WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

June 26, 2019

MEMORANDUM FOR: Steve Nalley

Assistant Administrator for Energy Analysis

FROM: John Staub

Director, Petroleum, Natural Gas, and Biofuels Analysis

Subject: Summary of Oil and Gas Supply, Liquid Fuels Markets, and Natural Gas

Markets Working Group Meeting held on June 5, 2019

This memorandum provides an overview of the presentation given during the first Annual Energy 

Outlook (AEO) 2019 Oil and Gas Supply, Liquid Fuels Markets, and Natural Gas Markets Working Group

meeting and a summary of the resulting discussions that took place. The meeting had three parts. The 

first part covered the Oil and Natural Gas Supply Module (OGSM). The second part covered the Liquid 

Fuels Market Module (LFMM) and International Energy Model (IEM). The third part covered the Natural 

Gas Markets Module (NGMM). The presentation slides are available in separate documents on the U.S. 

Energy Information Administration’s (EIA) website.

OGSM

In her presentation, Dana Van Wagener covered three main topics: results from AEO2019, changes to 

recent Short-Term Energy Outlook (STEO), and plans for the AEO2020. She highlighted the following 

points:

Results (AEO2019)

• U.S. crude oil and natural gas production are sensitive to resource availability and technological 

improvements.

• U.S. crude oil and natural gas production continues to be driven by growth in tight oil and shale 

gas supply.

• The Southwest region leads growth in U.S. crude oil production, and the East region leads 

growth in natural gas in the Reference case, similar to AEO2018.

• Bakken and Wolfcamp formations lead growth in tight oil production.

• Marcellus and Utica formations lead production of shale gas.

• The East and Southwest regions lead the production of natural gas plant liquids in the Reference 

case.

In addition, some comments were made that related to the latest forecasts in EIA’s STEO:

• Stronger growth in crude oil production than in the October 2018 STEO

• Stronger growth in natural gas production than in the October 2018 STEO
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Model updates under consideration (AEO2020)

• Update estimated ultimate recovery (EUR) for tight and shale wells

– Expand play areas as needed

– Determine target zone for wells in the Permian Basin

• Incorporate 45Q federal tax credits for carbon capture and sequestration.

• Update Alaska and Lower 48 offshore announced discoveries.

Discussion

The following discussion focused on questions about the Reference case projection for natural gas 

production from the Marcellus and how technological improvement is incorporated into the model.

Results (AEO2019)

The first question was about the Reference case projection for natural gas production from the 

Marcellus formation: how certain is this projection, which is quite “bullish?” EIA provided an overview of 

the methodology, which starts with well-level decline curve analysis and is layered over large geographic 

areas, which implies significant resources. EIA also noted a large amount of uncertainty around the 

technically recovered resource (TRR) estimates, which change as drilling progresses and as well-level

production data provide more information about the formations. This uncertainty launched a discussion 

about how much the TRR increased during the past decade and how the estimates continue to increase 

with technology and logistics optimization improvements. EIA explained how the TRR estimates cited in

the AEO2019 Assumptions report, Tables 1-4, are a snapshot in time. This fact led to the question: could

the model generate the TRR estimates throughout the projection period? Currently, the model cannot 

track these estimates in a reasonable amount of model run time, which is a topic for possible model 

improvement in the future.

A second round of questions and discussion focused on how technology improvement is modeled. The 

participant who runs the National Energy Modeling System (NEMS) asked if technology improvement is 

modeled in the shale plays. This person noticed a difference between the technology improvement 

factors in the conventional versus tight plays. EIA discussed the percentage rates of technology 

improvement assumed in the different phases of the lifecycle of a play—an initial percentage, a ramp-up 

phase (learning by doing), and a percentage once development is established. More detail is provided in 

the Assumptions to the Annual Energy Outlook 2019: Oil and Gas Supply Module. Another participant 

asked whether technology improvement is modeled at the play level. EIA responded that technology 

improvement is modeled at the county-level, except in areas where more granular resource information 

is available in which case it is modeled at more granular-level.

LFMM and IEM

James Preciado gave the next presentation. He began by showing the updated crude oil price path for 

AEO2020. He described the primary supply and demand side factors, such as higher domestic 
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

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production and lower demand growth in the Organization for Economic Cooperation and Development 

(OECD), that drove the AEO2020 crude oil price path to be lower than the AEO2019 forecast.

