Executive Summary
The past year has been a tumultuous one for world energy markets, with
oil prices soaring through the first half of 2008 and diving in its second
half. The downturn in the world economy has had a significant impact on
energy demand, and the near-term future of energy markets is tied to the
downturn’s uncertain depth and persistence. The recovery of the world’s
financial markets is especially important for the energy supply outlook,
because the capital-intensive nature of most large energy projects makes
access to financing a critical necessity.
The projections in AEO2009 look beyond current economic and financial woes
and focus on factors that drive U.S. energy markets in the longer term.
Key issues highlighted in the AEO2009 include higher but uncertain world
oil prices, growing concern about greenhouse gas (GHG) emissions and its
impacts on energy investment decisions, the increasing use of renewable
fuels, the increasing production of unconventional natural gas, the shift
in the transportation fleet to more efficient vehicles, and improved efficiency
in end-use appliances. Using a reference case and a broad range of sensitivity
cases, AEO2009 illustrates these key energy market trends and explores
important areas of uncertainty in the U.S. energy economy. The AEO2009 cases, which were developed before enactment of the American Recovery and
Reinvestment Act of 2009 (ARRA2009) in February 2009, reflect laws and
policies in effect as of November 2008.
AEO2009 also includes in-depth discussions on topics of special interest
that may affect the energy market outlook, including changes in Federal
and State laws and regulations and recent developments in technologies
for energy production and consumption. Some of the highlights for selected
topics are mentioned in this Executive Summary, but readers interested
in other issues or a fuller discussion should look at the Legislation and
Regulations and Issues in Focus sections.
Developments in technologies for energy production and consumption that
are discussed and analyzed in this report include the impacts of growing
concerns about GHG emissions on investment decisions and how those impacts
are handled in the AEO2009 projections; the impacts of extending the PTC
for renewable fuels by 10 years; the impacts of uncertainty about construction
costs for electric power plants; the relationship between natural gas prices
and oil prices; the economics of bringing natural gas from Alaska’s North
Slope to U.S. markets; expectations for oil shale production; the economics
of plug-in electric hybrids; and trends in world oil prices and production.
World Oil Prices, Oil Use, and Import Dependence
Despite the recent economic downturn, growing demand for energy—particularly
in China, India, and other developing countries—and efforts by many countries
to limit access to oil resources in their territories that are relatively
easy to develop are expected to lead to rising real oil prices over the
long term. In the AEO2009 reference case, world oil prices rise to $130
per barrel (real 2007 dollars) in 2030; however, there is significant uncertainty
in the projection, and 2030 oil prices range from $50 to $200 per barrel
in alternative oil price cases. The low price case represents an environment
in which many of the major oil-producing countries expand output more rapidly
than in the reference case, increasing their share of world production
beyond current levels. In contrast, the high price case represents an environment
where the opposite would occur: major oil-producing countries choose to
maintain tight control over access to their resources and develop them
more slowly.
Total U.S. demand for liquid fuels grows by only 1 million barrels per day
between 2007 and 2030 in the reference case, and there is no growth in
oil consumption. Oil use is curbed in the projection by the combined effects
of a rebounding oil price, more stringent corporate average fuel economy
(CAFE) standards, and requirements for the increased use of renewable fuels
(Figure 1).
Growth in the use of biofuels meets the small increase in demand for liquids
in the projection. Further, with increased use of biofuels that are produced
domestically and with rising domestic oil production spurred by higher
prices in the AEO2009 reference case, the net import share of total liquid
fuels supplied, including biofuels, declines from 58 percent in 2007 to
less than 40 percent in 2025 before increasing to 41 percent in 2030. The
net import share of total liquid fuels supplied in 2030 varies from 30 percent
to 57 percent in the alternative oil price cases, with the lowest share
in the high price case, where higher oil prices dampen liquids demand and
at the same time stimulate more production of domestic petroleum and biofuels.
Growing Concerns about Greenhouse Gas Emissions
Although no comprehensive Federal policy has been enacted, growing concerns
about GHG emissions appear to be affecting investment decisions in energy
markets, particularly in the electricity sector. In the United States,
potential regulatory policies to address climate change are in various
stages of development at the State, regional, and Federal levels. U.S.
electric power companies are operating in an especially challenging environment.
In addition to ongoing uncertainty with respect to future demand growth
and the costs of fuel, labor, and new plant construction, it appears that
capacity planning decisions for new generating plants already are being
affected by the potential impacts of policy changes that could be made
to limit or reduce GHG emissions.
