EIA Chief: Boundless Natural Gas, Boundless Opportunities

Tyler Durden's picture

Despite stockpiles imploding and prices exploding in the short-term, The U.S. Energy Information Administration (EIA) has predicted that natural gas production in the US will continue to grow at an impressive pace. Right now output is close to 70 billion cubic feet a day and is expected to reach over 100 billion cubic feet per day by 2040. The trend is likely to continue without hitting a geologic “peak”, and along with this trend will come new marketing opportunities for America. The following exclusive interview with OilPrice.com answsers some of the bigger questions...

In an exclusive interview with Oilprice.com, EIA Administrator Adam Sieminski discusses:

•    What’s at stake in lifting the US crude export ban
•    Whether lifting the ban is inevitable
•    Why energy-related CO2 emissions will likely climb this year
•    What we can expect from US coal output through 2014
•    Why US natural gas production will continue to grow strongly
•    Where we can expect (unexpectedly) new production to come from
•    Why Alaska just might surprise us
•    Where the biggest new shale opportunities lie
•    How production increases might come from ‘non-shale’ formations
•    The potential for Colombian shale
•    What to expect from Mexico’s reforms
•    What the Panama Canal expansion really means
•    Why we will see new marketing opportunities for the US

Interview by James Stafford of Oilprice.com

Oilprice.com: US mainstream media are heralding the debate over lifting the US crude oil export ban as potentially one of the most critical for this year. While most agree this is not likely to happen anytime soon, is it an eventuality?

Adam Sieminski: When I first took office at the EIA, I said that light sweet crude oil production was growing very rapidly, and that it would ultimately have a number of impacts on the energy infrastructure in the US; for instance, that we would see changes in things like movement of oil by rail.  We would see changes in refinery configurations designed to deal with light sweet crude. The Gulf Coast refineries in the US over the past decade were upgraded to run heavy sour imports, and so there are issues with the ability of refineries in the US to handle rapid increases in light sweet crude oil production.

I noted at the time that at some point, policymakers were going to be confronted with all of these changes resulting from the enormous shift in thinking about US production growth.  Five or 10 years ago, everybody thought that US oil production would just go down, and demand would always go up. Now we have in the EIA’s forecast over the next five years very strong growth in crude oil production and weak growth—if not negative trends—going on in gasoline and liquid fuels demand.  This creates an interesting atmosphere.

Is lifting the crude export ban inevitable? I’m not sure that anything is inevitable. Certainly what I’ve learned in the last five years is that the inevitable declines in production and growth in demand didn’t come true.

Oilprice.com: What are the congressional hurdles faced here?

Adam Sieminski: I don’t know that there’s a hurdle. That’s a question that’s going to be dealt with by policymakers. Energy policy issues generally tend to involve environmental concerns, national security concerns, and economic concerns.  

The biggest hurdle that congress faces is just having good information on future trends in supply and demand, refinery configurations and pipeline and railroad transportation infrastructure.

Oilprice.com: What would be the consequences of lifting this ban, for the industry, for refiners, for consumers?

Adam Sieminski: Well, that’s going to be part of the debate. I don’t have the answer to that, and I doubt that anybody at this point has the complete answer to that question. What is the economic impact? Does it increase jobs or not? What is the environmental impact of producing, moving and refining the crude oil? What are the national security implications? Is it better to keep the oil here, or to move it into global markets where it might have an ameliorating effect on volatility? There are a lot of questions, so I’m not going to try to pre-judge that debate.

Oilprice.com: The EIA has noted that after two years of declining production, US coal output is expected to increase in 2014, forecast to rise almost 4%,  as higher natural gas prices make coal more competitive for power generation. At the same time, there is concern about the EPA’s proposed new carbon emissions standards for power plants, which would make it impossible for new coal-fired plants to be built without the implementation of carbon capture and sequestration technology, or “clean-coal” tech. Is this a feasible strategy in your opinion?

Adam Sieminski: Well, the facts as you laid them out are certainly what the EIA is looking at.  Natural gas prices have gone up, so in 2013, we already saw some recovery in coal at electric utilities. As a consequence, energy-related carbon dioxide emissions actually climbed in 2013 and probably are going to do so again in 2014 for the reasons that you stated.

