EIA Predicts Energy Market Shift towards Nuclear, Biofuels

December 11, 2006 // Published as a news service by IHS

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The U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2007 (AEO2007) reference case report. According to EIA, the report reflects the evolution of energy markets in an era of high prices and makes the following projections:

• Growth in nuclear capacity and generation.
• More biofuels (both ethanol and biodiesel) consumption.
• Growth in coal-to-liquids (CTL) capacity and production.
• Growing demand for unconventional transportation technologies.
• Accelerated improvements in energy efficiency throughout the economy.

According to the EIA AEO2007, coal and natural gas are projected to provide roughly the same 86% share of the total U.S. primary energy supply in 2030 as they did in 2005 absent changes in existing laws and regulations. This reflects a situation in which rapid growth in the use of biofuels and other non-hydro renewable energy sources begins from a very low current share of total energy use.

The share of the electricity market supplied from nuclear power falls despite projected new plant builds, and hydroelectric power production, which accounts for the bulk of current renewable electricity supply, is stagnant.

Projected energy prices and recently enacted public policy help to support greater use of alternative fuels, such as ethanol, biodiesel and CTL. The EIA AEO2007 reference case projects that ethanol use grows from 4 billion gallons in 2005 to 11.2 billion gallons in 2012 and 14.6 billion gallons (about 8% of total gasoline consumption by volume) in 2030. Projected ethanol consumption in 2012 far exceeds the 7.5 billion gallon requirement of the Renewable Fuel Standard enacted as part of the Energy Policy Act of 2005 (EPACT 2005).

Alternative sources of distillate fuel are also projected to grow to over 7% of the total distillate pool by 2030, when consumption of biodiesel, also supported by tax credits in EPACT 2005, reaches 0.4 billion gallons and distillate produced from CTL reaches 5.7 billion gallons.

The EIA AEO2007 reference case also reflects growing penetration by unconventional vehicle technologies. Sales of flex-fuel vehicles, which are capable of using gasoline and E85, are projected to reach 2 million per year in 2030. Sales of hybrids, including both full and mild hybrids, are also projected to reach roughly 2 million per year by 2030, while diesel vehicles sales could reach 1.2 million.

Including other unconventional technologies such as electricity and fuel cells, in total these vehicle technologies account for almost 28% of projected total new light-duty vehicles sales in 2030, up from just over 8% in 2005.

The EIA AEO2007 reference case projects that total operable nuclear generating capacity will grow to 112.6 gigawatts in 2030, including 3 gigawatts of additional capacity uprates and 12.5 gigawatts of new capacity. Total nuclear generation is projected to grow from 780 billion kilowatt hours (kwh) in 2005 to 896 billion kwh in 2030, but the nuclear share of generation falls from 20% in 2005 to 15% in 2030.

Natural gas consumption is projected to grow to 26.1 trillion cubic feet (tcf) in 2030, well down from projected consumption of 30 tcf or more that had been included in the EIA AEO reference case only a few years ago. Much of this change results from projected natural gas prices that significantly cut the expected growth natural gas use for electricity generation over the last decade of the projection period.

In the EIA AEO2007 reference case, overall natural gas consumption is almost flat between 2020 and 2030, as growth in residential, commercial and industrial consumption over this period is nearly offset by a decline in projected gas use for electricity generation.

Coal is projected to play a growing role in the EIA AEO2007 reference case, particularly for electricity generation. Coal consumption is projected to increase from 22.9 quadrillion British thermal units (quads) in 2005 to over 34 quads in 2030, with significant additions of new coal-fired generation capacity over the last decade of the projection period.

The projections for coal use are particularly sensitive to the underlying assumption for the reference case analysis that current energy and environmental policies remain unchanged throughout the projection period.

Other highlights of the EIA AEO2007 include:

• Total energy demand is projected to increase from 100.2 to 131.2 quads between 2005 and 2030, an average annual increase of 1.1%, in a scenario where the U.S. gross domestic product (GDP) grows at an average annual rate of 2.9%.
• Real world crude oil prices (2005 dollars), which are expressed in terms of the average price of imported light low-sulfur crude oil to U.S. refiners, are projected to decline gradually from their 2006 average level through 2015 as new supplies come to market in response to the higher prices and expanded exploration and development investments.

