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September 30, 2014

MEMORANDUM FOR: JOHN CONTI

ASSISTANT ADMINISTRATOR FOR ENERGY ANALYSIS

FROM: ANGELINA LAROSE

TEAM LEAD

NATURAL GAS MARKETS TEAM

JOHN STAUB

TEAM LEAD

EXPLORATION AND PRODUCTION ANALYSIS TEAM

EXPLORATION AND PRODUCTION and NATURAL GAS

MARKETS TEAMS

SUBJECT: Second AEO2015 Oil and Gas Working Group Meeting Summary

(presented on September 16, 2014)

Attendees: John Pyrdol (DOE)

Kenneth Vincent (DOE)

Ben Schlesinger (BSA)

Joseph Benneche (EIA)

Dana Van Wagener (EIA)*

Troy Cook (EIA)*

Angelina LaRose (EIA) 

David Manowitz (EIA)

Chetha Phang (EIA)

Phyllis Martin (former EIA)

David Daniels (EIA)

John Staub (EIA)

Terry Yen (EIA)

Philip Budzik (EIA)

David Hughes

David Shin (API)*

Richard Nehring (Nehring Associates)*

Erik Lindstrom*

Gavin Pickenpaugh (NETL)*

Alan Krupnick (RFF)*

Brianna Mordick (NRDC)*

Darryl Rogers (IHS)*

Dave Schmalzer*
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Shashank Mohan (Rhodium Group)*

Gurcan Gulen (Univ of TX)*

Jeffery Eppink (Enegis)*

Jose Benitez (NETL)*

Mason Inman*

Melissa Whitten (LaCapra)*

Whitney Ketchum*

John Steelman (NRDC)*

Charlie Shephard*

Carol Lenox (EPA)*

Robert Anderson (DOE)*

*Attendance via WebEX

Presenters: John Staub (OGSM)

Angelina LaRose (NGTDM)

Presentation:

The Annual Energy Outlook 2015 (AEO2015) is shorter this year to highlight the International 

Energy Outlook (IEO) and EIA’s international efforts. The shorter AEO2015 will have 6 cases –

Reference case, High/Low Oil Price cases, High/Low Macroeconomic Growth cases, and the 

High Oil and Gas Resource case. 

The presentation provided preliminary oil and natural gas production and price results. For oil 

and gas supply modeling, the following were presented:

• Production (crude oil, natural gas, and natural gas plant liquids (NGPL))

• Liquids imports

For natural gas markets modeling, the following were presented:

• Natural gas supply and delivered prices

• Natural gas consumption

• Pipeline imports/exports

• U.S. liquefied natural gas (LNG) exports

Questions and answers regarding both oil and gas supply and natural gas markets:

1) The higher tight oil production suggests the resources are larger or produced more 

quickly than last year. It would be helpful to see the cumulative production by play. 

University of Texas BEG group’s play studies are more detailed and better 

documented.

EIA RESPONSE: EIA revised the drilling schedule to reflect another year of drilling 

level experiences and re-estimated the estimated ultimate recovery (EUR) factors and 

well spacing patterns. We will follow-up with interested stakeholders on the 

cumulative production.
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2) It seems surprising that tight gas production is increasing at prices below $5 per 

mmbtu?

EIA RESPONSE: There are substantial tight gas resources available in the model that 

are economically competitive in the model and have probably been ignored during the 

rush to acquire shale gas assets. 

3) What are the main sources of NGPL, in terms of plays?

EIA RESPONSE: The parts of the Marcellus in Southwestern Pennsylvania, West 

Virginia, and Ohio, and the Eagle Ford in Texas. The ratios of NGPL to dry gas 

production from three EIA surveys were used to update parameters for individual 

plays at the play level or down at the county level (if the information was available). 

4) What is the reason behind the decrease in EIA’s AEO2015 natural gas consumption

and production projections as compared to EIA’s AEO2014 projections?

EIA RESPONSE: The decrease is driven largely by the decrease in consumption in 

the electric power sector.

5) What is driving the drop in natural gas consumption in the electric power sector for 

2014-2015 and the significantly lower AEO2015 projection for 2020-2040 (compared 

to the AEO2014 projection)? 

STAKEHOLDER RESPONSE: The Electricity Working Group meeting was held 

yesterday. The drivers are lower electricity demand, higher capacity utilization by 

nuclear plants, and an increase in renewables. There are no unforced nuclear 

retirements, allowing for more nuclear capacity usage.

6) What is the reason behind the increase in EIA’s AEO2015 LNG exports projection as 

compared to EIA’s AEO2014 projection?

EIA RESPONSE: The increase in LNG exports is driven by lower domestic supply 

prices earlier in the projection period and higher oil prices later in the projection

period. The higher oil prices are a driver because the European and Asian natural gas 

supply prices are tied to the world oil price, although the connection weakens over 

time, largely as the U.S. exports more LNG.

7) EIA QUESTION: Is the increased LNG exports projection (~11 billion cubic feet 

(Bcf) per day in 2040) sensible?

STAKEHOLDER RESPONSE: The level is reasonable, unless there are significant 

changes in the international natural gas market mechanisms.

EIA RESPONSE: The future evolution of the world gas market is highly uncertain 

with the potential of many likely outcomes.

8) How does EIA model the building of LNG export facilities? Does the model select 

endogenously from the existing DOE-approved export requests?

EIA RESPONSE: The Sabine Pass facility is assumed to be completed. After that the 

model compares the expected supply price in the U.S., plus assumed costs for 

liquefaction and transport to Asia and Europe against an estimated alternative price in 

Asia in Europe (assuming a candidate inflow of U.S. gas) over the next 20 years 
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(discounted to the present), to see if a new project is economic. The citing of the 

selected project is based in part on DOE-approved export facilities.

9) Why are EIA’s AEO2015 Brent price projections higher than EIA’s AEO2014 

projections?

EIA RESPONSE: The higher price path in the longer term is due to stronger demand 

for oil in the longer term and a higher OPEC share.

10) When modeling LNG exports, does EIA treat the rest of the world as a sink for LNG, 

subject only to Brent prices? Or does EIA take into account other factors, such as 

nuclear usage capacity?

EIA RESPONSE: Though EIA’s modeling approach is a bit simplified, with the 

Asian and European prices driven in part by the world oil price, we also are factoring 

in an exogenous projection of world consumption, production in China, and an 

estimate of the freely traded LNG volumes from the IEO. There is an indirect 

assumption that world gas demand will move with the world oil price. In addition, the 

relationship of the world gas price with the oil price becomes more de-linked as more 

gas is exported from the United States.

11) What is EIA’s preliminary AEO2015 projection for Brent oil prices?

EIA RESPONSE: The price starts out at today’s prices and declines to about 

$87/barrel to about 2018-2020. After 2020, it increases steadily to around $147 in 

2040 in inflation adjusted (real) dollars.

12) Last year, there was a section on natural gas and vehicles/trains. Are there any 

changes in this AEO’s projections?

EIA RESPONSE: There is no change.

13) How is EIA modeling pipeline infrastructure?

EIA RESPONSE: After the first couple of years, the model automatically builds if 

there is a need. This demand need is driven by price.