Energy Prices

Crude Oil

figure dataPrices for crude oil³ in 2011 remained generally in a range between $85 and $110 per barrel. In 2011, WTI prices were lower than Brent prices because of pipeline capacity constraints that prevented complete arbitrage between WTI and Brent prices. Real imported sweet crude oil prices (2010 dollars) in the AEO2012 Reference case rise to $120 per barrel in 2016 (Figure 5) as pipeline capacity from Cushing, Oklahoma, to the Gulf Coast increases, the world economy recovers, and global demand grows more rapidly than the available supplies of liquids from producers outside the Organization of the Petroleum Exporting Countries (OPEC). In 2035, the average real price of crude oil in the Reference case is about $145 per barrel in 2010 dollars, or about $230 per barrel in nominal dollars.

The AEO2012 Reference case assumes that limitations on access to energy resources restrain the growth of non-OPEC conventional liquids production between 2010 and 2035, and that OPEC targets a relatively constant market share of total world liquids production. Uncertainty regarding OPEC members' actual investment and production decisions and the degree to which non-OPEC countries and countries outside the Organization for Economic Cooperation and Development (OECD) restrict access to potentially productive resources contributes to world oil price uncertainty and the economic viability of unconventional liquids. A wide range of price scenarios and discussion of the significant uncertainty surrounding future world oil prices will be included in the complete AEO2012 publication released in spring 2012.

figure dataThe AEO2012 Reference case also includes significant long-term potential for liquids supply from non-OPEC producers. In several resourcerich
regions (including Brazil, Russia, and Kazakhstan), high oil prices, expanded infrastructure, and further investment in exploration and drilling contribute to additional non-OPEC oil production (Figure 6). Also, with the economic viability of Canada's oil sands supported by rising world oil prices and advances in production technology, Canadian oil sands production reaches 5.0 million barrels per day in 2035.

Liquid Products

Real prices (in 2010 dollars) for motor gasoline and diesel delivered to the transportation sector in the AEO2012 Reference case increase from $2.76 and $3.00 per gallon, respectively, in 2010 to $4.09 and $4.49 per gallon in 2035—higher levels than in the AEO2011 Reference case. Annual average diesel prices are higher than gasoline prices throughout the projection because of stronger global growth in demand for diesel fuel than for motor gasoline.

Natural Gas

With increased production, average annual wellhead prices for natural gas remain below $5 per thousand cubic feet (2010 dollars) through 2023 in the AEO2012 Reference case. The projected prices reflect continued industry success in tapping the Nation's extensive shale gas resource. The resilience of drilling levels, despite low natural gas prices, is in part a result of high crude oil prices, which significantly improve the economics of natural gas plays that have high concentrations of crude oil, condensates, or natural gas liquids.

After 2023, natural gas prices generally increase as the numbers of tight gas and shale gas wells drilled increase to meet growing domestic demand for natural gas and offset declines in natural gas production from other sources. Natural gas prices rise as production gradually shifts to resources that are less productive and more expensive. Natural gas wellhead prices (in 2010 dollars) reach $6.52 per thousand cubic feet in 2035, compared with $6.48 per thousand cubic feet (2010 dollars) in AEO2011.

Coal

The average minemouth price of coal increases by 1.4 percent per year in the AEO2012 Reference case, from $1.76 per million Btu in 2010 to $2.51 per million Btu in 2035 (2010 dollars). The upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine. The coal price outlook in the AEO2012 Reference case represents a change from the AEO2011 Reference case, where coal prices were essentially flat.

Electricity

Following the recent rapid decline of natural gas prices, real average delivered electricity prices in the AEO2012 Reference case fall from 9.8 cents per kilowatthour in 2010 to as low as 9.2 cents per kilowatthour in 2019, as natural gas prices remain relatively low. Electricity prices tend to reflect trends in fuel prices—particularly, natural gas prices, because in much of the country natural gasfired plants often set wholesale power prices. It can take time, however, for fuel price changes to affect electricity prices because of the varying lengths of fuel- and power-supply contracts and the periods between electricity rate cases.

In the AEO2012 Reference case, electricity prices are higher throughout the projection than they were in the AEO2011 Reference case. Although natural gas prices to electricity generators are similar to those in AEO2011, the cost of coal is higher. In addition, reliance on natural gas-fired generation in the power sector increases partially as a result of new environmental regulation covering emissions of sulfur dioxide (SO2) and nitrogen oxides (NOX) that make it a more economical option. Electricity prices in 2035 are 9.5 cents per kilowatthour (2010 dollars) in the AEO2012 Reference case, compared with 9.3 cents per kilowatthour in the AEO2011 Reference case.

Footnotes

³Light sweet crude oil (West Texas Intermediate [WTI]) traded on NYMEX, which is a member exchange of the CME Group.