  After 2015, real prices begin to rise as demand continues to grow and higher cost supplies are brought to market. In 2030, real world crude oil prices are projected to reach over $59 per barrel in 2005 dollars, or about $95 per barrel in nominal dollars.

• The net import share of total liquids supply, including crude oil and refined products, drops from 60% of total liquids supply in 2005 to 54% in 2009 and then increases, reaching 61% in 2030. Imports of refined petroleum products account for 20% of total net imports in 2030.
• Average real natural gas wellhead prices are projected to fall from today's high levels to just under $5 per thousand cubic feet (mcf) (2005 dollars) by 2013 as increased drilling brings on new supplies and new import sources become available. After 2013, natural gas wellhead prices are projected to increase gradually to about $6 per mcf in 2030 (equivalent to $9.63 per mcf in nominal dollars).
• Major contributors to growth in natural gas supply include liquefied natural gas (LNG) imports, the completion of an Alaskan natural gas pipeline in 2018 and domestic unconventional production. Net LNG imports are projected to increase from 0.6 tcf in 2005 to 4.5 tcf in 2030. Alaskan production reaches 2.2 tcf by 2030, and unconventional production grows to 10.2 tcf in 2030 accounting for 50% of domestic U.S. natural gas production in 2030.
• Projected real minemouth coal prices fall from $1.15 per million Btu ($23.34 per ton) in 2005 to $1.08 per million Btu ($21.51 per ton) in 2019 as prices moderate following the rapid run up that has been seen in last few years and relatively low-cost Western mines continue to capture a larger share of the market. After 2019, the growing use of coal in new power plants leads to a gradual increase in coal prices. They reach $1.15 per million Btu ($22.60 per ton) in 2030.
• Coal use for new electric generating capacity and CTL production grows rapidly. Coal consumption in the electric power sector is projected to increase from 25.1 quads in 2020 to 31.1 quads in 2030 and coal use at CTL plants is projected to increase from 0.4 quads in 2020 to 1.8 quads in 2030. Projected coal consumption is very sensitive to possible future changes in energy or environmental policies that are not reflected in the EIA AEO2007 reference case.
• After reaching a peak of 8.3 cents per kwh in 2006, average delivered real electricity prices decline to a low of 7.7 cents per kwh in 2015 and then increase to 8.1 cents per kwh in 2030. Without adjustment for inflation, average delivered electricity prices in the EIA AEO2007 reference case are projected to reach 13 cents per kwh in 2030.
• Coal remains the primary fuel for electricity generation. The coal share of generation increases from 50% in 2005 to 57% in 2030. The natural gas share of generation increases from 19% in 2005 to 22% around 2016, before falling to 16% in 2030.

  Over the entire period from 2005 to 2030, 156 gigawatts of new coal-fired generating capacity are projected to be added in the EIA AEO2007 reference case, including 11 gigawatts at CTL plants and 67 gigawatts at integrated gasification combined cycle plants. Possible future changes in energy or environmental policies could significantly impact these projected generation shares.

• Consumption of renewable fuels is projected to grow from 6.5 quads in 2005 to 10.2 quads in 2030. More than 50% of the projected demand for renewables is for grid-related electricity generation, including combined heat and power, and the rest is for dispersed heating and cooling, industrial uses and fuel blending.
• Carbon dioxide emissions from energy use are projected to grow at an average annual rate of 1.2% per year, from 5,945 million metric tons in 2005 to 7,950 million metric tons in 2030, reflecting growth in fossil fuel demand. The carbon dioxide emissions intensity of the U.S. economy is projected to fall from 538 metric tons per million dollars of GDP in 2005 to 353 metric tons per million dollars of GDP in 2030, an average decline of 1.7% per year.

The reference case projections from the EIA AEO2007 and an overview of the results are available at www.eia.doe.gov/oiaf/aeo/index.html. The reference case represents a baseline projection under existing policies and a given set of assumptions regarding economic, energy market and technology conditions.

The full EIA AEO2007 report, including projections with differing assumptions on the price of oil, the rate of economic growth and the characteristics of new technologies, will be released in early 2007, along with regional projections and a report on the major assumptions underlying the projections.

Source: U.S. Energy Information Administration (EIA).