As in past AEO editions, the complete AEO2010 will include many additional cases. The standard set of cases in the complete AEO will be expanded to include additional cases that reflect the impact of extending a variety of current energy programs beyond their current expiration or the permanent retention of a broad set of current programs that are currently subject to sunset provisions, among others. In addition to the alternative cases prepared for AEO2010, EIA has examined many proposed policies at the request of Congress in 2009, and reports describing the results of those analyses are available on EIA’s web site.²

Other key changes in the AEO2010 projections include:

• This year, for the first time, a projection period that extends through 2035

• Revised handling of corporate average fuel economy (CAFE) standards to reflect the standards proposed jointly by the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) for light-duty vehicles (LDVs) in model years 2012 through 2016

• Updated projections of investment costs for many categories of capital-intensive energy projects

• Recognition of changes in environmental rules at both the Federal and State levels

• Implementation of a new lower 48 onshore oil and natural gas supply submodule that improves EIA’s ability to address issues related to changes and improvements in technology, access to land for exploration and production, and legislative policies

• Updated characterization of natural gas shale plays, reflecting the continued evolution of “shale gas” resources and extraction technologies.

World oil prices declined sharply from their mid-2008 peak in the latter half of 2008 but have generally risen throughout 2009. Prices continue to rise gradually in the reference case (Figure 1), as the world economy rebounds and global demand grows more rapidly than liquids supplies from producers outside of the Organization of the Petroleum Exporting Countries (OPEC). In 2035, the average real price of crude oil in the reference case is $133 per barrel in 2008 dollars, or about $224 per barrel in nominal dollars. Alternative cases in the complete AEO2010 will address the impacts that higher and lower world crude oil prices have on U.S. energy markets.

The AEO2010 reference case assumes that limitations on access to energy resources restrain the growth of non-OPEC conventional liquids production between 2008 and 2035 and that OPEC targets a relatively constant market share of 41 percent of total world liquids production.

Contributing to world oil price uncertainty is the degree to which non-OPEC countries and countries outside the Organization for Economic Cooperation and Development (OECD), such as Russia and Brazil, restrict economic access to potentially productive resources. Other factors causing uncertainty include OPEC investment decisions, which will affect future world oil prices and the economic viability of unconventional liquids.

The AEO2010 reference case also includes significant long-term potential for supply from non-OPEC producers. In several resource-rich 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 2). Also, with the economic viability of Canada’s oil sands enhanced by higher world oil prices and advances in production technology, production from oil sands reaches 4.5 million barrels per day in 2035.

Real prices (in 2008 dollars) for motor gasoline and diesel in the AEO2010 reference case are $3.68 per gallon and $3.83 per gallon in 2030, lower than in the updated AEO2009 reference case, largely due to the lower crude oil prices in the AEO2010 reference case. In 2035, real gasoline and diesel prices reach $3.91 per gallon and $4.11 per gallon. Diesel prices are higher than gasoline prices throughout the projection because of stronger growth in demand for diesel than for motor gasoline.

Retail prices for E85 (a blend of 70 to 85 percent ethanol and 30 to 15 percent gasoline by volume) are projected to shift from a volumetric basis to an energy-equivalent basis relative to motor gasoline, in order to meet the renewable fuels standard (RFS) legislated in Public Law 110-140, the Energy Independence and Security Act of 2007 (EISA2007). In 2022, the retail price of gasoline is $3.41 per gallon while the price of E85 is $2.63 per gallon, reflecting the higher energy content of gasoline versus E85 and delivering a similar cost for the two fuels per mile traveled.

The price of natural gas at the wellhead is lower in the AEO2010 reference case than in the rapid ramping up of shale gas production, particularly after 2015. AEO2010 assumes a larger resource base for natural gas, based on a reevaluation of shale gas and other resources, and a more rapid rate for bringing new resources into production, based on observations of the industry’s current capability.

In the AEO2010 reference case (as in the updated AEO2009 reference case), natural gas prices increase in the short term from the low prices observed in 2009 that resulted from the sharp economic downturn. After 2012, prices continue to rise in the AEO2010 reference case, but more slowly, as additional resources are brought into production to meet demand growth. Natural gas wellhead prices reach $8.06 per thousand cubic feet (2008 dollars) in 2035.

Coal prices are expected to moderate through 2029 from their recent high levels because of a continuing shift to lower cost production west of the Mississippi River; however, they remain slightly above the price projections in the updated AEO2009 reference case through 2025. In the AEO2010 reference case, the share of total coal production from west of the Mississippi River, on a Btu basis, grows from 50 percent in 2008 to 60 percent in 2029 and remains at that level through 2035.

