The Energy Information Agency (EIA) has just issued its Annual Energy Outlook 2013 (AEO2013) Reference case, which highlights a growth in total U.S. energy production that exceeds growth in total U.S.energy consumption through 2040. In the report EIA sees oil reaching $269 a barrel in 2040 in the worst case analysis, but in the best case analysis oil will we below $100 a barrel in 2040. See the webcast here.
“EIA’s updated Reference case shows how evolving consumer preferences, improved technology and economic changes are pushing the nation toward more domestic energy production, greater vehicle efficiency, greater use of clean energy and reduced energy imports,” said EIA Administrator Adam Sieminski.
“This combination has markedly reduced projected energy-related carbon dioxide emissions,” said Mr. Sieminski.
AEO2013 offers a number of key findings, including:
Crude oil production, especially from tight oil plays, rises sharply over the next decade. Domestic oil production will rise to 7.5 million barrels per day (bpd) in 2019, up from less than 6 million bpd in 2011. The advent and continuing improvement of advanced crude oil production technologies continue to lift projected domestic supply. Domestic production of crude oil increases sharply in AEO2013, with annual growth averaging 234 thousand barrels per day (bpd) through 2019, when production reaches 7.5 million bpd (Figure 1). The growth results largely from a significant increase in onshore crude oil production, particularly from shale and other tight formations. After about 2020, production begins declining gradually to 6.1 million bpd in 2040 as producers develop sweet spots first and then move to less productive or less profitable drilling areas.
Motor gasoline consumption will be less than previously estimated. Compared with the last AEO, the AEO2013 shows lower gasoline use, reflecting the introduction of more stringent corporate average fuel economy (CAFE) standards. Growth in diesel fuel consumption will be moderated by the increased use of natural gas in heavy-duty vehicles. Furthermore, the improved economics of liquefied natural gas (LNG) for heavy-duty vehicles results in an increase in natural gas use in heavy-duty vehicles that offsets a portion of diesel fuel consumption. The use of petroleum-based diesel fuel is also reduced by the increased use of diesel produced using gas-to-liquids (GTL) technology. Natural gas use in vehicles reaches 1.7 trillion cubic feet (including GTL) by 2040, displacing 0.7 million bpd of other motor fuels
The United States becomes a net exporter of natural gas earlier than estimated a year ago. Because quickly rising natural gas production outpaces domestic consumption, the United States will become a net exporter of liquefied natural gas (LNG) in 2016 and a net exporter of total natural gas (including via pipelines) in 2020.
Relatively low natural gas prices, facilitated by growing shale gas production, spur increased use in the industrial and electric power sectors, particularly over the next 15 years. Natural gas use (excluding lease and plant fuel) in the industrial sector increases by 16 percent, from 6.8 trillion cubic feet per year in 2011 to 7.8 trillion cubic feet per year in 2025.
Although natural gas also continues to capture a growing share of total electricity generation, natural gas consumption by power plants does not increase as sharply as generation because new plants are very efficient. After accounting for 16 percent of total generation in 2000, the natural gas share of generation rose to 24 percent in 2010 and is expected to continue increasing, to 27 percent in 2020 and 30 percent in 2040. In the AEO2013 Reference case, natural gas also reaches other new markets, such as exports, as a fuel for heavy-duty freight transportation (trucking), and as a feedstock for producing diesel and other fuels.
Renewable fuel use grows at a much faster rate than fossil fuel use. The share of electricity generation from renewables grows to 16 percent in 2040 from 13 percent in 2011. The share of generation from renewables grows from 13 percent in 2011 to 16 percent in 2040.
Electricity generation from solar and, to a lesser extent, wind energy sources grows as recent cost declines make them more economical. However, the AEO2013 projection is less optimistic than AEO2012 about the ability of advanced biofuels to capture a rapidly growing share of the liquid fuels market. As a result, biomass use in AEO2013 totals 4.2 quadrillion Btu in 2035 (compared to 5.4 quadrillion Btu in AEO2012) and 4.9 quadrillion Btu in 2040, up from 2.7 quadrillion Btu in 2011.
Net imports of energy decline. The decline reflects increased domestic production of both petroleum and natural gas, increased use of biofuels, and lower demand resulting from the adoption of new vehicle fuel efficiency standards and rising energy prices. The net import share of total U.S. energy consumption falls to 9 percent in 2040 from 19 percent in 2011.
The AEO2013 Reference case focuses on the drivers that shape U.S. energy markets under the assumption that current laws and regulations remain generally unchanged throughout the projection period. The complete AEO2013, to be released in early 2013, will include many alternative cases in recognition of the uncertainty inherent in making projections about energy markets, which in part arises from assumptions about policies and other market drivers such as trends in prices and economic growth.
Industrial production expands in response to the initial competitive advantage of low natural gas prices
Industrial production grows more rapidly in AEO2013 due to the benefit of strong growth in shale gas production and an extended period of relatively low natural gas prices, which lower the costs of both raw materials and energy, particularly through 2025. Specific industries benefit from the greater availability of natural gas at relatively low prices. For example, industrial production grows by 1.7 percent per year from 2011 to 2025 in the bulk chemicals industries—which also benefit from increased production of natural gas liquids—and by 2.8 percent per year in the primary metals industries, as compared with 1.4 percent and 1.1 percent per year, respectively, in the AEO2012 Reference case. In the long term, growing competition from abroad in these industries limits output growth, as other nations develop and install newer, more energy-efficient facilities. The higher level of production also leads to greater industrial natural gas demand (excluding lease and plant fuel), which grows to more than 8.3 quadrillion Btu in 2035 in AEO2013, compared to 7.2 quadrillion Btu in 2035 in AEO2012. Most of the increase in industrial energy demand is the result of higher output in the manufacturing sector.
Among the key assumptions defining the Reference case over the projection period are average economic growth of 1.8 percent per year for major U.S. trading partners; average annual economic growth in other U.S. trading partners of 4.0 percent; and declining liquid fuels consumption per unit of GDP. The OPEC market share of total liquid fuels production remains at approximately 40 to 45 percent over the projection period. Production from non-OPEC countries increases to levels above those in AEO2012.
In the AEO2013 Reference case, the Brent spot oil price decreases from $111 per barrel (in 2011 dollars) in 2011 to $96 per barrel in 2015. After 2015, the Brent price increases, reaching $163 per barrel in 2040 (or about $269 per barrel in nominal dollars) as growing demand leads to the development of more costly resources (Figure 5). A wide range of price scenarios and discussion of the significant uncertainty surrounding future world oil prices will be included in the complete AEO2013 publication released in early 2013.
Real prices (in 2011 dollars) for motor gasoline and diesel delivered to the transportation sector in the AEO2013 Reference case increase from $3.45 and $3.58 per gallon, respectively, in 2011 to $4.32 and $4.94 per gallon in 2040. Although both prices dip modestly over the early portion of the projection period, increases are steady thereafter. Motor gasoline prices in 2035 are slightly higher in AEO2013 than in AEO2012, but diesel prices are considerably higher in 2035. The diesel share of total domestic liquids production rises, and the gasoline share falls, as a result of incorporation of the model year 2017 to 2025 GHG and CAFE standards for LDVs. Increasing demand for distillate puts pressure on refiners to increase distillate yield and results in higher prices relative to gasoline.