Market Trends — International

Oil price cases depict uncertainty in world oil markets

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Oil prices in AEO2012, defined in terms of the average price of low-sulfur, light crude oil (West Texas Intermediate [WTI]) delivered to Cushing, Oklahoma, span a broad range that reflects the inherent volatility and uncertainty of oil prices (Figure 64). The AEO2012 price paths are not intended to reflect absolute bounds for future oil prices but rather to provide a basis for analysis of the implications of world oil market conditions that differ from those assumed in the AEO2012 Reference case. The Reference case assumes that the current price discount for WTI relative to similar "marker" crude oils (such as Brent and Louisiana Light Sweet) will fade when adequate pipeline capacity is built between Cushing and the Gulf of Mexico.

In the Low Oil Price case, GDP growth in countries outside the Organization of the Petroleum Exporting Countries (non- OPEC) is slower than in the Reference case, resulting in lower demand for petroleum and other liquids, and producing countries develop stable fiscal policies and investment regimes that encourage resource development. OPEC nations increase production, achieving approximately a 46-percent market share of total petroleum and other liquids production in 2035.

The High Oil Price case depicts a world oil market in which total GDP growth in countries outside the Organization for Economic Cooperation and Development (non-OECD) is faster than in the Reference case, driving up demand for petroleum and other liquids. Production of crude oil and natural gas liquids (NGL) is restricted by political decisions and limits on access to resources (such as the use of quotas and fiscal regimes) compared with the Reference case. Petroleum and other liquids production in the major producing countries is reduced (for example, the OPEC share averages 40 percent), and the consuming countries turn to more expensive production from other liquidssources to meet demand.

Trends in petroleum and other liquids markets are defined largely by the developing nations

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Total use of petroleum and other liquids in the AEO2012 Reference, High Oil Price, and Low Oil Price cases in 2035 ranges from 107 to 113 million barrels per day (Figure 65). The alternative oil price cases reflect shifts in both supply and demand, with the result that total consumption and production levels do not vary widely. Although demand in the OECD countries is influenced primarily by price, demand in non-OECD regions—where future economic uncertainty is greatest— drives the price projections. That is, non-OECD petroleum and other liquids consumption is lower in the Low Oil Price case and higher in the High Oil Price case than it is in the Reference case.

OECD petroleum and other liquids use grows in the Reference case to 48 million barrels per day in 2035, while non-OECD use grows to 61 million barrels per day. In the Low Oil Price case, OECD petroleum and other liquids use in 2035 is higher than in the Reference case, at 53 million barrels per day, but demand in the slow-growing non-OECD economies in the Low Price case rises to only 54 million barrels per day. In the High Oil Price case the opposite occurs, with OECD consumption falling to 46 million barrels per day in 2035 and fast-growing non-OECD use—driven by higher GDP growth—increasing to 67 million barrels per day in 2035.

The supply response also varies across the price cases. In the Low Oil Price case, OPEC's ability to constrain market share is weakened, and low prices have a negative impact on non-OPEC crude oil supplies relative to the Reference case. Because noncrude oil technologies achieve much lower costs in the Low Price case, supplies of other liquids are more plentiful than in the Reference case. In the High Oil Price case, OPEC restricts production, non-OPEC resources become more economic, and high prices make other liquids more attractive.

Production from resources other than crude oil and natural gas liquids increases

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In 2010, world production of liquid fuels from resources other than crude oil and NGL totaled 4.6 million barrels per day, or about 5 percent of all petroleum and other liquids production. Production from those other sources grows to 13.0 million barrels per day (about 12 percent of total global production of petroleum and other liquids) in 2035 in the AEO2012 Reference case, 16.2 million barrels per day (15 percent of the total) in the Low Oil Price case, and 17.1 million barrels per day (15 percent of the total) in the High Oil Price case (Figure 66). The higher levels of production from other resources result from declining technology costs in the Low Oil Price case and from higher oil prices in the High Oil Price case.

Assumptions about the development of other liquids resources differ across the three cases. In the Reference case, increasingly expensive projects become more economically competitive as a result of rising oil prices and advances in production technology. Bitumen in Canada and biofuels in the United States and Brazil are the most important components of production from sources other than crude oil and NGL. Excluding crude oil and NGL, U.S. and Brazilian biofuels and Canadian bitumen account for more than 70 percent of the total world increase in petroleum and other liquids production from 2010 to 2035 in the Reference case.

In the High Oil Price case, rising prices support increased development of nonpetroleum liquids, bitumen, and extra-heavy oil. A smaller increase is projected in the Low Oil Price case, which assumes significant declines in technology costs, particularly for extra-heavy oil production. Bitumen and biofuels continue to be the most important contributors to this supply category through 2035.

U.S. reliance on imported natural gas from Canada declines as exports grow

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The energy markets of the three North American nations (United States, Canada, and Mexico) are well integrated, with extensive infrastructure that allows cross-border trade between the United States and both Canada and Mexico. The United States, which is by far the region's largest energy consumer, currently relies on Canada and Mexico for supplies of petroleum and other liquid fuels. Canada and Mexico were the largest suppliers of U.S. petroleum and other liquids imports in 2010, providing 2.5 and 1.3 million barrels per day, respectively. In addition, Canada supplies the United States with substantial natural gas supplies, exporting 3.3 trillion cubic feet to U.S. markets in 2010 (Figure 67).

