U.S. Energy Information Administration 

AEO 2018 Review & AEO 2019 PlansForNatural Gas Working GroupMay 23, 2018 | Washington, D.C.ByKatie Dyl, Natural Gas Markets Team

WORKING GROUP PRESENTATION FOR DISDO NOT QUOTE OR CITE AS RESULTS ARE S
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Outline• Brief overview of new Natural Gas Markets Module (NGMM)• Evaluation and discussion of results from AEO 2018• Current plans and expectations for AEO 2019+

– AEO 2019: short-term NGMM improvements to fix issues identified from AE– Post-AEO 2019: long- term NGMM improvements that require more time an

implement

– STEO: changes in the Short Term Energy Outlook that will impact NGMM n

projections in AEO 2019

Katie Dyl, Washington, D.C.May 23, 2018 
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Transition to new Natural Gas Markets Module (N• The NGMM will replace the Natural Gas Transmission and Distribut

(NGTDM) in NEMS to serve the same following functions:

– Represent the transmission, distribution, and pricing of natural gas in North Amer

representations of Canada, Mexico, and LNG trade.

– Given annual regional/sectoral natural gas consumption and short-term regional s

balance supply and demand across the network on marginal cost basis

– Determine annual interregional flows, production, imports, exports, and associate

delivered natural gas prices

– Include seasonal storage, transmission and distribution pricing, pipeline capacity 

as necessary to capture the impact on the primary outputs

– Produce projections that both align well with history and capture likely future mar

• NGMM was designed to solve for flow reversals, is significantly mo

improve results (particularly marginal pricing), and balances supplya quadratic program, rather than the heuristic used in the NGTDM

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Decision to redesign NGTDM• Being too constrained to previous year, limits ability to respond 

annual changes in the market

• Limitations in modeling flows, capacities, and pricing at such an 

level ‒ some calibration factors too large

• Heuristic algorithm limited in ability to represent bidirectional flow

changing primary flows

• Model has become difficult to modify and update after many inc

code and data changes, complicating the need for it to be manapeople

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NGMM model requirements• Project delivered, wellhead, import, and export prices given deli

volumes and regional short-term supply curves

• Balance market and establish production, imports, and exports, 

lease, plant, and pipeline fuel, and supplemental supplies

• Project region-to-region flows and pipeline capacity• Produce reasonable projections, align well with history, but capt

future market behavior (such as under different scenarios)

• Be easier to maintain, update, debug, and learn

Katie Dyl, Washington, D.C. May 23, 2018
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NGMM Network and Structure

• Transshipment nod

each Lower 48 state(2), in Mexico (5), aborder crossing, incLNG points at coast

• Solves for monthly/s

prices at each hub aflows between neigbased on variable trand capacity

• Twelve months (sol

independently with interrelationships) 

Katie Dyl, Washington, D.C. May 23, 2018

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Quadratic program (QP) (with linear constraints)• Max consumer plus producer surplus minus variable transportat

subject to mass balance constraints

• Variable transportation costs include pipeline fuel charge and va• Variable supply, flows, and marginal prices (fixed charges post-p

SupplyLNG exportsFlow between nodes (supply, hub, demand, LNG exports, storage)Tariff curve quantity (variable transportation costs)Mass balance for all node typesFlows between nodes limited to previously projected pipeline capac

Decision variables:Primary Constraints:

Katie Dyl, Washington, D.C. May 23, 2018
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Variable tariff curves• Based on historical spot price 

differentials between states/regions

• Components of basis differentials

– Pipeline fuel charge– Variable Tariff 

• Assumptions

– Differences in spot prices are pipeline fuel and 

variable charges

– Difference between spot and city gate prices 

are the fixed charges

• Variable tariff set in a QP using a curve 

for each arc, function of utilization

• Extended beyond existing capacity when 

projecting capacity expansion, reflecting the consideration of reservation fees

Katie Dyl, Washington, D.C. May 23, 2018
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Outline• Brief overview of new Natural Gas Markets Module (NGMM)• Evaluation and discussion of results from AEO 2018• Current plans and expectations for AEO 2019+

– AEO 2019: short-term NGMM improvements to fix issues identified from AE– Post-AEO 2019: long- term NGMM improvements that require more time an

implement

– STEO: changes in the Short Term Energy Outlook that will impact NGMM n

projections in AEO 2019

Katie Dyl, Washington, D.C.May 23, 2018 
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RESULTS ARE SUB

020406080100120140160

0

102030405060

2000 2010 2020 2030 2040 2050

2017

history projections High Oil and Gas 

Resource/TechnologyHigh Oil PriceReferenceLow Oil PriceLow Oil and Gas Resource/Technology

