Figure 2

- 6. Average Retail Electricity Price by State (cents/kWh), 2011

2.8 Natural Gas Market The natural gas market in the United States has historically experienced significant price volatility from year to year, between seasons within a year, and can undergo major price swings during short

- lived weather events (such as cold snaps leading
to short

- run spikes in heating demand). Over the last decade, gas prices (both Henry Hub prices and delivered prices to the power sector) have ranged from below $3 to nearly $10/mmBtu on an annual average basis (see Figure 2

- 7). During that time, the daily price of natural gas reached as high as $15/mmBtu. 2

- 23

Rec ent forecasts of natural gas availability have also experienced considerable
revision as new sources of gas have been discovered and have come to market, although there continues to be some uncertainty surrounding the precise quantity of
the resource base. Current and projected natural gas prices are considerably lower than the prices observed over the past decade, largely due to advances in hydraulic fracturing and horizontal drilling techniques that have opened up new shale gas resources and substantially increased the supply of economically recoverable natural gas. According to an EIA “Energy in Brief” (E IA 2012b): “Shale gas refers to natural gas that is trapped within shale formations. Shales are
fine

- grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and hydrauli c fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.” The U.S. Energy Information Adm inistration's Annual Energy Outlook 2012 (Early Release) estimates that the United States possessed 2,214 trillion cubic feet (Tcf) of technically recoverable natural gas resources as of January 1, 2010. Natural gas from proven and unproven shale resources accounts for 542 Tcf of this resource estimate. The AEO 2012 (Early Release) notes that many shale formations, especially the Marcellus, are so large that only small portions of the entire formations have been intensively production

- tested. Consequently, the estimate of technically recoverable resources is highly uncertain, and is regularly updated as more information is gained through drilling and production. At the 2010 rate of U.S. consumption (about 24.1 Tcf per year), 2,214 Tcf of natural gas is

enoug h to supply over 90 years of use. Although the estimate of the shale gas resource base is lower than in the prior edition of the Outlook, shale gas production estimates increased between the 2011 and 2012 Outlooks, driven by lower drilling
costs and contin ued drilling in shale plays with high concentrations of natural gasliquids and crude oil, which have a higher value in energy equivalent terms than

dry natural
2

- 24 gas. 17

For more information, see:
17 http://www.eia.gov/forecasts/archive/aeo11/IF_all. cfm#prospectshale; http://www.eia.gov/energy_in_brief/about_shale_gas.cfm 18 http://www.eia.gov/dnav/ng/hist/n9010us2a.htm 19 http://www.eia.gov/dnav/ng/hist/n3045us3A.htm; Assumes that 1 TCF = 1.023 MMBtu natural gas (http://www.eia.gov/tools/faqs/faq.c fm?id=45&t=8)
20 EIA 2010b.

EIA’s projections of natural gas conditions did not change substantially in AEO 2014 from the AEO 2013, and EIA is still forecasting abundant reserves consistent with the above findings. Recent historical data reported to EIA is also consistent with these trends, with 2013 being the highest year on record for domestic natural gas production. 18 The average delivered natural gas price to the power sector was $4.49 per MMBtu in 2013, higher than in 2012 ($3.54/MMBtu), but still do wn from $4.89/MMBtu in 2011. 19 EIA projections of future natural gas prices assume trends that are consistent with historical and current market behavior, technological and demographic changes, and current laws and regulations. 20 Depending on actual condi tions, there may be significant variation from the price projected in the reference case and the price observed. To address this uncertainty, EIA issues a range of alternative cases, including cases with higher and lower economic growth, which address many of the uncertainties inherent in the long

- term projections.