Longer term, even without changes by the Environmental Protection Agency, there’ll be coal retirements, and the amount of coal being burned in the US will eventually come below the amount of electricity being generated by natural gas. So sometime after the year 2030, we will have more electricity in the US being produced from natural gas than from coal.

Oilprice.com: What can we expect from US onshore natural gas production over the next two years; over the next five years? And where will production increases offset declines?

Adam Sieminski: Well, the EIA has been pretty clear on this in our Annual Energy Outlook Reference case for 2014, which we published in mid-December. We reiterated what we said the previous year: natural gas production in the US is going to continue to grow very strongly. We are close to 70 billion cubic feet a day of output now. That number will be over 100 billion cubic feet a day by 2040. Shale gas will be easily 50% or more of production by 2040.

We also see increases in natural gas production from geologic formations that we don’t consider to be shale gas. We think that there might also be some production, believe it or not, from Alaska, because the economics ultimately will favor construction of an LNG facility in Alaska that would allow production from the associated gas in the North Slope of Alaska.

Just in the last five years, we’ve seen natural gas production in the US from shale go from about five billion cubic feet a day to nearly 30 billion cubic feet a day--a huge increase. A lot of that is coming from places like the Haynesville—and more recently the Marcellus in Pennsylvania and West Virginia. In our view, those production trends are going to continue without the likelihood of running into a plateau from a geologic standpoint.

Oilprice.com: How do you see future extraction, development and commercialization of oil and gas resources in the Americas playing out over the next 5-10 years?

Adam Sieminski: Well, the big new opportunities, I think--certainly in the US and Canada--lie in the development of shale resources. There are oil and gas shale resources in places like Argentina, Mexico, Columbia, and elsewhere across the Americas. Whether or not the very rapid development of shale resources in the US can be duplicated in a lot of other countries—even in the Americas—remains to be seen. Certainly there has been some interesting progress in developing shale resources in Canada and Argentina.

I’ve been hearing from many people that they’re quite hopeful there will be developments in shale in Colombia, and given the constitutional changes that have now been agreed in Mexico, that opens up an opportunity for Mexico to step into this area.

One of the things that is happening is the increase in oil production in the US and the fact that we have very sophisticated refineries with very strong technology, while relatively low natural gas prices are allowing us to run our refineries at higher utilization rates and dispose of surplus products—by exporting petroleum products like gasoline and diesel fuel—into Latin America and Canada.

In a sense, this creates a manufacturing opportunity for the US to take a raw material, process it, and sell it abroad. It also fits in pretty well with the fact that a number of countries in Latin America have had difficulty in building and upgrading their own refineries.  So it’s opened up a marketing opportunity for the United States to take advantage of.

Oilprice.com: What can we expect from Mexico’s recently adopted energy reforms and what regional effect could this have?

Adam Sieminski: Well the Mexican government and Pemex, the state oil company, are very excited about the opportunities they see for Mexico to increase its production and to take advantage of some of the new technologies that are available through cooperation with non-Mexican companies. They believe that it is going to be instrumental in reversing some of the difficulties they’ve had in oil production and natural gas production.

It certainly looks to the EIA as something that we’re going to have to watch very carefully when considering the longer-term outlook for Mexican energy production.

We actually bumped up the Mexican numbers because of the opportunities we think will be created by constitutional reform there. If the implementation of that proceeds along the lines that the Mexicans are considering, I think we’ll probably have to look at it again.

Oilprice.com: In its latest report, the EIA notes that the Americas accounted for 20% of global natural gas trade, and while 80% of that was via pipeline, the rest was traded as LNG. How do you see this proportion changing over the next 5-10 years?

Adam Sieminski: Well, I suspect that we’re going to see more of both. Our longer-term outlook shows US pipeline exports of natural gas to Mexico going up, and we also see LNG exports from the United States increasing. We’re not responsible for permitting. What we try to do is look at the economics. We run our national energy modeling system to basically say, “What would the economics do if you let them run?” And that shows we’re likely to see increases in exports of both LNG and pipeline gas.

