EIA 2012 Annual Energy Outlook Early Release Reference Case

Jan 23: The U.S. Energy Information Administration (EIA) issued the 2012 Annual Energy Outlook (AEO2012) Early Release Reference case, which provides updated projections for U.S. energy markets through 2035. In addition to a press release and tables that summarize the new projection, an Overview report is provided that addresses key findings and major changes in assumptions and results from the previous year's projection. The Early Release Overview specifically highlights the Reference case, which assumes no changes in current laws and regulations, thus serving as a starting point for analysis of potential policy changes or technology breakthroughs. The complete AEO2012, to be released this spring, will include many alternative cases in recognition of the uncertainty inherent in making projections about energy markets, which in part arises from assumptions about policies and other market drivers such as trends in prices and economic growth. Some key findings of the early report include:

Domestic crude oil production is expected to grow by more than 20 percent over the coming decade: Domestic crude oil production increased from 5.1 million barrels per day in 2007 to 5.5 million barrels per day in 2010. Over the next 10 years, continued development of tight oil combined with the development of offshore Gulf of Mexico resources are projected to push domestic crude oil production to 6.7 million barrels per day in 2020, a level not seen since 1994.

With modest economic growth, increased efficiency, growing domestic production, and continued adoption of nonpetroleum liquids, net petroleum imports make up a smaller share of total liquids consumption: U.S. dependence on imported petroleum liquids declines in the AEO2012 Reference case, primarily as a result of growth in domestic oil production of over 1 million barrels per day by 2020, an increase in biofuel use of over 1 million barrels per day crude oil equivalent by 2024, and modest growth in transportation sector demand through 2035. Net petroleum imports as a share of total U.S. liquid fuels consumed drop from 49 percent in 2010 to 38 percent in 2020 and 36 percent in 2035 in AEO2012.

U.S. production of natural gas is expected to exceed consumption early in the next decade: The United States is projected to become a net exporter of liquefied natural gas (LNG) in 2016, a net pipeline exporter in 2025, and an overall net exporter of natural gas in 2021. The outlook reflects increased use of LNG in markets outside of North America, strong domestic natural gas production, reduced pipeline imports and increased pipeline exports, and relatively low natural gas prices in the United States compared to other global markets.

Use of renewable fuels and natural gas for electric power generation rises: The natural gas share of electric power generation increases from 24 percent in 2010 to 27 percent in 2035, and the renewables share grows from 10 percent to 16 percent over the same period. In recent years, the U.S. electric power sector's historical reliance on coal-fired power plants has begun to decline. Over the next 25 years, the projected coal share of overall electricity generation falls to 39 percent, well below the 49-percent share seen as recently as 2007, because of slow growth in electricity demand, continued competition from natural gas and renewable plants, and the need to comply with new environmental regulations.

Total U.S. energy-related carbon dioxide (CO2) emissions remain below their 2005 level through 2035: Energy-related CO2 emissions grow by 3 percent from 2010 to 2035, reaching 5,806 million metric tons in 2035. They are more than 7 percent below their 2005 level in 2020 and do not return to the 2005 level of 5,996 million metric tons by the end of the projection period. Emissions per capita fall by an average of 1 percent per year from 2005 to 2035, as growth in demand for transportation fuels is moderated by higher energy prices and Federal fuel economy standards. Proposed fuel economy standards covering model years 2017 through 2025 that are not included in the Reference case would further reduce projected energy use and emissions. Electricity-related emissions are tempered by appliance and lighting efficiency standards, State renewable portfolio standard requirements, competitive natural gas prices that dampen coal use by electric generators, and implementation of the Cross-State Air Pollution Rule.

    Other highlights of the AEO2012 Reference case projections:

• World oil prices rise in the Reference case, as pressure from growth in global demand continues. In 2035, the average real price of crude oil in the Reference case is $146 per barrel in 2010 dollars. World liquids consumption grows from 87.1 million barrels per day in 2010 to 109.7 million barrels per day in 2035, driven by growing demand in China, India, the Middle East and other developing economies.
• Total U.S. primary energy consumption, which was 101.4 quadrillion Btu in 2007, grows from 98.2 quadrillion Btu in 2010 to 108.0 quadrillion Btu in 2035. The fossil fuel share of energy consumption falls from 83 percent of total U.S. energy demand in 2010 to 77 percent in 2035.
• Net imports of energy meet a declining share of total U.S. energy demand as domestic energy production increases. The projected net import share of total U.S. energy consumption in 2035 is 13 percent, compared with 22 percent in 2010 and 29 percent in 2007.

