Natural gas prices will drive U.S. generation mix: EIA

If prices remain relatively low, natural gas could fuel as much as 54% of all U.S. electricity generation by 2050, according to the Energy Information Administration’s Annual Energy Outlook 2019.

Conversely, if natural gas prices rise, gas-fired generation could fall to 21% by 2050, on par with coal-fired generation, the EIA report said.

In its High Oil and Gas Resource and Technology scenario, the EIA projects natural gas prices of $3.90 per million British thermal units by 2050. In its Low Oil and Gas Resource and Technology case, EIA projects the price of natural gas would rise to $8.62 per million BTUs by 2050. And, in its reference or business as usual case, the EIA sees natural gas prices averaging $5.36 per million BTUs through 2050.

The price of natural gas delivered to electric power plants averaged $3.42 per million BTUs in 2018, the EIA noted.

The EIA’s low resource scenario projects the effects of higher extraction costs and lower resource availability, which leads to higher natural gas prices. Conversely, the agency’s high resource scenario uses the opposite assumptions for resource extraction costs and availability.

Low prices for natural gas relative to the cost of other fuels, such as coal, lead to more frequent dispatch and higher utilization rates for existing gas-fired power plants and to the construction of more gas-fired plants.

In 2018, natural gas accounted for 34% of total electricity generation, and EIA projects its share to grow to 40% by 2032 and then remain between 39% and 40% throughout 2050 under the agency’s reference case scenario.

The electric power sector is the largest consumer of natural gas and is growing, according to EIA data, but the agency still expects gas prices to fall. On average, the electric power sector used 29 billion cubic feet of gas per day in 2018, and the EIA, which is part of the Department of Energy, expects that level of consumption to remain unchanged in 2019 and then to rise by 3.3% in 2020 because of the addition of new gas-fired generation capacity.

Meanwhile, the EIA estimates dry natural gas production will average 90.2 billion cubic feet per day in 2019, an 8.3% increase from 2018 levels. In 2020, the EIA expects gas production to increase by 2.2%, averaging 92.2 billion cubic feet per day for the year. The higher production rates are mostly the result of improved drilling efficiency and cost reductions, higher associated gas production from rigs used primarily for producing oil, and increased takeaway pipeline capacity from the Appalachia and Permian production regions.

In 2018, Henry Hub spot prices averaged $3.15 per million BTUs, and the EIA forecasts Henry Hub prices will average $2.89 per million BTUs in 2019 and $2.92 per million BTUs in 2020 as production rates continue to outpace consumption growth.

As low gas prices continue to encourage the use and building of gas-fired generation, the EIA expects the share of electricity generation from coal and nuclear power to gradually decline as those resources become less cost competitive with gas-fired generation and renewables.

The EIA projects that generation from renewable resources will surpass nuclear power generation by 2020 and coal-fired generation by the mid-2020s as tax credits and lower capital costs drive solar photovoltaic and wind capacity additions.

In the EIA’s higher gas price scenario, gas-fired generation becomes less competitive with both renewable and coal-fired generation, resulting in renewables and coal-fired plants gaining market share. In that scenario, solar and wind power would surpass coal-fired generation by the mid-2020s and then exceed gas-fired generation before 2030.