World Energy Outlook 2012 – Part II: Natural Gas

The big news a few weeks ago, as I wrote in this blog, came from the World Energy Outlook 2012 report, which wrote that the US is on a trajectory to surpass Saudi Arabia in oil production by 2020.  The US Department of Energy yesterday completed its study on natural gas exports by an outside consultant.  The report can be summarized was follows:

  • Because of the abundance of natural gas in the U.S., only modest price increases will be seen by domestic consumers;
  • Exports of natural gas are made possible primarily by the increased availability of it; and
  • The expected shift in power generation from coal to natural gas will be slowed by increased exports.

The modest price increases predicted from allowing greater exports of US natural gas are directly related to its increased availability from unconventional sources such as shale.  The World Energy Outlook had forecasted that most of the newly available natural gas would come from three countries: China, Australia, and the United States.  It forecasted that by 2035 natural gas would become the most important fuel in the US, surpassing even oil.

My previous blog entry, “Liquid Natural Gas and US Energy Exports,” pointed out the potential economic impact of allowing increased exports of natural gas in terms of job creation here in the US.  However, the extent of that growth hinges on federal regulatory approvals.  The long-awaited Department of Energy study paves the way for those approvals.  Already, the World Energy Outlook 2012 has forecast that, even with exports, 93% of natural gas produced in the US would be kept here at home for domestic consumption.

Why would 93% remain available for domestic consumption if federal regulations permitted increased exports of natural gas?  There are many reasons, but among them is the growing availability of natural gas outside the US.  The Outlook 2012 report forecasts that, even with potential new climate-related policy restrictions, the production of natural gas in non-OECD countries could grow at a 2.1% compound average annual rate between 2010 and 2035.  This compares with 0.85% over the same period in OECD countries like the US.

The primary reasons for increased domestic consumption are the extent to which the power industry is shifting its fuel source from coal to natural gas, and the expansion in availability of domestic natural gas. The Outlook 2012 report estimates that output in North America would continue to expand from approximately 650 billion cubic meters (bcm) in 2011 to 800 bcm in 2035, nearly a 25% increase in availability of domestic natural gas.

We are now beginning to see the potential that is coming from the growth in the worldwide natural gas supply.  It will result in shifts away from traditional fossil fuels to cleaner natural gas and substantial increases in jobs within the energy industry.  Of course, both will depend upon supportive regulation.  The Department of Energy report should move us toward that supportive regulation.