Many key uncertainties in the AEO2013 projections are addressed through alternative cases
The Energy Information Administration’s (EIA) Annual Energy Outlook 2013 (AEO2013) presents long-term projections of energy supply, demand, and prices through 2040, based on results from EIA's National Energy Modeling System. This Monday marked the first stage of its release. This included publication of the “Market trends” section, which summarizes projections for energy markets under a Reference case, which assumes current laws and regulations, as well as alternative scenarios, including higher and lower levels of macroeconomic growth and resource availability.
Future levels of natural gas prices depend on many factors, including macroeconomic growth rates and expected rates of resource recovery from natural gas wells. Higher rates of economic growth lead to increased consumption of natural gas (primarily in response to higher levels of housing starts, commercial floorspace, and industrial output), causing more rapid depletion of natural gas resources and a more rapid increase in the cost of developing new production, which push natural gas prices higher. The converse is true in the Low Economic Growth case.
A lower rate of recovery from oil and gas wells implies higher costs per unit and higher prices. A higher rate of recovery implies lower costs per unit and lower prices. In comparison with the Reference case, the Low Oil and Gas Resource case assumes lower estimated ultimate recovery (EUR) from each shale well or tight well. The High Oil and Gas Resource case represents a more extreme case, with higher estimates for recoverable crude oil and natural gas resources in tight wells and shale formations and for offshore resources in the lower 48 states and Alaska.
Both the Henry Hub spot price and the Nymex May futures price recorded increases in the report week (Wednesday, April 10, to Wednesday, April 17). Spot natural gas prices at Henry Hub increased by 17 cents, ending the report week at $4.24 per MMBtu, the highest level since August 4, 2011. Similarly, the Nymex May futures price rose from $4.085 per MMBtu last Wednesday to $4.214 per MMBtu yesterday. During the week, the futures price spread over the Henry Hub daily spot price averaged between -9 and 3 cents per MMBtu. The 12-Month Strip (average of May 2013 to April 2014 contracts) gained 13 cents per MMBtu, starting at $4.239 per MMBtu last Wednesday and landing at $4.365 per MMBtu yesterday.