Interestingly, the model also says that there’s plenty of production to do that and still allow demand in the US to go up considerably. We’re seeing demand increases in natural gas use by refineries; it’s a big refinery fuel. And in the industrial sector, we see significant gains in natural gas consumption occurring in areas like bulk chemicals, food processing, and elsewhere. And then the biggest increases in natural gas may come from electric utilities, which will likely be using more natural gas relative to coal to provide electricity growth in the United States.

Oilprice.com: Is the US Department of Energy moving too quickly or too slowly to approve LNG exports to non-FTA countries?

Adam Sieminski: I think that the Department of Energy’s Department of Fossil Energy, which is responsible for permits, is moving exactly the way it should under the law to make the kinds of findings necessary from a legal standpoint. I wouldn’t characterize it as too fast or too slow. I would say that from what I can see, it’s just right given the legal framework.

Oilprice.com: When could we expect the US to become a net gas exporter?

Adam Sieminski: The EIA’s forecast is that the US will become a net exporter of natural gas before the end of this decade.

We’re already a net exporter of coal. In terms of electricity, most of our trade is with Canada, and that never really seems to have been much of an issue. The US is also a net exporter of petroleum products, so we now export more gasoline and diesel fuel than we import. We import a lot of oil products, particularly into the East and West Coasts. But we are a big exporter, mostly from the Gulf Coast, with the increase in refinery utilization down there. The overall picture now is one in which the US trade deficit is being reduced by growing oil and petroleum product exports.

The only big outstanding question is: could the US potentially be a net exporter of crude oil? In the EIA’s Reference case forecast, that doesn’t seem likely. Despite the fact that our production is rising while demand is falling, we’re still importing about five million barrels a day net of of crude oil and products. It doesn’t seem likely that net importsd are going to go to zero--at least not given the facts as we currently see them. It’s possible, in a high petroleum resources case combined with a technology and policy-driven low demand case, but not probable.

One thing you want to keep in mind is what it would mean, exactly, if the US were completely self-sufficient in energy. Some people like to use the phrase, “energy independence.” We would still be part of a global trading system in energy, and particularly petroleum products and crude oil. And if oil prices go up globally, they’re going to go up in the United States. If there’s a geopolitical problem somewhere or a weather problem somewhere—anything—the US would be impacted just as it has always been. The US has a lot of interest in what’s going on around the world, in the Middle East and elsewhere, regardless of whether it is independent or self-sufficient in fuels. Those political and economic interests will remain whether we become an exporter or not.

Oilprice.com: What role will the expansion of the Panama Canal play in this?

Adam Sieminski: What they’re doing is widening the Panama Canal. They’ll make the Canal itself wider and the locks longer, and the net result will be the potential to save in transportation costs through the use of larger oil tankers and LNG tankers. This offers an opportunity to reduce the costs associated with global trade. It is something that I know Panama and all of the customers who use the Panama Canal are very interested in seeing happen. There have been some cost and labor issues, but I’m sure those will be resolved and this expansion will eventually be completed. When that happens, it’s going to reduce the cost of moving goods back and forth between the Atlantic and the Pacific, and that’s going to apply particularly to things like liquefied natural gas and oil.

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Soul Glow's picture

Boundless if we keep fracking and fucking up our water tables.

The Vineyard's picture

Listen carefully!  Natural gas will end up killing us all.  Bitches.

johnQpublic's picture

how much potable water will be left when we are done fracking the shit out of this country?

can we use contaminated water on our crops since we cant drink it?

just because humans will no longer be able to safely drink the water, does that mean we cant feed it to our cattle?

Cast Iron Skillet's picture

don't we want to eventually eat the crops & cattle?

thatthingcanfly's picture

Step away from the Koolaid bowl. Turn off the Matt Damon movie.