This concern is recognized in the reference case and leads to limited additions
of new coal-fired capacity— much less new coal capacity than projected
in recent editions of the Annual Energy Outlook (AEO). Instead of relying
heavily on the construction of new coal-fired plants, the power industry
constructs more new natural-gas-fired plants, which account for the largest
share of new power plant additions, followed by smaller amounts of renewable,
coal, and nuclear capacity. From 2007 to 2030, new natural-gas-fired plants
account for 53 percent of new plant additions in the reference case, and
coal plants account for only 18 percent.
Two alternative cases in AEO2009 illustrate how uncertainty about the evolution
of potential GHG policies could affect investment behavior in the electric
power sector. In the no GHG concern case, it is assumed that concern about
GHG emissions will not affect investment decisions in the electric power sector.
In contrast, in the LW110 case, the GHG emissions reduction policy proposed
by Senators Lieberman and Warner (S. 2191) in the 110th Congress is incorporated
to illustrate a future in which an explicit Federal policy is enacted to
limit U.S. GHG emissions. The results in this case should be viewed as
illustrative, because the projected impact of any policy to reduce GHG
emissions will depend on its detailed specifications, which are likely
to differ from those used in the LW110 case.
Projections in the two alternative cases illustrate the potential importance
of GHG policy changes to the electric power industry and why uncertainty
about such changes weighs heavily on planning and investment decisions.
Relative to the reference case, new coal plants play a much larger role
in meeting the growing demand for electricity in the no GHG concern case,
and the role of natural gas and nuclear plants is diminished. In this case,
new coal plants account for 38 percent of generating capacity additions
between 2007 and 2030. In contrast, in the LW110 case there is a strong
shift toward nuclear and renewable generation, as well as fossil technologies
with carbon capture and storage (CCS) equipment.
There is also a wide divergence in electricity prices in the two alternative
GHG cases. In the no GHG concern case, electricity prices are 3 percent
lower in 2030 than in the reference case; in the LW110 case, they are 22
percent higher in 2030 than in the reference case.
Increasing Use of Renewable Fuels
The use of renewable fuels grows strongly in AEO2009, particularly in the
liquid fuels and electricity markets. Overall consumption of marketed renewable
fuels—including wood, municipal waste, and biomass in the end-use sectors;
hydroelectricity, geothermal, municipal waste, biomass, solar, and wind
for electric power generation; ethanol for gasoline blending; and biomass-based
diesel—grows by 3.3 percent per year in the reference case, much faster
than the 0.5-percent annual growth in total energy use. The rapid growth
of renewable generation reflects the impacts of the renewable fuel standard
in the Energy Independence and Security Act of 2007 (EISA2007) and strong
growth in the use of renewables for electricity generation spurred by renewable
portfolio standard (RPS) programs at the State level.
EISA2007 requires that 36 billion gallons of qualifying credits from biofuels
be produced by 2022 (a credit is roughly one gallon, but some biofuels
may receive more than one credit per gallon); and although the reference
case does not show that credit level being achieved by the 2022 target
date, it is exceeded by 2030. The volume of biofuels consumed is sensitive
to the price of the petroleum-based products against which they compete.
As a result, total liquid biofuel consumption varies significantly between
the reference case projection and the low and high oil price cases. In
the low oil price case, total liquid biofuel consumption reaches 27 billion
gallons in 2030. In the high oil price case, where the price of oil approaches
$200 per barrel (real 2007 dollars) by 2030, it reaches 40 billion gallons.
As of November 2008, 28 States and the District of Columbia had enacted
RPS requirements that a specified share of the electricity sold in the
State come from various renewable sources. As a result, the share of electricity
sales coming from nonhydroelectric renewables grows from 3 percent in 2007
to 9 percent in 2030, and 33 percent of the increase in total generation
comes from nonhydroelectric renewable sources. The share of sales accounted
for by nonhydroelectric renewables could grow further if more States adopted
or strengthened existing RPS requirements. Moreover, the enactment of polices
to reduce GHG emissions could stimulate additional growth. In the LW110
case, the share of electricity sales accounted for by nonhydroelectric
renewable generation grows to 18 percent in 2030.
Growing Production from Unconventional Natural Gas Resources
Relative to recent AEOs, the AEO2009 reference case raises EIA’s projection
for U.S. production and consumption of natural gas, reflecting a larger
resource base and higher demand for natural gas for electricity generation.
