Executive Summary

Projections in the Annual Energy Outlook 2013 (AEO2013) Reference case focus on the factors that shape U.S. energy markets through 2040, under the assumption that current laws and regulations remain generally unchanged throughout the projection period. This early release focuses on the AEO2013 Reference case, which provides the basis for examination and discussion of energy market trends and serves as a starting point for analysis of potential changes in U.S. energy policies, rules, or regulations or potential technology breakthroughs. Readers are encouraged to review the full range of cases that will be presented when the complete AEO2013 is released in early 2013, exploring key uncertainties in the Reference case. Major highlights in the AEO2013 Reference case include:

Crude oil production, particularly from tight oil plays, rises sharply over the next decade

figure dataThe advent and continuing improvement of advanced crude oil production technologies continue to lift projected domestic supply. Domestic production of crude oil increases sharply in AEO2013, with annual growth averaging 234 thousand barrels per day (bpd) through 2019, when production reaches 7.5 million bpd (Figure 1). The growth results largely from a significant increase in onshore crude oil production, particularly from shale and other tight formations. After about 2020, production begins declining gradually to 6.1 million bpd in 2040 as producers develop sweet spots first and then move to less productive or less profitable drilling areas.

Natural gas production is higher throughout the AEO2013 Reference case projection than it was in AEO2012, with natural gas increasingly serving the industrial and electric power sectors, as well as an expanding export market

Relatively low natural gas prices, facilitated by growing shale gas production, spur increased use in the industrial and electric power sectors, particularly over the next 15 years. Natural gas use (excluding lease and plant fuel) in the industrial sector increases by 16 percent, from 6.8 trillion cubic feet per year in 2011 to 7.8 trillion cubic feet per year in 2025. Although natural gas also continues to capture a growing share of total electricity generation, natural gas consumption by power plants does not increase as sharply as generation because new plants are very efficient. After accounting for 16 percent of total generation in 2000, the natural gas share of generation rose to 24 percent in 2010 and is expected to continue increasing, to 27 percent in 2020 and 30 percent in 2040. In the AEO2013 Reference case, natural gas also reaches other new markets, such as exports, as a fuel for heavy-duty freight transportation (trucking), and as a feedstock for producing diesel and other fuels.

Motor gasoline consumption is lower in AEO2013 relative to the level in AEO2012, reflecting the introduction of more stringent corporate average fuel economy standards; growth in diesel fuel consumption is moderated by increased use of natural gas in heavy-duty vehicles

figure dataAEO2013 incorporates the greenhouse gas (GHG) and corporate average fuel economy (CAFE) standards for light-duty vehicles (LDVs)¹ through the 2025 model year, which increases the new vehicle fuel economy from 32.6 miles per gallon (mpg) in 2011 to 47.3 mpg in 2025. The increase in vehicle efficiency reduces gasoline use in the transportation sector by 0.5 million bpd in 2025 and by 1.0 million bpd in 2035 in AEO2013 compared to the Annual Energy Outlook 2012 (AEO2012) Reference case (Figure 2). Furthermore, the improved economics of liquefied natural gas (LNG) for heavy-duty vehicles results in an increase in natural gas use in heavy-duty vehicles that offsets a portion of diesel fuel consumption. The use of petroleum-based diesel fuel is also reduced by the increased use of diesel produced using gas-to-liquids (GTL) technology. Natural gas use in vehicles reaches 1.7 trillion cubic feet (including GTL) by 2040, displacing 0.7 million bpd of other motor fuels.²

The United States exports more natural gas than projected in the AEO2012 Reference case

figure dataU.S. dry natural gas production increases throughout the projection period (Figure 3), outpacing domestic consumption by 2020 and spurring net exports of natural gas. Higher volumes of shale gas production in AEO2013 are central to higher total production volumes and an earlier transition to net exports than was projected in the AEO2012 Reference case. U.S. exports of LNG from domestic sources rise to approximately 1.6 trillion cubic feet in 2027, almost double the 0.8 trillion cubic feet projected in AEO2012.

Industrial production expands in response to the initial competitive advantage of low natural gas prices

Industrial production grows more rapidly in AEO2013 due to the benefit of strong growth in shale gas production and an extended period of relatively low natural gas prices, which lower the costs of both raw materials and energy, particularly through 2025. Specific industries benefit from the greater availability of natural gas at relatively low prices. For example, industrial production grows by 1.7 percent per year from 2011 to 2025 in the bulk chemicals industries—which also benefit from increased production of natural gas liquids—and by 2.8 percent per year in the primary metals industries, as compared with 1.4 percent and 1.1 percent per year, respectively, in the AEO2012 Reference case. In the long term, growing competition from abroad in these industries limits output growth, as other nations develop and install newer, more energy-efficient facilities. The higher level of production also leads to greater industrial natural gas demand (excluding lease and plant fuel), which grows to more than 8.3 quadrillion Btu in 2035 in AEO2013, compared to 7.2 quadrillion Btu in 2035 in AEO2012. Most of the increase in industrial energy demand is the result of higher output in the manufacturing sector.

Renewable fuel use grows at a much faster rate than fossil fuel use

figure dataThe share of generation from renewables grows from 13 percent in 2011 to 16 percent in 2040. Electricity generation from solar and, to a lesser extent, wind energy sources grows as recent cost declines make them more economical. However, the AEO2013 projection is less optimistic than AEO2012 about the ability of advanced biofuels to capture a rapidly growing share of the liquid fuels market. As a result, biomass use in AEO2013 totals 4.2 quadrillion Btu in 2035 (compared to 5.4 quadrillion Btu in AEO2012) and 4.9 quadrillion Btu in 2040, up from 2.7 quadrillion Btu in 2011.

With improved efficiency of energy use and a shift away from the most carbon-intensive fuels, U.S. energy-related carbon dioxide (CO₂) emissions remain more than 5 percent below their 2005 level through 2040

Total U.S. energy-related CO₂ emissions do not return to their 2005 level (5,997 million metric tons) by the end of the AEO2013 projection period (Figure 4). Emissions from motor gasoline demand in AEO2013 are lower than in AEO2012 as a result of the adoption of fuel economy standards, biofuel mandates, and shifts in consumer behavior. Emissions from coal use in the generation of electricity are lower as power generation shifts from coal to lower-carbon fuels, including natural gas and renewables.

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Footnotes

¹U.S. Environmental Protection Agency and National Highway Traffic Safety Administration, "2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards: Final Rule," Federal Register, Vol. 77, No. 199 (Washington, DC: October 15, 2012), website www.gpo.gov/fdsys/pkg/FR-2012-10-15/pdf/2012-21972.pdf.

²Liquid motor fuels include diesel and liquid fuels from GTL processes. Liquid fuel volumes from GTL for motor vehicle use are estimated based on the ratio of onroad diesel and gasoline to total diesel and gasoline.