Fracking DOES NOT contaminate the water table. Fracking wells are encased in a double concrete plus single steel casing that penetrates several hundred feet below the aquifer, which usually ends at about 300 feed below the surface. Then, the well continues down several THOUSAND feet (the shallowest wells are between 4K and 6K feet) to where the hydrocarbons lie encased in the shale, before the well turns horizontal. The fracking water (not toxic, by the way) is recovered in pools above ground, and controlled in various ways - one of which is reuse. There is almost a zero probability that any of this work will contaminate the water aquifer.

All of this information is easily accessible. There is no reason for this Hollywood-dramatized paranoia about "dangerous fracking water" to cause any sensible person concern.

 

 

thatthingcanfly's picture

...and cue the down-arrows from ignoramuses who believe everything Al Gore and Matt Damon tell them.

Flakmeister's picture

Because guys like Exxon would never lie to us...

thatthingcanfly's picture

About something like this, it would be almost impossible to lie, as the industry is so heavily regulated by the States that any lie would immediately be exposed.

By the way, big names like Exxon aren't usually doing the drilling. E&Ps like Chesepeake, Halliburton, Cudd, etc. do the fracking, then sell the products to the Exxons and Shells, who are more into refining and distribution.

You need to do some reading.

SWRichmond's picture

as the industry is so heavily regulated by the States that any lie would immediately be exposed.

Like the banks are so heavily regulated and their lies were exposed right away?  uh huh.  Find another justification, this one doesn't hold water.

thatthingcanfly's picture

You're making the mistake of comparing apples to oranges. Unlike the banking & investment sectors, which are regulated at the Federal level, Oil & Gas exploration and production are regulated by the States. This is an enormous difference! State governments are, in generality, much more responsive to activities going on in their own backyards - think decentralization. The E&P companies, in most states, are subjected to high scrutiny. This is completely unlike the banking sector.

SRSrocco's picture

Of course everyone is missing the real problem. Citi research stated in their 2013 report that the annual decline rate for the US natgas industry is 24%.  Which means the shale gas industry has to replace nearly 100% of all production in 4 years. 

Fracking is the least of our troubles . Four of the shales gas fields have peaked and are in decline. Watch for serious trouble in the US natgas industry in the next few years  

The EIA will have to pull their foot out of their mouth when US natgas production peaks decades sooner than they have forecasted. 

thatthingcanfly's picture

This must be why there is a shitload of new frack wells being drilled this year. My company supplies proppant sand to the E&Ps, and we've been slammed with orders since mid-December. It's not predicted to slack off throughout 2014 (and that's about as far out as we dare predict, given the turbulence).

It's my growing concern that this shale play will be a proverbial "flash in the pan" that, as you put it, will peak decades sooner than forecast.

Then what?

More exploding wind turbines?

Flakmeister's picture

Ah... Full disclosure at last...You should have said you were simply talking your book...

Thats ok, you gotta put food on the table. But it also means that you cannot be counted upon for any objective viewpoint...

SRSrocco's picture

Flak.... who are you referring to?  If you are talking about my book.... you must mean the data. Decline rates and simple math do not lie.  

Flakmeister's picture

I am referring to someone just admitting that their toast is buttered by the fracking industry...

Not sure how you missed who I was replying to...

thatthingcanfly's picture

Ugh. More ad hominem. I wish logic and reasoning were still taught in school.

OK, here's a free lesson: Go to Wikipedia and search for "logic fallacies." Read it all. Take your time. Pay particular attention to the discussion on how attacking a character flaw or the objectivity of an argument's apologist, rather than the argument itself, is one the lowest, most embarassing forms of argumentation, and brands you a blithe idiot for engaging in such.

Then, come back and, if you have a reasoned critique of my central argument, present it. Until then, please do not post on Zerohedge.

 

Flakmeister's picture

You apparently have no idea what ad hominem means...

Assume you were judge hear a fracking related case involving company which you held a substantial position in...

You would recuse yourself if you had any integrity...

Likewise, your opinion about fracking cannot be objective if you clearly have vested interests...

Sorry...

thatthingcanfly's picture

You are so stupid I cannot believe your brain has the wherewithal to keep telling your heart to beat once per second.

I'm NOT a JUDGE in a fracking case. I'm not even a JUROR.