Among the various sources of natural gas, the most rapid growth is in domestic
production from unconventional resources, while the role played by pipeline
imports and imports of liquefied natural gas (LNG) declines over the long
term (Figure 2).
The larger natural gas resource in the reference case results primarily
from a larger estimate for natural gas shales, with some additional impact
from the 2008 lifting of the Executive and Congressional moratoria on leasing
and development of crude oil and natural gas resources in the OCS. From
2007 to 2030, domestic production of natural gas increases by 4.3 trillion
feet (22 percent), while net imports fall by 3.1 trillion cubic feet (83
percent). Although average real U.S. wellhead prices for natural gas increase
from $6.39 per thousand cubic feet in 2007 to $8.40 per thousand cubic
feet in 2030, stimulating production from domestic resources, the prices
are not high enough to attract large imports of LNG, in a setting where
world LNG prices respond to the rise of oil prices in the AEO2009 reference
case. One result of the growing production of natural gas from unconventional
onshore sources, together with increases from the OCS and Alaska, is that
the net import share of U.S. total natural gas use also declines, from 16
percent in 2007 to less than 3 percent in 2030.
In addition to concerns and/or policies regarding GHG emissions, the overall
level of natural gas consumption that supply must meet is sensitive to
many other factors, including the pace of economic growth. In the AEO2009 alternative economic growth cases, consumption of natural gas in 2030 varies
from 22.7 trillion cubic feet to 26.0 trillion cubic feet, roughly 7 percent
below and above the reference case level.
Shifting Mix of Unconventional Technologies in Cars and Light Trucks
Higher fuel prices, coupled with significant increases in fuel economy
standards for light-duty vehicles (LDVs) and investments in alternative
fuels infrastructure, have a dramatic impact on development and sales of
alternative-fuel and advanced-technology LDVs. The AEO2009 reference case
includes a sharp increase in sales of unconventional vehicle technologies,
such as flex-fuel, hybrid, and diesel vehicles. Hybrid vehicle sales of
all varieties increase from 2 percent of new LDV sales in 2007 to 40 percent
in 2030. Sales of plug-in hybrid electric vehicles (PHEVs) grow to almost
140,000 vehicles annually by 2015, supported by tax credits enacted in
2008, and they account for 2 percent of all new LDV sales in 2030. Diesel
vehicles account for 10 percent of new LDV sales in 2030 in the reference
case, and flex-fuel vehicles (FFVs) account for 13 percent.
In addition to the shift to unconventional vehicle technologies, the AEO2009 reference case shows a shift in the LDV sales mix between cars and light
trucks (Figure 3). Driven by rising fuel prices and the cost of CAFE compliance,
the sales share of new light trucks declines. In 2007, light-duty truck
sales accounted for approximately 50 percent of new LDV sales. In 2030,
their share is down to 36 percent, mostly as a result of a shift in LDV
sales from sport utility vehicles to mid-size and large cars.
Slower Growth in Overall Energy Use and Greenhouse Gas Emissions
The combination of recently enacted energy efficiency policies and rising
energy prices in the AEO2009 reference case slows the growth in U.S. consumption
of primary energy relative to history: from 101.9 quadrillion British thermal
units (Btu) in 2007, energy consumption grows to 113.6 quadrillion Btu in
2030, a rate of increase of 0.5 percent per year. Further, when slower demand
growth is combined with increased use of renewables and a reduction in
additions of new coal-fired conventional power plants, growth in energy-related
GHG emissions also is slowed relative to historical experience. Energy-related
emissions of carbon dioxide (CO2) grow at a rate of 0.3 percent per year
from 2007 to 2030 in the AEO2009 reference case, to 6,414 million metric
tons in 2030, compared with the Annual Energy Outlook 2008 (AEO2008) reference case projection of 6,851 million metric tons in
2030.
One key factor that drives growth in both total energy consumption and
GHG emissions is the rate of overall economic growth. In the AEO2009 reference
case, the U.S. economy grows by an average of 2.5 percent per year. In
comparison, in alternative low and high economic growth cases, the average
annual growth rates from 2007 to 2030 are 1.8 percent and 3.0 percent.
In the two cases, total primary energy consumption in 2030 ranges from
104 quadrillion Btu (8.2 percent below the reference case) to 123 quadrillion
Btu (8.6 percent above the reference case). Energy-related CO2 emissions
in 2030 range from 5,898 million metric tons (8.1 percent below the reference
case) in the low economic growth case to 6,886 million metric tons (7.3
percent above the reference case) in the high economic growth case. |