Two areas of concentration for AEO2020 were covered in detail: potential revisions to U.S. crude oil 

export levels and updated representation of biofuels (mainly ethanol and biodiesel). Anticipated data 

updates were also described. The presentation highlighted the following points:

• U.S. crude oil exports rose considerably during the past few years, and that trend has continued 

in the first half of 2019.

• The U.S. biofuel market is changing, with low feedstock prices contributing to sustained low 

biofuel prices and U.S. exports of biofuels.

Results (AEO2019)

• Projections for the crude oil price path in AEO2020 will be lower than the AEO2019 forecast.

• Projections for U.S. crude oil exports remained relatively flat, near 2018 levels, in AEO2019, in 

contrast to the rapid growth shown in Petroleum Supply Monthly data. 

• Projections for U.S. wholesale prices for ethanol increased sharply in the short and medium 

term in AEO2019. However, actual ethanol prices have remained relatively low.

Model updates under consideration (AEO2020)

• Assumptions related to international supply and demand curves will be revisited to make sure 

the international market for U.S. light crude oil and condensate is properly represented in 

AEO2020. 

• Information from the new Global Hydrocarbon Supply Model (GHySMo) in EIA’s International 

Energy Outlook (IEO) 2019 could provide additional information and help calibrate the IEM and 

U.S. exports of crude oil.

• Information from EIA’s agricultural model (POLYSYS) may more accurately represent corn and 

soy oil feedstock quantities and prices in LFMM.

• International representation of ethanol markets could be updated to better reflect recent 

trends in U.S. imports and exports of ethanol.

Several other small, planned updates to the LFMM and IEM were also presented.

• Updated pipeline capacity from the Permian basin to the U.S. Gulf Coast

• A new methodology to estimate distribution cost markups for gasoline, diesel, and jet fuel prices

• Revised state taxes for gasoline, diesel, and jet fuel

• Updated refinery fuel use of natural gas, still gas, and petroleum coke to more accurately match 

historical results

• Representation of the latest Renewable Fuel Standard (RFS) rulemaking from the U.S. 

Environmental Protection Agency (EPA) and any changes to E15 (gasoline that contains about 

15% ethanol by volume) penetration rates because of the new E15 waiver rule

• Continued monitoring of petroleum product markets and the effects of the new sulfur standards 

on marine fuel being implemented by the International Maritime Organization (IMO) in 2020

Discussion
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

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The discussion clarified points raised during the presentation. No comments were given about the 

proposed model updates to the LFMM and IEM, and no other suggestions for future model 

development were offered.

A participant asked how the IMO 2020 sulfur regulation was represented within the framework of 

NEMS. EIA explained that the transportation model represents domestic marine fuel demand and the 

portion of international marine fuel demand that is bunkered in the United States. LFMM supplies the 

prices to the transportation model, and, based on those prices, decisions are made on investment and 

compliance with the regulation. The IEM then makes assumptions on the rest of the international 

marine fuel market that is bunkered outside the United States, with changes in those volumes 

represented through U.S. imports and exports of crude oil and petroleum products.

A participant asked about the new E15 waiver from EPA and whether it will affect EIA’s ethanol 

consumption projection. EIA explained that E15 penetration rates are an assumption in the model and 

that the new rule will be analyzed to see if any changes to EIA’s assumptions are necessary. These model 

changes will be done in conjunction with the other biofuel updates.

A participant asked, specifically, which economies were contributing to reduced global demand for 

petroleum products and leading to lower crude oil prices in the projection. EIA explained that the OECD 

was the primary area where demand was slowing because of faster adoption of fuel efficiency 

standards, biofuels, and electric vehicles and lower GDP growth assumptions. Assumptions for nonOECD liquid fuel consumption growth were actually slightly higher compared with AEO2019, but these 

increases were not enough to offset the declines in the OECD.

NGMM

Katie Dyl presented both results from AEO2019 and plans for AEO2020, as well as some preliminary 

updated assumptions in order to obtain stakeholder feedback. 

Results (AEO2019)

• U.S. natural gas production growth exceeds that of natural gas consumption, leading to a rise in 

U.S. natural gas exports in most cases.

• U.S. natural gas spot prices at the Henry Hub do not exceed $5 per million British thermal units

(MMBtu) in the Reference case; natural gas prices are most sensitive to the resource and 

technology assumptions used. The lowest price ($3.50/MMBtu in 2050) appears in the High 

Resource and Technology case, and the highest price (more than $8/MMBtu in 2050) appears in 

the Low Resource and Technology case.

• Industrial and electric power sectors drive U.S. natural gas consumption growth.