I may be a WITNESS, though.

Am I getting through to you at all?

Flakmeister's picture

I don't know whether to laugh or cry...

Flakmeister's picture

Do you even think about what you post? 

http://corporate.exxonmobil.com/en/engineering/hydraulic-fracturing

but of course, the Exxon CEO gets real NIMBY about things like that

http://rt.com/usa/exxon-ceo-fracking-lawsuit-180/

http://online.wsj.com/news/articles/SB1000142405270230489970457939118146...

----

BTW, Exxon spent $2,000,000 on a pro fracking ad campaign

http://www.pressconnects.com/article/20130330/NEWS11/303300030/Exxon-Mob...

Ironically, Mann's orginal hockey stick paper cost at most 1/10 of that to fund it. Why couldnt they find some one competent to show AGW is the wrong conclusion if they are willing to throw that cash around???

thatthingcanfly's picture

Do you?

Of course Exxon will spend money advertising the benefits of fracking. Of course they have a page on their URL addressing the public concerns regarding the practice. Of course they get sued a lot. You have not refuted anything in my earlier posts.

superflex's picture

He's the king of Alinsky tactics.

Demonize then change the subject

Leave the troll alone

thatthingcanfly's picture

I've noticed.

However, false information regarding fracking is so ubiquitous today that I think even when an increcible (as in "not credible") troll like flak mouths off about it, somebody should correct the record.

thatthingcanfly's picture

The Wasthington Post should have done their homework a little better. The Dimock, PA case got a lot of press; but the fracking-related methane contamination of the water supply was ultimately unsubstantiated. Turns out the methane levels in that region had always been elevated - even before the residents welcomed the Cabot company to town. Then, a few residents decided to file a get-rich-quick class action lawsuit against Cabot, claiming it was all their fault. The lawsuit was not successful.

 

Flakmeister's picture

Pimping for your company is ok though...

\facepalm

thatthingcanfly's picture

You're an idiot. Go read about logical fallacies.

Flakmeister's picture

Why is that I can spot and call out all the bullshitters here whereas clowns like you are always reduced to slurs and slanders...

As for the Exxon reference, you must have a reading comprehension problem...

And your buddy seems to have forgotten that Exxon dropped a whole bunch of cash on XTO energy ($41 billion) in part to acquire proprietary fracking technology...

http://www.marketwatch.com/story/exxon-mobil-to-buy-xto-energy-in-41-bil...

http://xtoenergy.com/index.html

Go away, we all know who the real troll is...

LMAOLORI's picture

 

 

@thatthingcanfly

 

+1.  We need energy and we need money to pay off the national debt which we could get by utiziling our assets. Fracking in PA replaced the amount of water that was used by the steel industry and we didn't run out of water from that. On top of that lack of energy also pushes up the prices of the other things we need like food.

And...

"Currently, a handful of facilities in Pennsylvania are approved to treat the wastewater. More plants, purpose-built for the task, are planned. In the meantime, most companies now recycle this water to drill their next well."

Federal Assets Above and Below Ground

"The exact size of the lootIt totals $128 trillion in recoverable oil and natural gas, according to the Washington, D.C.-based Institute for Energy Research (IER). To put that $128 trillion sum in perspective, we could use a mere 13 percent of it to pay off the entire US national debt. Indeed, that $128 trillion is almost 35 times greater than federal expenditures for fiscal year 2014, and more than seven times the annual US GDP.

The people  claiming it will contaminate all the water also seem to believe in gloBULL warming and think fracking sand is so harmful to us all.

It's doubtful however that any amount of common sense will be used by these types of people.

"One aspect of liberalism with which I am now very familiar is political correctness. I didn’t understand it at the time, not until I stepped outside the cultism of it and looked in from a wiser place. It always bothered me, but I couldn’t quite grasp why until later. Then, it hit me like a revelation. Political correctness was not a political ideology. No, it was a religion, a full-fledged spiritual con, a New Age ghetto of frothing mishmash that is sociological voodoo. And the leftists were eating it up like steak night at an all-you-can-eat buffet.

