Trends in Economic Activity
AEO2008 Presents Three Views of Economic Growth
AEO2008 presents three views of economic growth
for the 2006-2030 projection period. Economic growth
depends mainly on growth in the labor force and productivity.
In the reference case, the labor force grows
by an average of 0.7 percent per year; labor productivity
in the nonfarm business sector grows by 1.9 percent
per year; and growth in real GDP averages 2.4
percent per year (Figure 32). In line with the labor
and output trends, nonfarm employment grows by 0.9
percent per year, while employment in manufacturing
shrinks by 1 percent per year. Investment growth
averages 2.8 percent per year in the reference case;
disposable income available to households grows by
2.8 percent per year; and disposable income per capita
increases by 1.9 percent per year.
The high and low economic growth cases show the
effects of alternative economic growth assumptions
on the energy market projections (see Appendix E for
descriptions of all the alternative cases). In the high
growth case, real GDP growth averages 3.0 percent
per year, as a result of higher assumed growth rates
for the labor force (0.9 percent per year), nonfarm
employment (1.2 percent), and nonfarm labor productivity
(2.4 percent). With higher productivity gains
and employment growth, inflation and interest rates
are lower than in the reference case. In the low
growth case, growth in real GDP is 1.8 percent per
year, as a result of lower assumed growth rates for the
labor force (0.4 percent per year), nonfarm employment
(0.5 percent per year), and labor productivity
(1.5 percent per year). Consequently, the low growth
case shows higher inflation and interest rates and
slower growth in industrial output and employment
than are projected in the reference case.
Projected Gains in Labor Productivity
Are Higher Than Historical Averages
Common indicators for inflation, interest rates and
employment are, respectively, the all-urban consumer
price index, the interest rate (yield) on 10-year U.S.
Treasury notes, and the nonfarm unemployment
rate, which are widely viewed as barometers of
conditions in the markets for goods and services,
credit, and labor, respectively. Historically, from
1982 to 2006, inflation has averaged 3.1 percent
per year, the average yield on 10-year Treasury notes
has been 7.2 percent per year, and the unemployment
rate has averaged 6.1 percent. In the AEO2008 reference
case, as well as in the high and low economic
growth cases, projected gains in nonfarm labor productivity—
although lower than those seen during the
1990s—are generally higher than the historical averages
of the 1980s, leading to more optimistic projections
for inflation, interest, and unemployment rates.
In AEO2008, the projected average annual inflation
rate over the 2006-2030 period is 2.1 percent in the
reference case, 1.5 percent in the high economic
growth case, and 2.6 percent in the low growth case
(Figure 33). Annual yields on the 10-year Treasury
note are projected to average 5.2 percent in the reference
case, 4.8 percent in the high growth case, and 5.7
percent in the low growth case. The projections for average
unemployment rates are 4.7 percent in the reference
case, 4.6 percent in the high growth case, and
4.9 percent in the low growth case. Relative to the reference
case, the higher inflation, interest, and unemployment
rates in the low growth case and the lower
rates in the high growth case depend on different assumptions
about labor productivity and population
growth rates.
Output Growth for Energy-Intensive Industries Is Expected To Slow
With imports meeting a growing share of demand for
industrial goods, the industrial sector has shown
slower output growth than the economy as a whole in
recent decades. That trend is expected to continue in
the AEO2008 projections. The average annual growth
rate for real GDP from 2006 to 2030 is 2.4 percent
in the reference case, whereas the industrial sector
averages 1.3 percent. With higher energy prices and
greater foreign competition, the energy-intensive
manufacturing sectors [78] grow by only 0.7 percent
per year from 2006 through 2030, compared with
a 1.9-percent average annual rate of growth for the
remaining industrial sectors (Figure 34).
AEO2008 projects relatively slow growth in construction,
chemicals, and transportation equipment. High
interest rates affect the construction and transportation
equipment sectors. Increased foreign competition,
slow expansion of domestic production, and
higher energy prices exert competitive pressure on
the chemicals industry, with growth slowing substantially
after 2020.
In the high economic growth case, output from the
industrial sector grows by an annual average of
2.0 percent, still below the annual growth of real
GDP (3.0 percent). In the low economic growth case,
real GDP and industrial output grow by 1.8 and
0.5 percent per year, respectively. In both cases, the
non-energy-intensive manufacturing industries show
higher growth than the rest of the industrial sector.
