined heat and power facilities—is expected to increase by 2.8 trillion cubic feet,  from 5.6 trillion cubic feet in 2002 to 8.4 trillion cubic feet by 2025. Consumption in the industrial sector, which uses significant amounts of gas in the bulk chemical, refining, and mining sectors, is expected to increase by 3.1 trillion cubic feet over the same period.  The industrial sector increase is driven primarily by macroeconomic growth.
Domestic gas production is expected to increase more slowly than consumption over the forecast, rising from 19.0 tcf in 2002 to 24.0 tcf in 2025. Growing production reflects increasing natural gas demand and is supported by rising wellhead gas prices, relatively abundant gas resources, and improvements in technologies, particularly for unconventional gas.  In this forecast, economic conditions allow an Alaskan pipeline to begin moving gas to the lower 48 States in 2018.  The national average wellhead price is projected to reach $4.40/Mcf in 2002 dollars by 2025. 
The difference between consumption and production is made up by increasing use of imports throughout the forecast, with net imports growing from 3.5 trillion cubic feet in 2002  to 7.2 trillion cubic feet in 2025.  Nearly all of the increase in net U.S. imports is expected to come from liquefied natural gas (LNG), with a 4.6 tcf increase expected over 2002 levels.  By 2025 we expect expansion at the four existing terminals and construction of new LNG terminals in the Bahamas, along the East Coast, on the Gulf Coast, and in Baja California, Mexico. Canadian imports are expected to decline as Canadian fields mature and consumption increases, while LNG imports are expected to be sharply higher because of increased prices, lower liquefaction and shipping costs, and regulatory changes such as the Hackberry decision at FERC last year, and the amendments to the Deepwater Port Act.

## U.S. Natural Gas Consumption by Sector, 1990-2025(trillion cubic feet)

**History**

**Industrial**

**Electric generators**

**Residential**

**Commercial**

**CNG vehicles**

**Projections**

**Notes:**
U.S. natural gas consumption is expected to increase by 1.4 percent annually from 2002 through 2025, to more than 31 tcf.  The industrial sector, excluding lease and plant fuel, is the largest gas-consuming sector, with significant amounts of gas used in the bulk chemical, refining, and mining sectors. Industrial consumption is expected to increase by 3.1 Tcf over the forecast, driven primarily by macroeconomic growth, which rises 3 percent annually.  The chemical and metal-based durables sectors show the largest growth. 

Gas consumption by electric generators—not including commercial and industrial combined heat and power facilities--is expected to increase from 5.6 tcf in 2002 to 8.4 tcf in 2025.  Although industrial demand is expected to increase the most over the forecast, electric generation demand is expected to increase the fastest of the major sectors. In addition to macroeconomic growth, the costs of natural gas relative to other fuels is also an important growth factor.   More than 60 percent of new electricity generation capacity is expected to be fueled by natural gas. 

Combined consumption in the residential and commercial sectors is projected to increase by 2.1 Tcf from 2002 to 2025, driven by increasing population, healthy economic growth, and gradually rising prices in real terms. Natural gas remains the overwhelming choice for home heating throughout the forecast period, with the number of natural gas furnaces rising by 17 million. 

Now let’s look at natural gas production.

## U.S. Dry Natural Gas Production, 1990 - 2025 (trillion cubic feet)

**History**

**Projections**

**Associated/Dissolved**

**Nonassociated**
**Offshore**

**Nonassociated**
**Onshore Conventional**

**Onshore Unconventional**

**Alaska**

**Notes:**
Domestic gas production is expected to increase from 19 Tcf in 2002 to 24 Tcf in 2025.  Increased U.S. natural gas production comes primarily from unconventional sources and from Alaska.

Unconventional gas production increases by 3.2 Tcf over the forecast period—more than any other source, largely because of expanded tight sandstone gas production in the Rocky Mountain region.  Annual production from unconventional sources is expected to account for 38 percent of production in 2025, more than any other source, compared to 31 percent in 2002.

Alaska natural gas production begins flowing to the Lower-48 States in 2018 along a pipeline through Canada, reaching 3.9 bcf per day in 2019, with further expansion beginning in 2023.  Alaska also continues to provide for consumption in the State itself and for LNG exports to Japan.  In 2025, total Alaskan gas production is projected to be 2.7 Tcf. 