These people were rationally retarded. Every idea they proposed they merely parroted from books and articles they had read. They were like malfunctioning automatons trapped in a cycle of discontented social criticism. Their desperation to invent meaning in the midst of their irrelevant lives made me feel ill. If they could not find a legitimate cause to champion, they would create one out of thin air and defend it relentlessly, regardless of how shallow it truly was."

 

Flakmeister's picture

You lost all credibility when you said "pay off the debt"....

National debts are never paid off. They are only defaulted on...

thatthingcanfly's picture

He didn't lose "all" credibility, you blithe idiot. Though he may have one thing wrong.

There are two obvious ways out of our current debt crisis. 1: Default. 2) Inflate the debt away = hyperinflation.

Flakmeister's picture

If you think that he only got one thing wrong, you are in clearly way over your head...

thatthingcanfly's picture

You speak in absolutes: He lost ALL credibility. I'm in WAY over my head. Blah blah blah.

This makes you look like a fool.

And you still refuse to address the central argument.

thatthingcanfly's picture

I'd recommend you read James Burnham's 1964 "The Suicide of the West." In it, he observes that liberalism is the ideology of Western suicide. Once one grasps this concept, all the seemingly incoherent positions taken by liberals begin to make sense.

For example, the liberal position in favor of unrestricted abortion "rights," which result in the deaths of 1.3MM of our most innocent people in the US each year seems inconsistent with the liberal opposition to capital punishment for our worst-of-the-worst guilty felons. But if the goal is the death of the West, these diametrically opposed positions suddenly seem completely coherent.

I'd also recommend subscribing to Chronicles Magazine out of Rockford IL. These guys are the real deal paleoconservatives. Thomas Fleming is one of the most brilliant (and underrated) thinkers of our time.

Flakmeister's picture

Why don't you stick to the Fox News website boards, I am sure that you will enjoy that echochamber more than here where shills, neocons and thier ilk will get called out...

Toodles...

thatthingcanfly's picture

More ad hominem. You refuse to address the central argument.

For the third time, go read up on logical fallacies. You are making a fool of yourself.

Flakmeister's picture

Yeh, I have foolishly wasted far too much time bandying words with someone that can't realize or understand that he is simply pimping his position....

thatthingcanfly's picture

You Randian objectivists are too stupid to live. You ACTUALLY think that because I'm employed in a particular sector, anything I say regarding that sector must, ipso facto, be treated as suspicious. This is a logical fallacy - one Queen Ayn never understood.

Bunders's picture

God damnit The Vineyard, your gibberish blog doesn't even mention natural gas, I went through the whole fucking thing searching for a natural gas reference but no, not one. Some Dragon Lady gets a starring role and whatever you've watched on TV seems to be about all that's on there. Honestly, it reads like the output of an experiment in AI.

"Anyway, I've shot my load.  My mind is blank." - April 10, 2013

Yeah, that about sums it up for me. Please stop spamming.

"Supernatural might be the dumbest show on television.  Nevertheless, I love it."

No shit, Supernatural accounts for about 99% of the instances of the word "natural" on your blog. Not one single fucking mention of natural gas though.

"Zerohedge:  My favorite idolaters" - Sunday, December 30, 2012

idolaters? I don't even want to know.

Crawdaddy's picture

Context is important with nuts on the table

Jumbotron's picture

I swing back and forth between stark raving anger and bemused bewilderment that these so called experts start spouting off about boundless anything.

But if true.....when nat gas is "boundless" the price will drop to a point that margins are compressed and the market collapses.

If not "boundless" then the price rises and negates any savings over coal.

But in order to make it "boundless" you have to destroy the water tables and create earthquakes.....not to mention where are you going to store the toxic sludge to get at those "boundless" stores.  Plus flaring off excess the more "boundless" it gets because you've run out of storage.

<sigh> we really are in the insane asylum.

Flakmeister's picture

This sums it up better than anything I have ever read showing the complete fucking disconect between Economists and reality...

http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/

pragmatic hobo's picture

you don't really think the recent price spike in nutural gas has anything to do with supply/demand, do you?