In the AEO2012 Reference case, energy trade between the United States and the two other North American countries continues. In 2035, the United States still imports 3.4 million barrels per day of petroleum and other liquid fuels from Canada in the Reference case, but imports from Mexico fall to 0.8 million barrels per day. With prospects for domestic U.S. natural gas production continuing to improve, the need for imported natural gas declines. U.S. imports of natural gas from Canada fall to 2.4 trillion cubic feet in 2025 in the Reference case and remain relatively flat through the end of the projection. On the other hand, U.S. natural gas exports to both Canada and Mexico increase. Canada's imports of U.S. natural gas grow from 0.7 trillion cubic feet in 2010 to 1.5 trillion cubic feet in 2035, and Mexico's imports grow from 0.3 trillion cubic feet in 2010 to 1.7 trillion cubic feet in 2035 in the AEO2012 Reference case.

China and India account for half the growth in world energy use

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World energy consumption increases by 47 percent from 2010 through 2035 in the AEO2012 Reference case (Figure 68). Most of the growth is projected for emerging economies outside the OECD, where robust economic growth is accompanied by increased demand for energy. Total non-OECD energy use grows by 72 percent, compared with an 18-percent increase in OECD energy use.

Energy consumption in non-OECD Asia, led by China and India, shows the most robust growth among the non-OECD regions, rising by 91 percent from 2010 to 2035. However, strong growth also occurs in much of the rest of the non-OECD regions: 69 percent in Central and South America, 65 percent in Africa, and 62 percent in the Middle East. The slowest growth among the non-OECD regions is projected for non-OECD Europe and Eurasia (including Russia), where substantial gains in energy efficiency are achieved through replacement of inefficient Soviet-era capital equipment.

Worldwide, the use of energy from all sources increases in the projection. Given expectations that oil prices will remain relatively high, petroleum and other liquids are the world's slowest-growing energy sources. High energy prices and concerns about the environmental consequences of greenhouse gas (GHG) emissions lead a number of national governments to provide incentives in support of the development of alternative energy sources, making renewables the world's fastest-growing source of energy in the outlook.

After Fukushima, prospects for nuclear power dim in Japan and Europe but not elsewhere

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The earthquake and tsunami that hit northeastern Japan in March 2011 caused extensive loss of life and infrastructure damage, including severe damage to several reactors at the Fukushima Daiichi nuclear power plant. In the aftermath, governments in several countries that previously had planned to expand nuclear capacity—including Japan, Germany, Switzerland, and Italy—reversed course. Even China announced a temporary suspension of its approval process for new reactors pending a thorough safety review.

Before the Fukushima event, EIA had projected that all regions of the world with existing nuclear programs would expand their nuclear power capacity. Now, however, Japan's nuclear capacity is expected to contract by about 3 gigawatts from 2010 to 2035 (Figure 69). In OECD Europe, Germany's outlook has been revised to reflect a phaseout of all nuclear power by 2025. As a result, the projected net increase in OECD Europe's nuclear capacity in the AEO2012 Reference case is only 3 gigawatts from 2010 to 2035.

Significant expansion of nuclear power is projected to continue in the non-OECD region as a whole, with total nuclear capacity more than quadrupling. From 2010 to 2035, nuclear power capacity increases by a net 109 gigawatts in China, 41 gigawatts in India, and 28 gigawatts in Russia, as strong growth in demand for electric power and concerns about security of energy supplies and the environmental impacts of fossil fuel use encourage further development of nuclear power in non-OECD countries.

Wind power leads rise in world renewable generation, solar power also grows rapidly

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Renewable energy is the world's fastest-growing source of marketed energy in the AEO2012 Reference case, increasing by an average of 3.0 percent per year from 2010 to 2035, compared to an average of 1.6 percent per year for total world energy consumption. In many parts of the world, concerns about the security of energy supplies and the environmental consequences of GHG emissions have spurred government policies that support rapid growth in renewable energy installations.

Hydropower is well-established worldwide, accounting for 83 percent of total renewable electricity generation in 2010. Growth in hydroelectric generation accounts for about one-half of the world increase in renewable generation in the Reference case. In Brazil and the developing nations of Asia, significant builds of mid- and large-scale hydropower plants are expected, and the two regions together account for two-thirds of the total world increase in hydroelectric generation from 2010 to 2035.

Solar power is the fastest-growing source of renewable energy in the outlook, with annual growth averaging 11.7 percent. However, because it currently accounts for only 0.4 percent of total renewable generation, solar remains a minor part of the renewable mix even in 2035, when its share reaches 3 percent. Wind generation accounts for the largest increment in nonhydropower renewable generation—60 percent of the total increase, as compared with solar's 12 percent (Figure 70). The rate of wind generation slows markedly after 2020 because most government wind goals are achieved and wind must then compete on the basis of economics with fossil fuels. Wind-powered generating capacity has grown swiftly over the past decade, from 18 gigawatts of installed capacity in 2000 to an estimated 179 gigawatts in 2010.