New modelling by the Energy Information Administration (EIA) shows that the U.S. will make significant progress in emissions reduction thanks to the passing of the Inflation Reduction Act (IRA). But because the U.S. will remain a net exporter of natural gas and oil until 2050 under most scenarios, there will be a limited impact on upstream gas production.

The Annual Energy Outlook 2023 (AEO) presents an assessment by the EIA for energy markets through 2050.

This year’s outlook showed that by 2030, energy-related CO2 emissions will fall 25-38 per cent below 2005 levels.

This puts the United States closer to achieving its nationally determined contribution (NDC) towards the Paris agreement of cutting net GHG emissions 50-52 per cent below 2005 levels by 2030. This is progress — the 2021 outlook reference scenario showed a 20 per cent decline below 2005 levels.

Impact on natural gas demand

The EIA models 13 different scenarios as part of the AEO. In the EIA reference scenario, the largest cuts in emissions come from coal-fired power generation reductions. But petroleum and natural gas demand are also projected to fall between now and 2050, with the level of reduction dependent on the scenario.

Natural gas demand is especially tricky to model. Domestically in the U.S., the two biggest consumers of natural gas are the power and industrial sectors, which account for around 70 per cent of natural gas consumption. Technologies incentivized by the IRA — including green hydrogen and large-scale battery storage — have the potential to disrupt these two sectors.

This makes projecting gas demand very sensitive to low-carbon technology uptake. There is a 3.5 tcf difference between 2050 natural gas demand in the two sectors in the EIA’s low IRA uptake (20.65 tcf) and high IRA uptake (17.16 tcf) scenarios — a number approximately equivalent to the U.K.’s entire annual gas demand.

Across the entire U.S. economy, the EIA’s modelling shows that under its low cost zero carbon technology scenario gas demand falls nearly 23 per cent from 2022 levels of 29.89 tcf to 23.1 tcf in 2050, while in the high cost zero carbon technology scenario it rises to 30.49 tcf.

The country could be looking at a 6.8 tcf reduction in gas demand — a number almost twice the U.K.’s entire annual gas demand— a very small increase, or most likely something in between.

Rising production

By contrast, dry gas production rises under both scenarios — by six per cent to 38.6 tcf in the low carbon technology scenario and by 21 per cent to 44.22 tcf in the high cost zero carbon technology scenario. In fact, production increases in nine of the 11 scenarios.

The EIA modelling shows zero carbon technology deployment is expected to reduce demand for natural gas but not supply (see chart).

Deployment of zero carbon technology reduces gas demand but not production

LNG to the rescue

Under both the low IRA uptake and high IRA uptake scenarios, LNG exports more than double from 2022 levels of four tcf. In the low uptake scenario, exports rise to 9.18 tcf annually. In the high uptake scenario, 10.38 tcf of LNG is shipped overseas each year.

“Exports satisfy growing international demand for natural gas and encourage growth in domestic natural gas production,” said Angelina LaRose, assistant administrator for energy analysis, in presenting the EIA modelling. “A significant proportion of production growth is to [satisfy] LNG export demand.”

Global LNG demand is expected to grow out to 650-700 million tonnes annually by 2040, up from 400 million tonnes last year. The U.S. is expected to supply a significant proportion of this growth.

Canadian connection?

Will any of this export gas come from Canada, through U.S. pipes to U.S. LNG terminals?

No more so than currently, according to the EIA data. Pipeline imports from Canada fall between now and 2050 under all 13 scenarios modelled by the EIA.

Canada could be exporting more of its own LNG by then. The Canada Energy Regulator created its own evolving policies scenario last year that showed gas production staying relatively flat at around 5.5 tcf annually through the next two decades, even as domestic natural gas demand declines from around 4.75 tcf in 2021 to 3.1 tcf in 2050.

Under that same scenario LNG exports also rise to 1.4 tcf in 2050 from today’s negligible levels as Canada follows the U.S. strategy of producing gas to sell overseas.

Addressing Scope 3 emissions resulting from combustion of gas produced in the North American upstream will increasingly be the responsibility of global importers, not of Canada and the U.S. themselves.