New Energy Market Outlook Raises Projected World Oil Price Path and Adds More Coal and Nuclear Power 

World oil markets have been extremely volatile for the past several years and the Energy Information Administration (EIA) now believes that the reference case oil price path in recent editions of the Annual Energy Outlook did not fully reflect the causes of that volatility and their implications for future oil prices.  In the Annual Energy Outlook 2006 (AEO2006) reference case, released today by EIA, world oil supplies are assumed to be tighter, as the combined productive capacity of the members of the Organization of the Petroleum Exporting Countries (OPEC) does not increase as much as previously projected.  World crude oil prices, expressed in terms of the average price of imported light, low-sulfur crude oil to U.S. refiners, are projected to fall from current levels to about $47 per barrel in (2004 dollars) in 2014, then rise to $54 per barrel in 2025 and $57 per barrel in 2030.  The projected crude oil price in 2025 is about $21 per barrel higher than projected in last year’s reference case (Figure 1).

The higher world oil prices in AEO2006 lead to greater domestic crude oil production and increase the demand for unconventional sources of transportation fuel, such as ethanol and biodiesel.  Higher oil prices stimulate domestic coal-to-liquids production and, in some of the alternative scenarios with even higher oil prices, domestic gas-to-liquids and shale oil production.  They also lower demand growth, particularly via their effect on fuel choice and vehicle efficiency decisions in the transportation sector, even though the reference case does not assume implementation of proposed new fuel economy standards that are now in the public comment process. Much of the increase in new light duty vehicle fuel economy reflects greater penetration by hybrid and diesel vehicles, and slower growth in the sales of light trucks and sport utility vehicles. 

As a result of both supply and demand changes, growth in petroleum imports is expected to be less than projected last year.  Net petroleum imports, which met 58 percent of oil demand in 2004, are projected to meet 60 percent of demand in 2025, considerably less than the projected 68 percent projected for that same year in the AEO2005 reference case (Figure 2). 

Higher oil and natural gas prices than in earlier AEOs lead to a projected increase in coal consumption from 1.1 billion short tons in 2004 to 1.8 billion short tons in 2030.  Growth in coal consumption is projected to accelerate after 2020, as coal captures electricity market share from natural gas and as coal use for coal-to-liquids production grows. 

Nuclear generating capacity is projected to increase from 100 gigawatts in 2004 to 109 gigawatts by 2030, with 3 gigawatts of uprates at existing plants and 6 gigawatts of new plants stimulated by provisions in the Energy Policy Act of 2005 (EPACT2005).  The new nuclear plants expected to be added in 2014 and beyond will be the first new nuclear plants ordered in the U.S. in over 30 years.

Other highlights of the AEO2006 include:

• Total energy demand is projected to increase from 99.7 to 133.9 quadrillion British thermal units (Btu) between 2004 and 2030, an average annual increase of 1.1 percent, in a scenario where the U.S. economy grows at an average annual rate of 3.0 percent.

• Average natural gas wellhead prices are projected to fall from today’s high levels to $4.46 per thousand cubic feet (2004 dollars) by 2016 as increased drilling brings on new supplies and new import sources become available.  After 2016, natural gas wellhead prices are projected to increase gradually, to over $5.90 per thousand cubic feet (tcf) in 2030.

• Projected natural gas consumption grows from 22.4 tcf in 2004 to 27.0 tcf in 2024, and then declines modestly to 26.9 tcf in 2030.  In 2025, natural gas use is nearly 4 tcf lower than was projected in AEO2005 as natural gas loses market share to coal for electricity generation.  A major contributor to growth in U.S. natural gas supplies will be unconventional natural gas production, the Alaskan pipeline, and liquefied natural gas (LNG) imports. Unconventional natural gas is projected to account for 45 percent of domestic U.S. natural gas production in 2030 (Figure 3).

• The higher world oil prices in the AEO2006 reference case raise worldwide natural gas demand and prices, making LNG less economic in U.S. markets than in last year’s projection.  LNG imports in the AEO2006 reference case are projected to grow from 0.6 to 4.1 trillion cubic feet (tcf) between 2004 and 2025.

• The average delivered price of coal to electric powerplants is expected to decrease modestly from current levels to about $1.40 per million Btu (2004 dollars) in 2019 reflecting a combination of slow but continued improvements in expected mine productivity, and a continuing shift to coal from the Powder River Basin in Wyoming. Delivered coal prices rise after 2019, reaching roughly $1.50 per million Btu in 2030 as rising natural gas prices and the need for baseload generating capacity lead to the construction of many new coal-fired generating plants.

• Coal remains the primary fuel for electricity generation through 2030, with the coal share of total generation increasing from 50 percent in 2004 to 57 percent in 2030.  Over this period, utilization at existing plants increases and large amounts of new coal-fired capacity are added, mainly after 2020 (Figure 4).  The natural gas share of total electricity generation is projected to increase from 18 percent in 2004 to 22 percent around 2020 before falling to 17 percent in 2030.  A total of 174 gigawatts of new coal-fired generating capacity, including 19 gigawatts at coal-to-liquids plants, and 140 gigawatts of new natural gas capacity are projected to be constructed between 2004 and 2030.

• AEO2006 includes the impact of the extension and expansion of the Federal tax credit for selected renewables through December 31, 2007, as enacted in the EPACT2005, and State renewable programs.  Total electricity generation from renewable energy sources is projected to grow by 1.7 percent per year, from 358 billion kilowatthours in 2004 to 559 billion kilowatthours in 2030.

• The average delivered price of electricity is projected to decline from 7.6 cents per kilowatthour (kWh) (2004 dollars) in 2004 to a low of 7.1 cents per kWh in 2015 as a result of falling natural gas prices and, to a lesser extent, coal prices. After 2015, average real electricity prices are projected to increase, reaching 7.5 cents per kWh in 2030 due mainly to higher expected fuel costs.

• Carbon dioxide emissions from energy use are projected to increase at an average annual rate of 1.2 percent between 2004 and 2030.  The carbon intensity of the economy, measured as energy-related carbon dioxide emissions per dollar of gross domestic product, declines at an average annual rate of 1.7 percent per year from 2004 through 2030.

The reference case projections from the AEO2006 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 AEO2006 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 2006, along with regional projections and a report on the major assumptions underlying the projections.

EIA Program Contact:  John Conti, 202/586-2222, john.conti@eia.doe.gov

EIA Press Contact: National Energy Information Center, 202/586-8800, infoctr@eia.doe.gov

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