EIA Outlook Reflects Ongoing Transition in Energy Markets

December 17, 2007 // Published as a news service by IHS

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The U.S. Department of Energy (DOE) Energy Information Administration (EIA) Annual Energy Outlook 2008 (AEO2008) reference case includes several changes from earlier AEOs to better reflect trends in the economy and energy markets that are expected to persist, said EIA.

According to EIA, energy markets are changing in response to the higher energy prices experienced since 2000, the greater influence of developing countries on worldwide energy requirements, recently enacted legislation and regulations in the U.S. and changing public views related to the use of alternative fuels, emissions and the acceptability of various energy technologies.

EIA has raised the world oil price path in the AEO2008. In the last few years, global economic growth has been strong, despite high oil prices, said EIA.

While current oil prices are above EIA reference case projection of long-run prices - driven by shortages of experienced personnel, equipment and construction materials in the oil industry, political instability in some major producing regions and strong economic growth in developing nations - it now appears that in the mid-term the cost of liquids will be higher than previously projected.

In the AEO2008 reference case, real (2006 dollars) world crude oil prices decline gradually from current levels to $58 per barrel in 2016, as expanded investment brings new supplies to the world market. After 2016, real prices rise as higher cost supplies are brought to market. In 2030, the average real price of crude oil is $72 per barrel in 2006 dollars, according to the report.

As result of higher energy prices and slower U.S. economic growth (gross domestic product grows at 2.6% per year between 2006 and 2030 in AEO2008 compared to 2.9% per year in AEO2007), total primary energy consumption in the AEO2008 reference case grows more slowly then in previous AEOs, increasing at an average rate of 0.9% per year, from 100.0 quadrillion British thermal units (quads) in 2006 to 123.8 quads in 2030 - 7.4 quads less than in the AEO2007 reference case.

The AEO2008 reference case projects greater renewable energy use than AEO2007. Marketed renewable energy consumption between 2006 and 2030 grows from 6.8 to 12.2 quads, compared with 9.9 quads in the AEO2007 reference case.

The higher level of renewable energy consumption is partially a result of higher energy prices in the AEO2008 reference case, but it also reflects a revised representation of state renewable portfolio standards said EIA. The updated representation of these programs results in significant additional growth of renewable generation from wind, biomass and geothermal resources.

Without changes in current carbon emissions policies that are not assumed in the AEO2008 reference case, carbon dioxide (CO2) emissions grow sharply, but to lower levels than in AEO2007 because of lower primary energy consumption. Energy-related CO2 emissions are projected to grow by 25% in the AEO2008 between 2006 and 2030, compared to 35% in the AEO2007 reference case.

Other highlights of the AEO2008 reference case projections include:

• U.S. crude oil production increases from 5.1 in 2006 to a peak of 6.4 million barrels per day (MB/D) in 2019, as a result of increased production from the deep waters of the Gulf of Mexico and onshore enhanced oil recovery projects. Domestic production subsequently declines to 5.6 MB/D by 2030, as increased production from new smaller discoveries are inadequate to offset the declines in large fields in Alaska and the Gulf of Mexico.
• Between 2006 and 2010, the net import share of total liquids supplied drops from 60 to 55%; it stays relatively stable through 2020 before increasing to 59% in 2030.
• Total domestic natural gas production increases from 18.6 to 20.2 trillion cubic feet (TCF) between 2006 and 2021, before declining to 19.9 TCF in 2030. Lower 48 offshore natural gas production grows from 3.0 TCF in 2006 to a peak of 4.5 TCF in 2019 as new resources come online in the Gulf of Mexico. After 2019, lower 48 offshore production declines to 3.5 TCF feet in 2030.
• The Alaska natural gas pipeline is completed in 2020. After the pipeline begins operation, total Alaskan natural gas production increases from 0.4 TCF in 2006 to 2.0 TCF in 2021 and then to 2.4 TCF in 2030 as the result of a subsequent expansion.
• The projected average fuel economy of new light-duty vehicles in 2030 is 30.0 miles per gallon (MPG), or 4.7 MPG higher than the average in 2006. Projected increases in new vehicle fuel economy reflect the existing Corporate Average Fuel Economy (CAFE) standards for light trucks, as well as the increased sale of flex-fuel, hybrid and diesel vehicles and a slowdown in the sales of new light trucks. The substantial revisions to CAFE standards that are under consideration in the 110th Congress are not reflected in the AEO2008 reference case.
• Ethanol consumption grows from 5.6B gallons in 2006 to 13.5B gallons in 2012, far exceeding the required 7.5B gallons in 2012 in the Renewable Fuel Standard enacted as part of the Energy Policy Act of 2005. It grows to 17B gallons in 2030. Almost all of the ethanol is used in gasoline blending.
• Total electricity consumption, including both purchases from electric power producers and on-site generation, grows from 3,821B kilowatthours (kWh) in 2006 to 5,149B kWh in 2030, increasing at an average annual rate of 1.3% in the AEO2008 reference case.
• The natural gas share of electricity generation (including generation in the end-use sectors) remains between 20% and 21% through 2018, before falling to 14% in 2030. The coal share declines slightly, from 49% in 2006 to 48% in 2017, before increasing to 55% in 2030.
• Nuclear generating capacity increases from 100.2 gigawatts (GW) in 2006 to 118.8 GW in 2030. The increase includes 20 GW of capacity at newly built nuclear power plants and 2.7 GW expected from uprates of existing plants, partially offset by 4.5 GW of retirements.

The reference case projections from the AEO2008 and an overview of the results are available on the EIA web site. The reference case represents a baseline projection under existing policies and a given set of assumptions regarding economic, energy market and technology conditions, said EIA.

The full AEO2008 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 2008, along with regional projections and a report on the major assumptions underlying the projections.

Source: Energy Information Administration (EIA).