1. The Changing Role of Natural Gas in the
United States
Environmental Initiative
Katherine Teller, Energy Information Administration
September 21, 2012 | St. Paul, Minnesota
U.S. Energy Information Administration Independent Statistics & Analysis www.eia.gov

2. U.S. Energy Information Administration
The U.S. Energy Information Administration (EIA) is the
statistical and analytical agency within the U.S. Department
of Energy. EIA collects, analyzes, and disseminates
independent and impartial energy information to promote
sound policymaking, efficient markets, and public
understanding of energy and its interaction with the economy
and the environment. EIA is the Nation's premier source of
energy information and, by law, its data, analyses, and
forecasts are independent of approval by any other officer or
employee of the U.S. Government.
Katherine Teller, St. Paul, Minnesota, 2
September 21, 2012

3. Overview
• Current natural gas markets and history
• Short-term outlook
• Long-term outlook
• Questions
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 3

4. Current Natural Gas Markets
• The past several years have been characterized by high
supply and relatively low prices.
• Contributing factors to low 2012 prices included strong supply
and weak demand resulting from a very warm winter.
• Production has remained high despite lower prices.
• Use of natural gas for electric power generation has
increased substantially.
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 4

5. 0
2
4
6
8
10
12
14
16
Jan-02
Jun-02
Nov-02
Apr-03
Source: Reuters
September 21, 2012
Sep-03
dollars per MMBtu
Feb-04
Jul-04
Dec-04
Katherine Teller, St. Paul, Minnesota,
May-05
Oct-05
Mar-06
Aug-06
Jan-07
Jun-07
Nov-07
Apr-08
Sep-08
Feb-09
Jul-09
Dec-09
Natural Gas Prices, 2002 – 2012
May-10
Oct-10
Mar-11
Aug-11
Jan-12
Jun-12
5

6. Growth in shale production has driven strength in supply
MMcf/d
30,000
25,000
20,000
15,000
10,000
5,000
0
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Barnett Woodford Fayetteville Haynesville Eagle Ford Marcellus Other
Source: Lippman Consulting
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 6

7. Natural Gas Prices, 2002 - 2012
• Prices have created an environment conducive to fuel-
switching; ie, displacement of coal generation with natural
gas.
• This has been particularly prevalent in the Southeast and
Mid-Atlantic.
• Most of the current combined-cycle generation capacity was
added between 2000 and 2010. These additions have been
increasingly utilized over the past six years.
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 7

8. Coal and Natural Gas-Fired Generation Were Equal in April
Million megawatt hours
200
180
160
140
120
Coal
100 Natural Gas
Nuclear
80 Hydro
Other Renewables
60
40
20
0
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
Source: U.S. Energy Information Administration
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 8

9. Short-Term Outlook
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 9

10. Short-Term Outlook
• Natural gas prices rise to an average of $3.64 in 2013.
• Production remains flat over the forecast period.
• A more normal 2012-2013 winter implies higher residential
and commercial consumption.
• Electric power consumption declines in 2013 as a result of
higher prices.
• The storage injection season ends at 3,950 Bcf, a new
record.
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 10

11. Consumption by Sector, 2010 - 2013
Source: CFTC, Bloomberg
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 11

12. Short-Term Outlook
• The Short-Term Energy Outlook expects a decline of more
than 2 Bcf/d in electric power consumption in 2013.
• The decline is related to projected increases in natural gas
prices, which make the relative price of coal less expensive.
• The current STEO also predicts increases in coal-fired
generation.
• Despite the decrease in 2013, natural gas-fired generation
will be at historically high levels.
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 12

13. Short-Term Outlook
• Commodity price forecasts are highly uncertain.
• EIA considers a number of factors when forecasting prices,
including weather, economic environment, and inventory
levels.
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 13

14. Short-Term Outlook
dollars per million btu
8
Historical spot price
7 STEO forecast price
NYMEX futures price
6
95% NYMEX futures upper confidence interval
5 95% NYMEX futures lower confidence interval
4
3
2
1
0
Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013 Jul 2013
Note: Confidence interval derived from options market information for the 5 trading days ending September 6, 2012.
Intervals not calculated for months with sparse trading in near-the-money options contracts.
Source: Short-Term Energy Outlook, September 2012
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 14

15. Long-Term Outlook
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 15

16. Long-Term Outlook
• The Annual Energy Outlook (AEO) projects out to 2035.
• The AEO reference case is a “business as usual” case that takes
into account current policies and technologies.
• The AEO runs several side cases to account for uncertainties in
policies, prices, and technology.
Katherine Teller, St. Paul, Minnesota, 16
September 21, 2012

17. Long-Term Outlook
• Production increases over the forecast period, with shale gas
leading growth in production.
• Generation from natural gas increases, but coal remains the largest
source of power generation.
• Prices rise generally, varying with economic changes and the cost
of production.
• The U.S. becomes a net exporter of natural gas.
Katherine Teller, St. Paul, Minnesota, 17
September 21, 2012

18. Natural gas prices, 2009 - 2035
Dollars per MMBtu
9
8
7
6
5
4
3
2
1
0
Reference Case High EUR Low EUR
Source: Annual Energy Outlook 2012
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 18

19. Electricity generation by fuel, 2010 and 2035
10% 14% 13% 15%
21%
20% 20% 21%
20%
24% 27% 20%
47% 43%
41% 39%
2010 Reference High EUR (High Shale) Low EUR (Low Shale)
2035
Coal Natural Gas Nuclear Power Renewable Sources
Source: Annual Energy Outlook 2012
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 19

20. Natural gas consumption is quite dispersed; electric power and
industrial use drives much of the future demand growth
U.S. dry gas consumption
trillion cubic feet per year
History Projections
30
25
Electric
34%
power
31%
20
15
32% Industrial*
33%
10
13% 14% Commercial
5 3% 3% Transportation**
21% 17% Residential
0
2005 2010 2020 2030 2035
*Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel.
Source: EIA, Annual Energy Outlook 2012
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 20

21. For more information
U.S. Energy Information Administration home page | www.eia.gov
Short-Term Energy Outlook | www.eia.gov/steo
Annual Energy Outlook | www.eia.gov/aeo
International Energy Outlook | www.eia.gov/ieo
Monthly Energy Review | www.eia.gov/mer
EIA Information Center
InfoCtr@eia.gov (202) 586-8800
Our average response time is within three 24-hour automated information line about EIA
business days. and frequently asked questions.
Katherine Teller, St. Paul, Minnesota,
September 21, 2012 21