EIA: Surge in Shale Development Redefines America’s Energy Outlook

Yesterday, the U.S. Energy Information Administration (EIA) released an abridged version of its Annual Energy Outlook for 2014 (AEO2014) with projections out to 2040.  The key takeaway? The surge in domestic oil and natural gas production – driven by shale development – is nothing short of extraordinary.

The adjusted data and analysis reveal similar projections as those put forth in the International Energy Agency’s 2013 World Energy Outlook, which is discussed in further detail here. In addition to record levels of oil production, the EIA predicts that abundant supplies of natural gas will increasingly be used for power generation and contribute to a surge in energy-intensive industries and manufactured products.  The increased production of both oil and natural gas will reduce the amount of energy imported in the United States and increase the amount of products exported.

Here are four key facts about EIA’s latest assessment:

1.) Technological advances drive increased production, “reshape the U.S. energy economy”

The advances in hydraulic fracturing, horizontal drilling, and other technologies have enabled a renaissance in domestic energy development, and additional innovation will drive continued growth in oil and natural gas production from tight formations.  This is projected to increase oil production to levels not seen since 1970 and increase natural gas production by over 50 percent through 2040.  According to the report:

  • “Ongoing improvements in advanced technologies for crude oil and natural gas production continue to lift domestic supply and reshape the U.S. energy economy.” (AEO2014 Early Release Overview (ERO p.1)
  • “The faster growth of tight oil production through 2020 in the AEO2014 Reference case results in higher domestic crude oil production than in AEO2013 throughout the projection.” (ERO p. 13)
  • “Higher production volumes result mainly from increased onshore oil production, predominantly from tight (very-low-permeability) formations.” (ERO p.12)
  • “[N]atural gas production grows steadily, with a 56% increase between 2012 and 2040, when production reaches 37.6 trillion cubic feet (Tcf).” (ERO p.1)
  • “Cumulative production of dry natural gas from 2012 to 2040 in the AEO2014 Reference case is about 11% higher than in AEO2013, primarily reflecting continued growth in shale gas production resulting from the dual application of horizontal drilling and hydraulic fracturing.” (ERO p,13)

2.) Natural gas to be largest source of U.S. electric power generation

The low cost and abundance of natural gas make it an economical fuel choice for electric power generation, a fact that has allowed consumers to benefit mightily. According to EIA, that trend will continue well into the future, too. From the report:

  • “Projected low prices for natural gas make it a very attractive fuel for new generating capacity.” (ERO p.2)
  • “In 2040, natural gas accounts for 35% of total electricity generation…” (ERO p.2)

3.) Increased production leads to more exports and fewer imports

The increased domestic production of both oil and natural gas will transform the United States into a net energy exporter, according to the EIA.  Meanwhile, the increased production of oil will slash the amount that the United States has to import – a data point with significant energy security benefits. From the report:

  • “Pipeline exports of U.S. natural gas to Mexico grow by 6% per year, from 0.6 Tcf in 2012 to 3.1 Tcf in 2040, and pipeline exports to Canada grow by 1.2% per year, from 1.0 Tcf in 2012 to 1.4 Tcf in 2040. Over the same period, U.S. pipeline imports from Canada fall by 30%, from 3.0 Tcf in 2012 to 2.1 Tcf in 2040, as more U.S. demand is met by domestic production.” (ERO p.2)
  • “The net import share of total U.S. energy consumption is 4% in 2040, compared with 16% in 2012 and about 30% in 2005.” (ERO p.12)
  • “With domestic crude oil production rising to 9.5 MMbbl/d in 2016, the import share of U.S. petroleum and other liquids supply falls to about 25%.” (ERO p.2)
  • “U.S. use of imported petroleum and other liquid fuels continues to decline in AEO2014 mainly as a result of increased domestic oil production. Imported petroleum and other liquid fuels as a share of total U.S. use reached 60% in 2005 before dipping below 50% in 2010 and falling further to 40% in 2012. The import share continues to decline to 25% in 2016…” (ERO p.13)

4.) Low natural gas prices boost American manufacturing

The low price of domestic natural gas benefits those industries that require large amounts of energy, including manufacturers that use natural gas as a feedstock.  The abundant supply of affordable, clean-burning natural gas in the United States will thus contribute to increased industrial output, and a further reduction in our trade deficit.

  • “Industrial shipments of bulk chemicals, which benefit from an increased supply of natural gas liquids, grow by 3.4% per year from 2012 to 2025…” (ERO p.1)
  • “Industries that supply equipment for increased natural gas production, as well as industries benefitting from lower natural gas prices, account for much of the higher growth in manufacturing.” (ERO p.3)

As this report again highlights, the benefits of increased domestic oil and natural gas production are clear. From enhancing our nation’s energy security to supporting a revival in American manufacturing, the benefits of shale development continue to multiply – and according to the EIA, will do so for decades to come.

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