    EIA notes that the Reference case results shown in the AEO2012 Early Release will vary somewhat from those included in the complete Annual Energy Outlook (AEO) that will be released in spring 2012, because some data and model updates were not available for inclusion in the Early Release. In particular, the complete AEO2012 will include the Mercury and Air Toxics Standards issued by the U.S. Environmental Protection Agency (EPA) in December 2011; updated historical data and equations in the transportation sector, based on revised data from the National Highway Traffic Safety Administration (NHTSA) and the Federal Highway Administration; a new model for cement production in the industrial sector; a revised long-term macroeconomic projection based on an updated long-term projection from IHS Global Insight, Inc.; and an updated representation of biomass supply.

    One of the more interesting factors in the AEO2012 report is a substantial reduction in the estimate of recoverable shale gas in the U.S. The report indicates that, "Cumulative natural gas production from 2010 through 2035 in the AEO2012 Reference case is 7 percent higher than in AEO2011, even though the estimated natural gas resource base is lower. This primarily reflects increased shale gas production resulting from the application of recent technological advances, as well as continued drilling in shale plays with high concentrations of natural gas liquids and crude oil, which have a higher value in energy equivalent terms than dry natural gas. Production levels for tight gas and coalbed methane exceed those in the AEO2011 Reference case through 2035, making significant contributions to the overall increase in production. Offshore natural gas production in the Gulf of Mexico fluctuates between 2.0 and 2.8 trillion cubic feet per year as new large projects directed toward liquids development are started over time.

    "In the AEO2012 Reference case, the estimated unproved technically recoverable resource (TRR) of shale gas for the United States is 482 trillion cubic feet, substantially below the estimate of 827 trillion cubic feet in AEO2011. The decline largely reflects a decrease in the estimate for the Marcellus shale, from 410 trillion cubic feet to 141 trillion cubic feet. Both EIA and USGS have recently made significant revisions to their TRR estimates for the Marcellus shale. Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago. Indeed, the daily rate of Marcellus production doubled during 2011 alone. Using data though 2010, USGS updated its TRR estimate for the Marcellus to 84 trillion cubic feet, with a 90-percent confidence range from 43 to 144 trillion cubic feet -- a substantial increase over the previous USGS estimate of 2 trillion cubic feet dating from 2002. For AEO2012, EIA uses more recent drilling and production data available through 2011 and excludes production experience from the pre-shale era (before 2008). EIA's TRR estimate for the entire Northeast also includes TRR of 16 trillion cubic feet for the Utica shale, which underlies the Marcellus and is still relatively little explored. The complete AEO2012 publication will include a more in-depth examination of the factors that affect resource estimates."

 

    Sierra Club issued a release commenting on the AEO2012 reports assessment of coal-fired electricity which is projected to continue in a steady decline in 2012, which they say will opening market space for clean energy. Bruce Nilles, Senior Director of the Sierra Club's Beyond Coal Campaign said, "For many years the Energy Information Agency has exaggerated coal's prospects for the future, and every year has had to downgrade its projections. Today EIA again downgraded coal's future, though we know coal's future is even darker than EIA is predicting."

 

    Sierra Club noted that EIA projects that at least 33,000 megawatts worth of existing coal-fired power plants are expected to retire in the coming decades, not including any retirements due to the recently-finalized mercury and air toxics standard from U.S. EPA. Sierra Club cited for reference that an average-sized coal-burning power plant is approximately 500 megawatts. Coal's market share of U.S. electricity production is expected to continue to drop, from 44 to 39 percent. Last year's EIA report thought coal would fall from 48 to 44 percent between 2010 and 2035. No new coal plants are predicted to be constructed in the time period, beyond those few that are already under construction.

 

    In their release, Sierra Club indicated that while the EIA estimates that over the next 25 years approximately 33,000 megawatts of existing coal power will retire, they have identified over 38,000 megawatts of existing coal power that has retired or announced an upcoming retirement since January 2010 -- and more are expected soon. There are about 340,000 megawatts of coal in the United States as of January 2010. Nilles said, "Even today's EIA projections remain far too rosy for coal; we expect the vast majority of coal plants to be retired no later than 2030. We agree, however, with EIA's prediction that no new coal plants will break ground in the future because clean energy is more cost effective, and we expect even more coal plant retirements."

    Access an announcement (click here). Access complete information and the AEO2012 report (click here). Access a release from Sierra Club (click here). [#Energy]

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