Non-associated offshore production declines by 210 Bcf, as shallow water production declines. Conventional onshore non-associated production decreases by 310 bcf over the forecast, as traditional sources of natural gas deplete, even with continued technological improvement.  Associated dissolved production holds steady, boosted by offshore oil development. 

Now, let’s look at the prices upon which these forecasts are based.

## Major Sources of Incremental Natural Gas Supply,

**supplemental natural gas production, Canadian, and Mexican imports.**

**2002**

**2010**

**2020**

**2025**

**16**

**20**

**24**

**28**

**32**

**Major Sources of Incremental Natural Gas Supply,**

**2002-2025 (trillion cubic feet)**

**Growth in Alaskan Production**

**All Other Production**

*****

**Growth in Non-associated **

**Unconventional**

**Growth in LNG Imports**

**Notes:**
While traditional sources of supply, associated and nonassociated conventional production in the onshore and offshore, will remain important, meeting 39 percent of U.S. supply requirements by 2025 (they met 56 percent of supply requirements in 2002), U.S. natural gas supplies will become increasingly dependent on unconventional production, natural gas from Alaska, and liquefied natural gas 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 by 2025.  With the 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 by 2025.

Growth in imports is expected to be predominantly from the expansion of LNG capacity.  The four existing U.S. LNG terminals (Everett, Massachusetts; Cove Point, Maryland; Elba Island, Georgia; and Lake Charles, Louisiana) are expected to expand, and additional facilities are expected to be built in the Lower-48 states and in the Bahamas to serve Florida, the Gulf states, the Middle Atlantic and South Atlantic states, and New England.  The AEO2004 forecasts that another facility will be built in Baja California, Mexico, to serve markets both in the Southwestern United States and in Mexico.  

Total net LNG imports are projected to increase from 0.2 trillion cubic feet in 2002 to 4.8 trillion cubic feet by 2025.

## U.S. LNG Imports by Country, 1992-2002

**Nigeria**

**Qatar**

**Other**

**Australia**

**Trinidad and Tobago**

**Algeria**

**Notes:**
While historically Algeria was the largest supplier of LNG to the United States, since 2000 it has been far surpassed by Trinidad and Tobago, which now serves as the source for over 70 percent of the Nation’s gross LNG imports.  The United States imported 378 Bcf (7.8 million tons) from Trinidad and Tobago in 2003.

In addition to Trinidad and Tobago and Algeria, the United States also received LNG cargos from Malaysia, Nigeria, Oman, and Qatar in 2003.

The United States is both an importer and an exporter of LNG.  LNG has been produced in and exported from Kenai, Alaska, to Japan for the last 30 years, exporting 63 Bcf (1.3 million tons) in 2002.

Gross imports of LNG into the continental United States (excluding Puerto Rico) in 2003 reached 507 Bcf (10.4 million tons), up from 229 Bcf (4.8 million tons) in 2002.  The 2003 imports were the largest since 1979.  This year gross imports are expected to be 650 Bcf and next year 750 Bcf.  

## Current U.S. LNG Import Terminals

**Notes:**
There are currently four LNG import terminals in the continental United States:
Cove Point, MD - After two decades of dormancy (from international trade), Cove Point, owned by Dominion, began receiving cargoes in July 2003. Its re-opening added 1 Bcf/d of peak deliverability. Cove Point began fully operating in September and received about 66 Bcf through the end of 2003.
Elba Island, GA  Terminal was reactivated in 2001. Activity was slow at this terminal in 2003, but is expected picked up due to more LNG production from Atlantic LNG in Trinidad and the purchase of capacity by BG Group. In 2003, Elba Island received 44 Bcf in 19 cargoes, all from Trinidad.
Everett, MA Received 75 shipments carrying 158 Bcf in 2003, all from Trinidad. A recent expansion at Everett boosted capacity to 710 million cf/d from 435 million cf/d. 
Lake Charles, LA Received 238 Bcf from 102 cargoes in 2003. This facility operated above baseload capacity in the 2nd and 3rd quarters of 2003. Estimates are that the terminal is now delivering nearly 600 million cf/d, which is just below the facility’s baseload vaporization capacity. Shipments have come from Trinidad, Algeria, Malaysia, Nigeria, Oman, and Qatar. 
Although LNG imports are at or near historical highs, even at this pace they represent only about 2.7 % of U.S. dry production and 13% of imports. This demonstrates the huge market potential for LNG supply.

