Cheap natural gas will drive a U.S. industrial expansion through 2025, according to the federal government's top energy analysts, as the United States' changing consumption patterns carve out bigger roles for gas and renewable energy through 2040.

Yesterday's early release of the Energy Information Administration's 2013 projections for U.S. supply and demand said fuel efficiency standards for cars and trucks and cleaner sources of electricity will ratchet down greenhouse gas emissions, building on a trend that took root in the past couple of years. Meanwhile, the United States is just gearing up for a sharp increase in crude oil production during the coming decade.

The U.S. energy mix is changing primarily because of a drilling boom that helped drive down natural gas prices starting in late 2008, creating an alternative to coal as the dominant fuel source for power generators.

EIA Administrator Adam Sieminski characterized natural gas prices as "the most significant part of those changes," referring to the sharp decline in coal-fired power generation, "rather than pollution controls that have been imposed on the industry generally."

Assuming no major policy shifts, natural gas will account for 30 percent of U.S. power generation in 2040 under the EIA's projection. Coal will account for 35 percent of that pie as it continues to compete with gas, and renewable energy will account for 16 percent of power generation. Electricity consumption will grow by about 0.9 percent a year through 2040, according to EIA.

The agency assumes higher gas production, with shale gas accounting for at least half of domestic production in 2040, and predicts the United States will become a net gas exporter. Industrial-sector gas use, particularly by bulk chemical makers, will grow 16 percent through 2025.

The nation's stubborn economic malaise also has created incentives to save energy. And the combination of newly enacted tougher vehicle efficiency standards and the fruits of a technology-driven oil boom in Texas and North Dakota is expected to keep driving down U.S. oil imports.

EIA's latest take on the future of U.S. energy supply and demand comes on the heels of a series of reports by influential energy analysts underscoring a single theme: The U.S. shale oil and gas boom will reshape global energy markets and boost the economy.

Late last month, the Paris-based International Energy Agency made a splash by predicting the United States could be the world's top oil producer as early as 2017, surpassing Saudi Arabia and Russia (EnergyWire, Nov. 13). Private-sector consulting firms such as IHS and Navigant Consulting and bullish analysts at Goldman Sachs put few restrictions on the United States' capacity to drill and deliver record amounts of oil and gas from onshore fields for decades to come.

Russia and Saudi Arabia in the first half of 2012 each produced about 10 million barrels a day. By comparison, the United States averaged 6.2 million barrels a day. "Let's just think about the next 15 years. Levels between Saudi Arabia and the U.S. might actually look fairly similar," said Sieminski, a former chief energy economist for Deutsche Bank who took the helm at EIA in June.

The United States is "clearly making gains," he added. "But Saudi Arabia is still an incredibly important linchpin in global oil markets."

"Continuing investment in energy generally, and oil specifically," Sieminski said, "is going to be required around the world to meet the growing needs of consumers in Asia, the Middle East and Latin America, whether the U.S. becomes self-sufficient or energy independent or not."

'Sweet spots' in the oil patch

In the near term, analysts at Standard & Poor's Ratings Services said yesterday they expect 2013 gas production to chug along, despite prices that still make it hard for many producers to profit after paying off mounting debts.

"Despite the drop in gas-focused drilling, we don't expect a big drop in near-term gas production," said Ben Tsocanos. "The big reason is associated gas tied to oil and other liquids."

Companies that had pioneered unconventional "dry gas" production through a process of horizontal drilling and hydraulic fracturing in giant shale formations in Texas, Louisiana and Pennsylvania are shifting some rigs to areas richer in crude oil and gas liquids used in industrial chemicals production.

The international Brent crude oil price continues to hover around $110 a barrel. That price is expected to average about $96 a barrel in 2015 and reach $163 a barrel in 2040 "as growing demand leads to the development of more costly resources."

Oil and gas wells drilled more than a mile into dense shale-rock formations tend to decline fast after big initial spurts of production. EIA analysts acknowledged yesterday that decline curves prop open the door to questions about future production, particularly in untapped basins where companies are discovering the geological and technological limits of going after tight oil.

"There have been some places that have not lived up to high expectations," Sieminski said. "We'll see how all of this works out. I think we'll just need more time to think about what these numbers are really going to look like."

The high cost of producing oil out of tight geological formations is a challenge for the industry, and without technology breakthroughs -- EIA analysts see advancements but no major breakthroughs on the horizon -- companies could limit their exposure to wells that come up short.

"One of the things that could make a huge difference to cost structure in the industry is targeted fracturing, only fracturing in the sweet spots," Sieminski said. "If the cost structure changes, then we could see more production."

EIA oil and gas analyst John Staub said the industry needs about three or four years of data to better predict production. In the Bakken Shale formation in North Dakota, he said, the estimated long-term oil recovery per well is less than 350,000 barrels. "You hear much higher numbers highlighted," Staub said. "There are really good wells, but it's not all of them."

Assuming no major energy policy changes or a massive economic recession, energy use in the U.S. transportation and residential sectors is expected to remain fairly flat. Industrial and commercial energy use will see a sharper increase through 2040.

Under the base EIA scenario, the U.S. economy's energy intensity, carbon emissions intensity and per-capita energy use are all projected to decline. Carbon emissions per dollar of gross domestic product will decline 56 percent from 2005 through 2040 at an annual rate of 2.3 percent. While the U.S. population will grow by 30 percent, energy use will only grow 10 percent.

According to the chief energy analyst, the United States is not expected to return to its 2005 peak of 6 billion metric tons of carbon dioxide emissions. In 1990, the United States was contributing about 5 billion metric tons of carbon into the atmosphere.

"It wouldn't take a huge amount of change in our underlying assumptions to make that number look a little different," Sieminski said.