Energy Expenditures Relative to GDP Are Projected Too Decline
Total U.S. energy expenditures were $1.1 trillion in
2006. Energy expenditures rise to $1.3 trillion (2006
dollars) in 2030 in the AEO2008 reference case and to
$1.5 trillion in the high economic growth case (Figure
35). For the economy as a whole, ratios of energy
expenditures to GDP in 2006 were 8.6 percent for all
energy, 5.1 percent for petroleum, and 1.4 percent for
natural gas. Recent developments in the world oil
market have pushed the energy expenditure shares
upward, and in the reference case they are expected to
increase from current levels until 2010. After 2010
expenditures fall, as the energy intensity of the U.S.
economy—measured in terms of energy consumption
(thousand Btu) per dollar of real GDP—continues to
decline and world oil prices stabilize. Total energy
expenditures are projected to equal 5.6 percent of
GDP in 2030, petroleum expenditures 3.1 percent,
and natural gas expenditures less than 1 percent
(Figure 36).
Oil Price Cases show Uncertainty in Prospects for World Oil Markets
World oil price projections in AEO2008, in terms of
the average price of imported low-sulfur, light crude
oil to U.S. refiners, are higher for 2006-2030 than
those presented in AEO2007. The higher price path
reflects lower estimates of oil consumers’ sensitivity
to higher prices, an anticipation of lower additions to
production capacity in key non-OPEC regions, and a
reassessment of OPEC producers’ willingness and
ability to expand production and production capacity
aggressively.
The historical record shows substantial variation in
world oil prices, and there is arguably even more
uncertainty about future prices when longer time
periods are examined. As in previous outlooks,
AEO2008 considers three price cases to illustrate
the uncertainty of prospects for future world oil
resources. In the reference case, world oil prices
moderate from current levels to about $57 per barrel
in 2016, start rising again as production in non-OPEC
regions peaks, and continue rising to $70 per barrel in
2030 (all prices in 2006 dollars). The low and high
price cases reflect a wide band of potential world oil
price paths, ranging from $42 to $119 per barrel in
2030 (Figure 37), but they do not bound the set of all
possible future outcomes. The high and low oil price
cases are predicated on assumptions about access to
and costs of non-OPEC oil, OPEC supply decisions,
and the supply potential of unconventional liquids.
Combining those assumptions with different assumptions
about the demand for oil would produce a wider
range of oil price paths.
Unconventional Resources Gainn Market Share as Prices Rise
The world’s total production of liquid fuels from
unconventional resources in 2006 was 2.8 million
barrels per day, equal to about 3 percent of total
liquids production. Production from unconventional
sources included 1.2 million barrels per day from oil
sands in Canada, 600,000 barrels per day from very
heavy oils in Venezuela, and 320,000 barrels of
ethanol per day in the United States. In the AEO2008
reference case, unconventional production makes up
12 percent (14 million barrels per day) of total liquids
production in 2030 (Figure 38).
Depending on price assumptions, world unconventional
production is projected to be 5.4 to 18.9 million
barrels per day higher in 2030 than it was in 2006,
accounting for between 6 and 22 percent of the
world’s total production of liquids. Production of
unconventional liquids depends heavily on prices,
being more competitive with conventional sources
when market prices are high. Not all unconventional
liquids respond to price changes in the same manner,
however, because the sources of unconventional
liquids differ with regard to resource constraints,
political backing, available technologies, and other
characteristics.
The composition of world unconventional liquids production
does not vary significantly between the reference
and low price cases, with biofuels and oil sands
combined accounting for about 60 percent of unconventional
supply. In the high price case, the economic
viability of and need for unconventional liquids supply
increase, and 34 percent of total projected unconventional
liquids production in 2030 is accounted for
by CTL, one-half of which will be produced by China.
World Liquids Supply Is Projected To Remain Diversified in all Cases
In 2006, OPEC producers in the Persian Gulf accounted
for 28 percent of the world’s conventional
liquids supply, and other OPEC producers accounted
for 14 percent. Europe and Eurasia produced 22
percent of conventional supply, North America 17
percent, and the rest of the world 19 percent (Figure
39).
In the reference case, OPEC conventional production
maintains approximately a 40-percent share of world
total liquids supply through 2030, which is consistent
with recent historical trends and reflects an expectation
that OPEC suppliers will vary their production
levels to influence world oil prices. In all the
AEO2008 cases, OECD liquids production is between
23 and 24 million barrels per day in 2030, constrained
by resource availability rather than price or political
concerns.
In the high price case, several resource-rich countries,
including Saudi Arabia, Mexico, and Russia, limit
production, lowering both total world liquids supply
and their own shares of the supply. In the high price
case, the largest increases in liquids production occur
in the United States, China, Canada, Brazil, and
India, where substantial increases in unconventional
production are expected, underscoring the rising
importance of unconventional fuels to the world’s
supply of liquids. In the low price case, resource-rich
countries either maintain current production behavior
or increase their openness to foreign capital investment.
As a result, the largest increases in world
liquids supply shares in the low price case occur in
Iraq and the Caspian Sea Basin.
Market Trends Notes |