## U.S. LNG Imports, 1990-2025(trillion cubic feet)

**History**

**Projections**

**New terminals**

**Existing terminals**

**Notes:**
All four existing terminals have either recently completed an expansion or are planning to do so by 2006, when peak capacity could reach about 1.8 Tcf. Assumed maximum load factors effectively reduce that capacity to a maximum of 1.4 trillion cubic feet per year, where it remains throughout the forecast period.  The potential for expansion depends on a variety of site-specific factors, such as the availability of additional land and harbor constraints on tanker traffic and on the number of tankers that can be berthed simultaneously, and the AEO2004 assumes no further expansion at existing terminals after 2006.

The first new U.S. LNG terminal in more than 20 years is projected to open on the Gulf Coast in 2007. Over the following 2 years, additional terminals are projected to be constructed in the South Atlantic States and on the Gulf Coast. By 2010 a terminal is expected to be constructed in the Bahamas with the gas piped to Florida.  With additional terminals in New England and the Mid-Atlantic States, 9 to 12 new LNG terminals are expected to be constructed in the United States by 2025.

Volumes imported by the new plants are projected to overtake those received by the existing plants in 2013 and imports by the new terminals are expected to reach 3.5 Tcf in 2025.

It should be noted that this forecast is based on a U.S. model of natural gas supply and demand, rather than a world model.  Although the model does include supply curves for foreign natural gas production, liquefaction, and shipping, as well as domestic regasification, it does not fully capture changes in supply and demand for LNG in world markets.

## LNG Imports at Existing Terminals, 2000-2025 (billion cubic feet)

**Historic**

**Projected**

**Everett, MA**

**Lake Charles, LA**

**Elba Island, GA**

**Cove Point, MD**

**Notes:**
Construction of regasification plants at the new sites is considerably more expensive than expansion at existing sites due, in part, to land costs and the extent of construction required.  Production and shipping costs for LNG delivered to new sites can also be somewhat higher than at existing sites, because of the use of new more expensive and/or more distant supply sources.  Delay and regulatory costs are also expected to add to the price of gas at new facilities.  As a result, capacity is expected to be added at existing terminals before new terminals are completed.

LNG imports into all four existing terminals are expected to expand through 2007.  Compared to 2002, flows into Everett more than triple to 340 bcf.  Flows into Cove Point, which did not reopen until 2003, go from 0 to 360 bcf.  Elba Island, which reopened in late 2002, increases more than 14 times to 290 bcf.  And Lake Charles more than triples to 430 bcf.  Even as late as 2009, flows into each of the existing plants are as large as flows into any of the new plants.  

Potential imports of LNG are limited for the near term by a lack of available LNG supply and ships. While some spot cargoes will allow for increased imports, the existing terminals are not expected to be fully utilized until the recently announced LNG supply projects are constructed.  These new supplies are scheduled to commence production in 2005-2007.

## New LNG Import Terminals Planned

**Notes:**
The four U.S. LNG import terminals, shown with black stars, currently have an estimated combined peak capacity of about 1.2 Tcf (26.0 million tons) per year and an estimated baseload capacity of 880 Bcf (18.5 million tons) per year. 

Interest in liquefied natural gas (LNG) has been rekindled and strengthened as a result of sustained high natural gas prices, declining costs throughout the LNG supply chain (production, liquefaction, transportation, and regasification), and recent regulatory changes.  As of March 17, 2004, there were 33 active proposals to build new LNG regasification terminals in North America over the next several years.  Some projects, highlighted by green stars, target the U.S. market.  Others, shown in red, target only the Mexican market, while some projects located in Baja California target both U.S. and Mexican markets. If all the U.S. LNG facilities currently being proposed were completed, they would add more than 15 trillion cubic feet to annual U.S. import capacity.  

As of January 15th 2004, five proposals to construct terminals in the onshore Gulf of Mexico have been filed with the U.S. Federal Energy Regulatory Commission, and one, Cameron LNG (formerly Hackberry), has received preliminary approval. Four more proposals for the offshore Gulf of Mexico have been filed with the U.S. Coast Guard, and two of these, Port Pelican and El Paso Energy Bridge, have received preliminary approval. Despite this strong activity, proposals for new capacity involve significant risk and uncertainty, and not all are expected to move forward 

With that as background, let’s look at an overview of the EIA natural gas forecast.

## Proposed North American LNG Import Terminals 

## EIA’s LNG Receiving Terminal Outlook:2010 Import Levels at New Terminals

- Source:  Energy Information Administration, National Energy Modeling System, AEO2004.D101703E.

