On January 05, 2017, the EIA released its Annual Energy Outlook for 2017, which includes projections through 2050. The full report can be read here: http://www.eia.gov/outlooks/aeo/pdf/0383(2017).pdf.
The EIA report effectively uses what is known as the reference case and then side cases to create its forecast. Generally the reference case projections assume trend improvement in known technologies along with a view of economic and demographic trends reflecting the current central views of leading economic forecaster and demographers. It assumes laws will remain relatively unchanged.
Side cases. On the high Oil price case, the EIA assume a price of Brent crude in 2016 dollars reaches $226 a barrel by 2040, compared with $109 per barrel in the reference case and $43 per barrel in the Low Oil Price Case. In the High Oil and Gas Resource and Technology case, lower costs and higher resource availability are assumed than in the Reference case so as to allow for higher production at lower prices. In the Low Oil and Gas Resource and Technology case, more pessimistic assumptions about resources and costs are applied. The effects of economic assumptions on energy consumption are addressed in the High and Low Economic Growth cases, which assume compound annual growth rates for U.S. gross domestic product of 2.6% and 1.6%, respectively, from 2016–40, compared with 2.2% annual growth in the Reference case. So, what can we learn from the report:
- Energy Consumption varies minimally across all AEO Cases. In the reference case, total energy consumption increases by 5% between 2016 and 2040 based on economic activity. In the High Economic Growth scenario, there is an 11% increase and energy consumption remains nearly flat in the Low Economic Growth Case. The power sector remains the largest consumer of primary energy.
- Predictions of energy production vary widely. Unlike consumption, predictions of production change dramatically depending on which scenario is presumed. Total energy production increases by more than 20% from 2016 to 2040 in the Reference case, led by increases in renewables, natural gas, and crude oil production.
- Natural Gas and Renewables experience the most growth. Natural gas production accounts for nearly 40% of U.S. energy production by 2040 in the Reference case. Varying assumptions about resources, technology, and prices in alternative cases significantly affect the projection for U.S. production. Crude oil production in the Reference case increases from current levels, then levels off around 2025 as tight oil development moves into less productive areas. Like natural gas, projected crude oil production varies considerably with assumptions about resources and technology.
- The United States becomes a net energy exporter – in most cases. The U.S. is projected to become a net energy exporter by 2026 in the Reference case. Net exports are highest in the High Oil and Gas Resource and Technology case as favorable geology and technological developments combine to produce oil and natural gas at lower prices. However, in the Low Oil Prices case, prices are too low to provide incentive for high U.S. production and thus limit exports. Nevertheless, under most scenarios, the U.S. becomes an exporter rather than an importer.
- Crude oil and petroleum products dominate U.S. energy trade. The United States is both an importer and exporter of petroleum liquids, importing mostly crude oil and exporting mostly petroleum products such as gasoline and diesel throughout the Reference case projection, (Aside: for an interesting note on this, see our article this week on markets for US Energy Products- click here)
- Natural gas trade, which has historically been mostly shipments by pipeline from Canada and to Mexico, is projected to be increasingly dominated by liquefied natural gas exports to more distant destinations.
- Nevertheless, in most cases, the U.S. remains a net petroleum importer except in the High Oil Price and High Oil and Gas Resource and Technology cases, where the U.S. becomes a petroleum exporter.
- Although population and economic output per capita are assumed to continue rising, energy intensity are projected to continue falling. This has historically been the case in the U.S. as the amount of energy used per unit of economic growth (energy intensity) has declined steadily for many years.
- U.S. petroleum product comsumption remains below 2005 levels through 2040 in most cases but crude oil production rebounds. In all cases, U.S. petroleum consumption is projected to remain below the 2005 level, the highest recorded to date, through 2040. Despite rising prices, in the Reference case U.S. crude oil production levels off between 10 and 11 million barrels per day as tight oil development moves into less productive areas and well productivity gradually decreases.
- U.S. natural gas consumption across most cases increases through most of the projection period and in combination with growing net exports, supporting production growth. In the Reference case, natural gas production over the 2016–20 period is projected to grow at about the same rapid rate (nearly 4% annual average) as it has since 2005. Since 2005, technologies to more efficiently produce natural gas from shale and tight formations have driven prices down, spurring growth in consumption and net exports. Despite decreasing in the near term, in all cases, other than the Low Oil and Gas Resource and Technology case, U.S. natural gas consumption is expected to increase during much of the projection period.
- Overall, natural gas prices are projected to increase.
- U.S. natural gas production growth is expected to result from continued development of shale gas and tight oil plays which will account for nearly two-thirs of natural gas production by 2040.
- As we have mentioned before, increasing demand for natural gas from industrial and electric power markets will drive increasing domestic consumption.
- There appears to be too much uncertainty, in my opinion, to determine export levels with too many factors coming into play at this point.
By: Ty Chapman
Five Star Metals, Inc.
Raising the Bar for Customer Service and Quality
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