Breaking down the EIA 2012 Annual Energy Outlook

Jan 25, 2012 12:00 AM

Every year, the Energy Information Administration (EIA) prepares an Annual Energy Outlook (AEO) which forecasts energy consumption and demand into the future.
In its 2012 Annual Energy Outlook Early Release, EIA makes the following projections:

  • EIA is still forecasting a fossil fuel future for the United States with fossil fuels representing 77 % of energy consumption in 2035, compared to 83 % in 2010.
  • New EPA regulations cause coal-fired generation to decrease its share substantially in the electric generation sector, with increased shares from natural gas-fired and renewable generation.
  • Natural gas production increases by 6 tcf in the 25 year projection period thanks to hydraulic fracturing technology with the United States becoming an exporter of liquefied natural gas and a net natural gas pipeline exporter.
  • Similarly, oil production from onshore lands, mainly privately owned, increases by a mm bpd by 2020, helping to reduce oil imports from a 49 % to a 36 % share by 2035. Like natural gas, this increase is due in large part to shale formations that are accessed with hydraulic fracturing.
  • Energy-related carbon dioxide emissions remain below 2005 levels through 2035.


Slow energy demand growth
In its latest energy outlook, EIA expects energy demand to grow slowly at 0.4 % per year between 2010 and 2035, reflecting a slow economic recovery, higher energy prices, and greater energy efficiency in end-use technologies.
Energy consumption per capita declines by an average of 0.5 % per year from 2010 to 2035 due to a prolonged economic recovery and improving energy efficiency. Total US population increases by 25 % from 2010 to 2035, but energy use grows by only 10 %.

The energy intensity of the US economy, measured as primary energy use per dollar of gross domestic product, is expected to decline by 42 % from 2010 to 2035 as the result of a continued shift toward less energy-intensive manufacturing and service industries, rising energy prices, and increased energy efficiency. This is a continuation of its historic decline.
From 1990 to 2010, for example, energy use per dollar of GDP declined by 1.7 % per year, primarily because of shifts within the economy away from manufacturing and towards the service sector, which uses relatively less energy per dollar of GDP.

Moderate petroleum demand and production increases
EIA expects the demand for transportation fuels to be moderated by higher energy prices and Federal corporate average fuel economy (CAFE) standards. Even so, liquids demand increases by almost 1 mm bpd, from 19.2 mm bpd in 2010 to 20.1 mm bpd in 2035.
But even at 20.1 mm bpd, the United States does not reach the liquids demand level of 2007, the year before high oil prices first surfaced and the recession hit.

Domestic oil production also increases from 5.5 mm bpd in 2010 to 6.7 mm bpd in 2020, but then declines to 6.1 mm bpd in 2035. The 2020 forecasted level of production of 6.7 mm bpd would be the highest level of output in the United States since 1993.
Oil production onshore, mostly on private lands in new shale oil deposits, is expected to produce 4.24 mm bpd by 2020, over 1 mm bpd more than in 2010. Offshore oil production reaches a peak of 2 mm bpd in 2020 and then declines with a low of 1.61 mm bpd by 2030.

Because of moderate demand, increased oil production and increased use of biofuels (mostly ethanol), net oil imports decline from 49 % in 2010 to 36 % in 2035.

LiquidFuels197020351.jpg

Natural gas production and consumption increases
Of the fossil fuels, natural gas demand is projected to increase the most, reaching 26.48 tcf in 2035, and an increase of 2.35 tcf from 2010 levels. In fact, due to horizontal drilling combined with hydraulic fracturing technology, natural gas production is expected to exceed demand, and the United States becomes a liquefied natural gas (LNG) exporter in 2016 and a net pipeline exporter in 2021.
Natural gas production is expected to reach 27.84 tcf in 2035, over 6 tcf more than produced in 2010. Shale gas is expected to account for 49 % of total US dry gas production in 2035, compared to 23 % in 2010.

The EIA revised its technically recoverable shale gas estimates downward from those used in its previous outlook. However, geologists are questioning the new estimates, saying companies move gas from unproven resources to proven reserves.
According to Greg Wrightstone, vice president of geology at Mountaineer Keystone LLC, companies are driven to prove their resources in order to quickly increase their own value.

Coal consumption to decline in the near term
Coal consumption is expected to decline by 128 mm short tons between 2010 and 2015 and then increase, reaching 1,155 mm short tons by 2035, 104 mm short tons more than in 2010.
Reduced demand for coal in the early years of the forecast is due to lower coal-fired generation caused by new EPA regulations, causing coal-fired capacity retirements and the addition of new EPA-required equipment that forces most coal-fired units to be offline for at least 18 months.

EIA expects 33 GW of coal-fired capacity to retire by 2035, with the majority (29 GW) retiring by 2015.
Retired coal-fired capacity is expected to be replaced by natural gas-fired and renewable capacity.

Electricity generation continues to shift toward natural gas
The natural gas share of electric power generation is expected to increase from 24 % in 2010 to 27 % in 2035 due to lower capital costs for natural gas fired capacity and relatively low natural gas prices due to hydraulic fracturing that enables production of abundant US shale gas resources.
Coal’s share of generation continues its historical decline. Over the next 25 years, the projected coal share of electricity generation falls to 39 % from 45 % in 2010, because of onerous EPA regulation, slow growth in electricity demand, continued competition from natural gas, and mandated renewable plants.

The new EPA regulations also affect old oil and natural gas steam units. EIA expects 10 GW of those units to retire by 2015 and a total of 21 GW of oil and gas steam units to retire by 2035. IER estimated retirements for just 2 of EPA’s regulations to be almost 30 GW, double EPA’s estimates, which are almost certainly an underestimate.
EIA estimates that 6 GW of nuclear capacity will be retired by 2035 and are replaced by almost 10 GW of new nuclear capacity and 7 GW of increases to existing nuclear capacity. The 6 GW of retirements occur primarily in the last few years of the projection period and result from nuclear plant owners not applying for and/or receiving license renewals to operate their plants beyond 60 years.

The share of renewable energy is expected to grow from 10 % to 16 % between 2010 and 2035 mainly because of Federal tax credits and implementation of state renewable portfolio standards that mandate utilities to purchase power from renewable energy sources.
All renewable technologies increase their capacity levels, with wind power’s capacity increasing by 72 % (28 GW) over the 25 year forecast period, solar power’s capacity increasing 500 % (20 GW), biomass capacity increasing 152 % (10 GW), geothermal capacity increasing 170 % (4 GW), and hydroelectric capacity increasing 5 % (4 GW).

Carbon dioxide emissions have peaked
US energy-related carbon dioxide (CO2) emissions have peaked, at least through 2035. EIA projects that energy-related CO2 emissions will total 5,806 mm tons in 2035, more than 3 % below the 2005 level of 5,996 mm tons.
Energy-related carbon dioxide emissions remain lower than 2005 levels despite fossil fuels commanding a 77 % share of energy consumption in 2035, compared to 83 % in 2010. Electricity-related carbon dioxide emissions, the highest sector-related emissions, are projected to be tempered by lower anticipated economic growth, higher efficiency standards for end-use appliances, State Renewable Portfolio Standards (RPS), increased natural gas use in lieu of coal, and new environmental regulations targeting coal-fired power plants.

USEnergyrelatedC02emissions2.jpg

Conclusion
As much as we hear about the rise of renewable energy, coal, oil, and natural gas will continue to provide the lion’s share of our energy for the foreseeable future.

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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