**Notes:**
      EIA’s Annual Energy Outlook (AEO2004) projects that the 58-percent increase in LNG imports that is projected between 2002 and 2010 will be met in part by new LNG regasification terminals that will be constructed on the Atlantic and Gulf Coasts and in the Bahamas from 2007 through 2010.  
      The first new U.S. LNG terminal in more than 20 years is projected to open on the eastern Gulf Coast in 2007.  It is projected that additional terminals will be constructed to serve markets in Florida, the south Atlantic states, and the western Gulf Coast.  The EIA forecast includes a terminal targeting the Florida market that is expected to be constructed in the Bahamas with the gas piped to Florida.
      Almost 60 percent of the increase in LNG imports is expected to be served by expanded capacity at existing terminals.  
     By 2010, the new terminals are projected to be collectively importing 812 billion cubic feet annually. 

## U.S. Natural Gas Net Imports, 1990-2025 (trillion cubic feet)

**History**

**Projections**

**Canada**

**LNG**

**Mexico**

**Notes:**
The difference between consumption and production will be made up by imports, which are projected to rise from net imports of 3.5 Tcf in 2002 to 7.2 Tcf by 2025.

Nearly all of the increase in net U.S. imports from 2002 to 2025 is expected to come from liquefied natural gas (LNG), with a 4.6 tcf increase expected over 2002 levels, nearly a 16 percent annual growth rate.   By 2025, net LNG imports are expected to equal 15 percent of total U.S. gas consumption, compared to less than 1 percent in 2002.  Net LNG imports are expected to rise from 5 percent of net imports in 2002 to 66 percent in 2025.  Imports of LNG grow in every year of the forecast, except when the Alaska natural gas pipeline is coming on.

Imports from Canada are expected to peak at 3.7 tcf in 2010, after a pipeline from the MacKenzie Delta starts in 2009. Production off the eastern coast, and unconventional production are expected to be growing supply sources, but they are not expected to make up for the anticipated rapid decline in conventional production from western Canada and Canadian demand increases.  LNG becomes the largest source of U.S. imports in 2015, as Canadian production declines. 

Mexico is projected to continue to be a net importer of U.S. natural gas, as consumption in Mexico continues to increase rapidly, partly to fuel industry located on the U.S.-Mexican border.  Mexico is not expected to increase domestic production as fast as consumption, particularly in the early part of the forecast.  However, expected new LNG import terminals on their east and west coasts will be important contributors to supply. Net exports to Mexico are forecast to decline after 2006 as terminals in Baja California come online to supply both the U.S. and the Mexican markets. 

## Regional LNG Imports at New Terminals,2010, 2015, 2020, and 2025 (billion cubic feet)

**Regional LNG Imports at New Terminals,****2010, 2015, 2020, and 2025 (billion cubic feet)**

**Mid Atl**

**FL**

**S. Atl**

**NE**

**W.S.Cntrl**

**E.S.Cntrl**

**AZ/NM**

**Mountain**

**WA/OR**

**CA**

**MX into US**

**(2007)**

**(2010)**

**(2007)**

**(2010)**

**(2009)**

**(2016)**

**(2016)**

**(20xx) – Start year of first new terminal**

**Notes:**
Excluding gas from Mexico, by 2010 LNG flows from new regasification terminals are expected to be moving into four regions. Of the 3.5 tcf of flows into new facilities in 2025, more than 70 percent are expected to be on the Gulf Coast, with lesser shares moving into the South Atlantic, Florida, Mid-Atlantic, and New England, in that order.  The bulk of the new terminals are located in the Gulf of Mexico because of spare capacity in existing infrastructure, the availability of deepwater ports (onshore) or existing pipeline systems (offshore), the ready ability to handle high-Btu LNG, and the perceived ease of permitting.

For the most part, these locations are determined based on relative costs and regional market requirements.  Some general consideration was given to potential siting difficulties in certain regions.  However, siting problems could provide more of a limit on expansion potential in some of these regions than we have anticipated.

Although the actual sizes of the new plants will vary, a generic size of 1 billion cubic feet per day was used for projection purposes on the Gulf Coast and 250 or 500 million cubic feet per day was used elsewhere.  The rate of entry of additional LNG imports will be primarily driven by the time required to secure permits and construct new LNG import terminals. Upon application, the permitting process for an onshore U.S. LNG import terminal can take 18 months. The timing for an offshore terminal is approximately 1 year. Construction of an onshore terminal would take about 3 years; offshore terminals may take slightly longer. Within the model we assume that a new terminal will not come on line more frequently than once every 3 years within a region.