0

102030405060

2000 2010 2020 2030 

2017

history projections

U.S. natural gas productiontrillion cubic feet per year billion cubic feet per day

U.S. natural gas consumptiotrillion cubic feet per year billio

U.S. natural gas production and consumption continue to inin most casesSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

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02468

1012

2000 2010 2020 2030 2040 

2017

history projections

Low Oil and Gas Resource a

AEO 2

High Oil and Gas Resource 

AEO 2

Natural gas spot price at Henry Hub 2017 dollars per million British thermal units

Natural gas prices remain relatively low compared to historSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

Katie Dyl, Washington, D.C. May 23, 2018
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-1

0123456

2010 2020 2030 2040 2050

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

Natural gas supply price2017 dollars per thousand cubic feet

Katie Dyl, Washington, D.C.May 23, 2018

Regional Supply Prices

East

Gulf CoastU.S. AverageDakotas/Rockies

• Basis between East (Marcellu

Coast (Henry Hub) supply pric36¢ in 2017 to 57¢ in 2050

– Consistent with tariff charges o– Historical 2017 differential larg

• Why does this narrow in the n

2020?

– Historical calibration

Gulf Coast-East differential – STEO benchmarking

2017
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Katie Dyl, Washington, D.C.May 23, 2018

General expectation is that regional flows will be out of the Northeast, inNorth Central (Midwest) and Southeast, and down to the Gulf Coast
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Flows out of East North Central into Trillion cubic feet

Flows into East 

Katie Dyl, Washington, D.C.May 23, 2018

Regional flows into and out of Midwest illustrate NGMM likely underestimating flows from Appalachia to Gulf Coast in near- to mSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

East Canada

East South Central

South Atlantic

Mid Atlantic

West North Central

012345678

2010 2020 2030 

0.00.51.01.52.02.53.03.54.0

2010 2020 2030 2040 2050

2017 2017
Natural gas trade

trillion cubic feet per year billio

Katie Dyl, Washington, D.C. May 23, 2018

The United States is a net natural gas exporter in the Referebecause of near-term export growth and continued import dSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

-5

05

10

2000 2010 2020 2030 2040 

2017

history projections

?Canada pipeline imports

LNG imports

LNG exportsMexico pipeline exportCanada pipeline export
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U.S. natural gas trade with Canadatrillion cubic feet per year

Flows out of Weste

billion cubic fe

Katie Dyl, Washington, D.C. May 23, 2018

Canada results in detail:U.S. imports from Canada continue to decline while U.S. exports to Canada rise dpipeline capacity from the Northeast into eastern Canadian and Midwestern markSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

-1

012345

2000 2010 2020 2030 2040 2050

Imports

Exports

Net Imports

-1

012345

2000 2010 2020 2030 2040 

2017 2017
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U.S. exports to Mexicotrillion cubic feet per year billion cubic feet per day

Mexico dry natu

trillion cubic feet per year billio

Katie Dyl, Washington, D.C. May 23, 2018

Mexico results in detail:U.S. exports to Mexico continue current growth trajectory in short- to mid-term, lreforms to Mexico’s energy market take holdSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

2017 2017

0.00.51.01.52.02.53.0

2000 2010 2020 2030 2

0.00.51.01.52.02.53.0

2000 2010 2020 2030 2040 2050

8.26.85.54.12.71.4

TX-MX_SS

TX-MX_NE

CA-MX_NW

AZ-MX_NW

Associated dissolved

Nonas

LNG

1st sha
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2000 2010 2020 2030 

2017

history projections

Oil-to-natural gas price ratioenergy-equivalent terms

The United States becomes a net exporter of natural gas before 2020, althLNG exports is uncertain, resulting in a wide range of expected U.S. LN

Katie Dyl, Washington, D.C. May 23, 2018

Liquefied natural gas exportstrillion cubic feet per year billion cubic feet per day

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

05101520253035

02468

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2000 2010 2020 2030 2040 2050

2017

history projections

High Oil PriceHigh Oil and Gas Resource/TechnologyReferenceLow Oil and Gas Resource/TechnologyLow Oil Price
Delivered natural gas prices by sector

2017 dollars per thousand cubic feet

Katie Dyl, Washington, D.C. May 23, 2018

Delivered prices to consumers: Markups off of both city gaprices as well as estimations using updated historical data seSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

02468

1012141618

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

TransportationResidential

Industrial

Commercial

Electric power

• Re

of ga

• Co

spa

• Ind

Indspo

• Ele

Elespo

• Tra

EEanfor veprima
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Outline• Brief overview of new Natural Gas Markets Module (NGMM)• Evaluation and discussion of results from AEO 2018• Current plans and expectations for AEO 2019+