• LNG exports account for most of U.S. natural gas export growth after 2020 because the second 

wave of LNG export projects is expected to reach final investment decision (FID) and come 

online.

• The level of LNG exports in all cases is extremely sensitive to the underlying assumptions used 

and varies widely across side cases.
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

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Model updates under consideration (AEO2020)

• Update LNG export-related assumptions

– Include additional facilities that are under construction/have reached FID (~4 billion 

cubic feet per day)

– Review updates to various cost and assumptions around time to build and number of 

trains to build in a given year

• Improve econometric estimations for delivered end-use prices to include population shifts and 

heating and cooling degree days (HDD/CDD) by census division

• Change regional mapping between NGMM and the Electricity Market Module (EMM) after its

new regional definitions are incorporated into the NEMS

The working group reviewed initial LNG export-related assumptions and provided feedback. It also 

discussed how the NGMM-EMM regional changes were expected to improve some of the convergence 

issues that have been experienced in previous AEOs.

Discussion

The discussion did not focus on AEO2019 results; rather, participants asked many questions about 

general modeling methods and the LNG export updates and assumptions presented for AEO2020.

One participant asked how natural gas pipeline infrastructure was modeled (this discussion also came up 

during the OGSM presentation earlier in the meeting). EIA replied that it had an assumed cost to 

building additional pipeline infrastructure at the state-to-state level; however, in general, the costs are 

low enough such that if the pipeline infrastructure is needed to satisfy growing demand, it will be built.

The NGMM does not incorporate significant regulatory costs or burdens or refuse to allow new pipeline 

builds. Staff commented that it would be a fair comment/criticism that EIA may be underestimating 

some of these costs/time required to build new pipelines; however, participants agreed that there was 

not necessarily a good alternative to account for some of these costs.

Several questions were related to LNG export levels and assumptions. One participant pointed out that 

the list of planned LNG export projects EIA intend to add into the AEO2020 seemed low. He believed

that twice as many projects were likely going forward and that they totaled as much as 20 billion cubic 

feet per day (Bcf/d). He noted that the various deals signed by some of the proposed projects make it 

clear that the projects have agreements in place to move forward. EIA responded that several other 

subject matter experts within EIA agreed that LNG export capacity could total 20 Bcf/d in the United 

States given the current planned projects. However, the Reference case only includes FID or projects 

under construction when assuming particular projects will be built. The model then builds additional 

projects if the economics are positive. EIA agreed that LNG exports in AEO2020 would likely be higher 

than what was projected in AEO2019.

Finally, another participant asked about monthly demand and storage with respect to LNG exports and 

the facilities. EIA explained that these factors are not currently built into the NGMM; however, it has

considered making an assumption about different monthly maximum utilization levels for LNG export 

facilities (which would be possible given that the NGMM solves by month).
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

Attendees

Guests (in person)

John Powell DOE

Gabby Intihar DOE 

Ray Boswell NETL

Jose Benitez Deloitte

Registered Guests (WebEx/phone)

Geoffrey Brand API

Joann Zhou Argonne National Lab

Brad Barnds Arrowhead

Ben Schlesinger BSA Energy

Walter Weathersby BTU Consulting

Ning Lin Bureau of Economic Geology (BEG)

Mark Shuster Bureau of Economic Geology (BEG)

Martin Linn Deloitte

Greg Leveille DOE

Tim Reinhardt DOE

Tom White DOE

Michael Schaal Energy Ventures Analysis Inc.

Jai Gopal GPS EC PROJ DTBA

Robert Schultz Leenalabs

Yelena Dandurova Leidos

Donald Remson NETL

Frances Wood OnLocation Inc.

Sharon Showalter OnLocation Inc.

Hannah Kolus Rhodium Group

Hannah Pitt Rhodium Group

Dave Hughes Post Carbon Institute

Leticia Phillips UNICA- Brazilian Sugarcane Industry Association

Mariana Zechin UNICA- Brazilian Sugarcane Industry Association

Steven B. Yates U.S. ACE PCXIN

Cory Forgrave U.S. Office of Natural Resources Revenue

Emil Attansasi USGS

Eugene Kim Wood Mackenzie

EIA participants (in person)

Kathryn Dyl (presenter)

James Preciado (presenter)
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

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Meg Coleman

John Staub

Elizabeth May

Adrian Geagla

Mindi Farber-DeAnda

EIA participants (WebEx/phone)

Angelina LaRose

Dana van Wagener (presenter)

David Manowitz

Manussawee Sukunta

Samantha Calkins

Steve Hanson