On December 16, 2013, the Energy Information Administration (EIA) released an early draft of its 2014 Annual Energy Outlook (AEO). EIA Administrator Adam Sieminski presented the report at an event hosted by the Johns Hopkins School of Advanced International Studies (SAIS). This report includes the EIA’s reference case, which is its best guess of the U.S. energy outlook through 2040 given current conditions. The EIA will eventually release alternative cases that will highlight the expected impacts of changes in policy or other events.
Five Minute Video Summary:
Main Conclusions Presented by EIA Administrator Adam Sieminski
- Growing domestic production of natural gas and crude oil continues to reshape the U.S. energy economy
- Natural gas overtakes coal to provide the largest share of U.S. electric power generation
- Low natural gas prices boost natural gas-intensive industries
- Higher natural gas production also supports increases in exports of both pipeline and liquefied natural gas
- U.S. energy-related carbon dioxide emissions will stay below their 2005 level through 2040
The 2014 Annual Energy Outlook presents a reference case that examines U.S. energy markets through 2040, under the assumption that current laws and regulations remain generally unchanged. The early release is supposed to provide an informed background for potential changes in U.S. energy policies and technology. The EIA will eventually release additional cases that highlight key uncertainties in the reference case.
Natural gas production will continue to grow indefinitely. It will increase 56 percent by 2014, when it reaches 37.6 trillion cubic feet (Tcf). Much of this growth comes from shale gas and tight gas. Shale gas will eventually account for half of U.S. natural gas production. This is quite remarkable. Mr. Sieminski was asked if anything could stop the expected growth of shale gas, and he responded that new rules on rules on hydraulic fracturing or related infrastructure could impact natural gas prices and also production.
In contrast, domestic oil production is expected to level off and then slowly decline after 2020.
The increased natural gas production will help natural gas eventually displace coal as America’s top electricity source. Policy decisions will also factor into this ongoing shift. Between today and 2040, natural gas will raise from 30 to 35 percent, while coal will drop from 37 to 32 percent. This long-term shift will continue despite recent increases in natural gas prices that have allowed coal electricity to recover somewhat.
Natural gas use will increase in industry. Refining and bulk chemicals will increase the most, followed by food processing, metals, paper, and other manufacturing.
The U.S. is projected to be a net exporter of natural gas within the next few years. By 2025, total exports will be 14.8 billion cubic feet per day (bcf/d), while the U.S. will continue to import 5.4 bcd/d. Roughly half the exports will go via pipeline to Canada and Mexico, while the other half will be liquefied natural gas (LNG).
Natural gas will continue to be priced about 1/3 the price of crude oil, on an energy equivalent basis. That large price differential will allow natural gas to grow exponentially in crude oil’s main market, transportation. This huge growth, primarily in long-haul trucks, is not a major factor in growing domestic demand. Industry and electricity usage will continue to dwarf transportation use. During question and answer, Mr. Sieminski was asked if the numbers for growth in transportation were overly pessimistic given the long-term low natural gas prices. He said that the reference case may understate natural gas growth in transportation, but infrastructure constraints will limit growth. He also pointed out that rail and marine use are incorporated in the study this year for the first time.
Despite all this growth in oil and natural gas, energy-related carbon emissions in the United States are expected to largely remain flat. Because emissions declined rapidly over the last few years, carbon emissions are expected to remain below the 2005 levels as far out as the EIA projects.