In the AEO2010 reference case, average real minemouth coal prices (in 2008 dollars) fall from $1.55 per million Btu ($31.26 per short ton) in 2008 to $1.41 per million Btu ($27.37 per short ton) in 2029, then begin rising slightly to $1.44 per million Btu ($28.10 per short ton) in 2035 as demand increases and the share of lower cost western production remains steady at 60 percent.

Residential delivered energy consumption in the AEO2010 reference case grows from 11.3 quadrillion Btu in 2008 to 11.9 quadrillion Btu in 2030, 0.3 quadrillion Btu less than in the updated AEO2009 reference case (Figure 3). Contributing to the lower level of residential energy use is the recent adoption of regional standards for heating and cooling equipment, which require a 90-percent efficiency rating for natural gas furnaces in the northern tier of the country.

Recently enacted efficiency standards for residential lighting products and incandescent lighting in EISA2007 significantly reduce electricity demand for lighting in the residential sector.

Shipments of ground-source (geothermal) heat pumps to the residential market increased 40 percent in 2008, as tax credits specified in the Energy Improvement and Extension Act of 2008 (EIEA2008) and greater consumer awareness have fostered significant growth in this emerging technology. The stock of ground-source geothermal heat pumps reaches 2.25 million units in 2030 in the AEO2010 reference case, 44 percent more than projected in the updated AEO2009 reference case. Even with the relatively large increase in the number of ground-source heat pump installations, the 2.25 million units represent only 2.2 percent of the heating market for single-family homes in 2030.

Despite faster growth in commercial square footage, higher energy prices lead to slower growth in commercial energy consumption in the AEO2009 reference case relative to the AEO2008 reference case, along with increased adoption of energy conservation and efficiency measures. Delivered commercial energy consumption grows from 8.5 quadrillion Btu in 2007 to 10.6 quadrillion Btu in 2030, about 0.7 quadrillion Btu less than in the AEO2008 reference case.

Biofuel consumption accounts for most of the growth in total U.S. liquids consumption, as consumption of petroleum-based liquids is essentially flat. Rapid growth in the consumption of renewable fuels results mainly from the implementation of the Federal RFS for transportation fuels and State renewable portfolio standard (RPS) programs for electricity generation.

Increased renewable energy consumption in the electric power sector, excluding hydropower, accounts for 41 percent of the growth in electricity generation from 2008 to 2035.

Total primary energy consumption in the AEO2010 reference case grows 14.4 percent, from 100.1 quadrillion Btu in 2008 to 114.5 quadrillion Btu in 2035. Among the most important factors leading to lower total energy demand in the AEO2010 reference case than was projected in the updated AEO2009 reference case are greater use of more efficient appliances and vehicles in response to CAFE, EISA2007, and EIEA2008 requirements.

Total U.S. consumption of liquid fuels, including both fossil liquids and biofuels, grows from 38.4 quadrillion Btu (19.5 million barrels per day) in 2008 to 42.0 quadrillion Btu (22.1 million barrels per day) in 2035 in the AEO2010 reference case (Figure 4). Biofuel consumption accounts for most of the growth, as consumption of petroleum-based liquids is essentially flat. The transportation sector dominates demand for liquid fuels, and its share (as measured by energy content) grows from 71 percent of total liquids consumption in 2008 to 75 percent in 2035.

The energy intensity of the U.S. economy, measured as primary energy use (in thousand Btu) per dollar of GDP (in 2000 dollars), declines 40 percent from 2008 to 2035 in the AEO2010 reference case as the result of a continued shift from energy-intensive manufacturing to services, rising energy prices, and the adoption of policies that promote energy efficiency.

The reference case reflects observed historical relationships between energy prices and energy conservation. To the extent that consumer preferences change, the improvement in energy intensity or energy consumption per capita could be greater or smaller.

Since 1992, the energy intensity of the U.S. economy has declined an average of 1.9 percent per year, in large part because the economic output of the service sectors, which use relatively less energy per dollar of output, has grown at a pace 2.5 times that of the industrial sector (in constant dollar terms). As a result, the share of total shipments accounted for by the industrial sectors fell from 28 percent in 1992 to 22 percent in 2008. In the AEO2010 reference case, the industrial share of total shipments continues to decline, to 18 percent in 2035 (Figure 5).

Population is a key determinant of energy consumption, influencing demand for travel, housing, consumer goods, and services. The U.S. population increases 28 percent from 2008 to 2035 in the AEO2010 reference case, and energy consumption grows 14 percent over the same period. Energy consumption per capita declines 0.4 percent per year from 2008 to 2030 in the AEO2010 reference case, similar to the decline in the updated AEO2009 reference case.