## Components of Regional LNG trigger price in year of expansion/construction,(2002 dollars per thousand cubic feet)

**Existing**

**New**

*** Regasification includes pipeline cost from Bahamas**

**Notes:**
Construction in a region is triggered when the regional price of natural gas meets or exceeds the cost (per thousand cubic feet) of producing, liquefying, transporting, and regasifying the LNG.  These trigger prices also include a risk premium ($0.25 for existing facilities and $0.45 for new facilities) that is factored into the component costs when the decision is being made whether to add capacity.  But it’s not a factor when assessing import levels once capacity is added.

Regional prices at the LNG tailgate, which trigger initial construction range from $3.62 (2002 dollars) per thousand cubic feet along the Gulf Coast to $4.58 per thousand cubic feet in New England. 

The cost of delivering LNG is calculated as the sum of four items: production cost, liquefaction cost, transportation cost, and regasification cost.  These costs were derived from various industry sources. Ranges for the four costs that were used in the forecast are as follows: 
Production costs :  Range from $0.33 in Nigeria to $0.94 in Sakhalin in $2002 per mcf. 
Liquefaction costs : Range from $1.08 in Algeria to $1.38 in “other” regions. 
Transportation costs: Range from $0.47 from Venezuela to the Bahamas to $3.09 from Australia to the Gulf Coast.  
Regasification costs: Range from $0.35 in the Gulf Coast  to $1.09 in New England. 

To underscore some of the uncertainty surrounding any forecast for LNG, let’s look at how our forecast compares with others.

## Comparison of Net LNG Import Forecasts (trillion cubic feet)

**EIA/BASE**

**GII**

**EEA**

**PIRA**

**History**

**Projections**

**NPC/RP**

**EIA/RTEC**

**EIA/STEC**

**NPC/BF**

**EVA**

**Notes:**
Except for the National Petroleum Council projections, EIA’s LNG forecast is generally more conservative than that of forecasters.  With lower overall levels of natural gas consumption, the NPC Reactive Path case projects the lowest levels of LNG imports.  The NPC Balanced Future case, with increased LNG supply and shipping availability, and less delay in permitting than today, shows the same level of LNG imports as the EIA Reference case.

Energy Ventures Analysis, which has lower wellhead prices and overall consumption levels 3 or 4 tcf higher than EIA, shows the highest projected levels.  Petroleum Industry Research Associates with 2015 domestic production almost 4 tcf lower than EIA, has almost as many imports as EVA.   Energy and Environmental Analysis and Global Insight projections are in the range of to those of EIA in 2015.  However, Global Insight shows almost as many imports as EVA in 2025, because domestic production is about 3 tcf lower than EIA’s. 

It should be noted that the EIA LNG projections are subject to considerable uncertainty, because U.S. LNG importation levels will depend upon a multitude of factors not considered within the EIA modeling framework.  Exogenous influences include, such elements as: 1) the world-wide growth in natural gas consumption, and the world-wide demand for LNG, 2) whether and how world competition for LNG supply will determine LNG prices and availability, 3) whether U.S. LNG terminals will operate on a spot basis, in which prevailing U.S. gas prices determine LNG import levels, or under long-term contracts which specify certain LNG delivery volumes and prices, 4) whether foreign governments will allow sufficient LNG liquefaction capacity to be constructed on an expeditious basis, and 5) whether State and local jurisdictions will permit the construction of new domestic re-gasification terminals.

## Summary

**Current storage inventories: below normal but above year ago   **
**Over the longer term, higher demand will require an increasing dependence on unconventional production, natural gas from Alaska and liquefied natural gas imports.**
**LNG holds significant potential as a supply source – particularly over the long term.***** ***
**A substantial boost in supplies from production or imports will take time and require capital investments for additional infrastructure.**
**The pace of technology advances could change the outlook.  **

**Notes:**
Wellhead prices remain high and vulnerable to spikes resulting from severe weather or disruptions in supplies. 

Storage exceeds the 5-year average level  --- this was true on Nov 1. and stocks continued to exceed historical norms early in the winter season.    

LNG holds significant potential as a supply source. 

Consumers pay more for gas this winter. Rate reductions expected in 2004. 

Substantial boost in supplies from production or imports will take time and may require additional infrastructure