– AEO 2019: short-term NGMM improvements to fix issues identified fro

– Post-AEO 2019: long- term NGMM improvements that require more tim

to implement

– STEO: changes in the Short Term Energy Outlook that will impact NGM

projections in AEO 2019

Katie Dyl, Washington, D.C.May 23, 2018 
WORKING GROUP―DO NOT QUOTE O

RESULTS ARE SUB

Katie Dyl, Washington, D.C.May 23, 2018

AEO 2019: Miscellaneous planned improvements• Re-evaluate and modify select variable tariff curves 

– Improve regional flows– Ensure tariffs produce reasonable flow patterns throughout projection– “Placeholder” for more thorough and permanent fix long term

• Assess interaction with Electricity Market Module (EMM) to impr

convergence

– Understand what is driving oscillations in some regions (e.g. disparate regio

the two models, competition with renewables)

– Analyze seasonal patterns and interactions between NGMM/EMM 

– Assess natural gas price sensitivity of EMM
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• Currently there is only one f

parameters, to define the shsupply curve for all OGSM d

• Code already includes optio

3 different forms of the suppwell as fixed supply

• Testing in conjunction with O

for different supply elasticitietypes of regions

– Improve more granular resu– Allows different types of no

supply (i.e. offshore, MarceCanada) to respond to price 

Katie Dyl, Washington, D.C.May 23, 2018

AEO 2019: Supply curve optionality
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• Adapt code to run in historic

– NGMM validation/backcast– Calibrate spot prices, flows

for use in projection

• Roadblocks to completion in 

– Data quality

• Pipeline capacities by • Pipeline fuel use data 

variable; subject to re

– Resources and time require– Gross vs. net flows– Granularity of model not at 

• Texas acts as 3+ regi• Rockies/Mountain reg

Katie Dyl, Washington, D.C.May 23, 2018

Post-AEO 2019: Historical Calibration

Pipeline fuel use

State-tostate flows Tariff curves

Spot Prices

HistoryBothProjections
Henry Hub natural gas price

dollars per million British thermal units 

Katie Dyl, Washington, D.C.May 23, 2018

STEO: Henry Hub prices are forecast to average $3.01/MMBtu in 2018 $3.11/MMBtu in 2019Source: EIA Short-Term Energy Outlook, May 2018, and Thomson Reuters.

0.000.501.001.502.002.503.003.504.004.505.005.506.006.50

2013 2014 2015 2016 2017 2018 2

historical Henry Hub spot price

STEO forecas
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U.S. marketed natural gas productionbillion cubic feet per day

Components of annual changebillion cubic feet per day

Katie Dyl, Washington, D.C.May 23, 2018

STEO: EIA forecasts marketed natural gas production to grow by a recoon average in 2018 Source: EIA Short-Term Energy Outlook, May 2018. 

0

102030405060708090

100

2016 2017 2018 2019

marketed production

dry production

-1.0

1.1

7.4

-5-4-3-2-1

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2016 2017 201

HaynesvillePermianAppalachiaother(net change)
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For more informationU.S. Energy Information Administration home page | www.eia.govAnnual Energy Outlook | www.eia.gov/aeoShort-Term Energy Outlook | www.eia.gov/steoInternational Energy Outlook | www.eia.gov/ieoMonthly Energy Review | www.eia.gov/merToday in Energy | www.eia.gov/todayinenergyState Energy Profiles | www.eia.gov/stateDrilling Productivity Report | www.eia.gov/petroleum/drilling/International Energy Portal | www.eia.gov/beta/international/?src=home-b1

Katie Dyl, Washington, D.C. May 23, 2018 
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Supplemental Slides

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Flows out of West South Central into Trillion cubic feet

Flows into West S

Katie Dyl, Washington, D.C.May 23, 2018

Regional flows into and out of TX, OK, AR, LA illustrate that NGunderestimating east-to-west flows in the United StatesSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

0

0.10.20.30.40.5

2010 2020 2030 

West North Central 

01234567

2010 2020 2030 2040 2050

AZ/NM

East South Central

Mexico

Rockies

2017 2017
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North Sea Brent oil price2017 dollars per barrel

Henry Hub natural gas price2017 dollars per million Btu

While global conditions lead oil price projections, resource technology assumptions drive U.S. natural gas pricesSource: U.S. Energy Information Administration, Annual Energy Outlook 2018

Katie Dyl, Washington, D.C. May 23, 2018

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50

100150200250

2010 2030 2050

2017

history projections

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