For the US, energy production and energy consumption will be different in the future than it is today, mostly due to advances in technology in the energy market. The US will become a net energy exporter over a projected period of time, in most cases, according to the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2017 (AEO2017), released in January 2017.
The AEO2017 provides several modeled projections of domestic energy markets through 2050 and includes cases with different assumptions of macroeconomic growth, world oil prices, technology progress and energy policies. It is developed using the National Energy Modeling System (NEMS), an integrated model that aims to capture interactions of economic changes and energy supply, demand, and prices. Projections are not predictions of what will happen, but are modeled projections of what may happen, given certain assumptions and methodologies. This is the first time that EIA published projections through 2050 in the AEO tables.
Updated projections for US energy markets through 2050 are based on eight cases—Reference, Low and High Economic Growth, Low and High Oil Price, Low and High Oil and Gas Resource and Technology, and No Clean Power Plan implementation.
It is important to note that the potential impacts of proposed legislation, regulations, or standards are not reflected in the Reference case, and EIA addressed the uncertainty inherent in energy projections by developing side cases with different key assumptions about macroeconomic growth, world oil prices, technology advancements and energy policies, which may affect future energy markets. Also, in the Reference case projection, trend improvement in known technologies is assumed, along with a view of economic and demographic trends, reflecting current central views of economic forecasters and demographers. It assumes that current laws and regulation affecting the energy sector, including sunset dates for laws that have them, are unchanged throughout the projection period.
The Side Cases
High and Low Oil Price cases: Oil prices are driven by global market balances that are influenced by factors external to the NEMS model. In the High Oil Price case, the price of Brent crude oil in 2016 reaches $226 per barrel by 2040, compared to $109 per barrel in the Reference case and $24 per barrel in the Low Oil Price case.
High and Low Oil, Gas Resource, Technology cases: In the High Oil, Gas Resource, Technology cases, lower costs and higher resource availability than in the Reference case allow for higher production at lower prices. More pessimistic assumptions about resources and costs are applied in the Low Oil, Gas Resource, Technology case.
High and Low Economic Growth cases: In these specific cases, effects of economic assumptions on energy consumption are addressed, assuming compound annual growth rates for US GDP of 2.6% and 1.6%, respectively, from 2016 to 2040, compared with 2.2% annual growth in the Reference case.
Clean Power Plan (CPP) case: This case assumes the CPP is not implemented, so it can be compared with the Reference case to show how the absence of the policy could affect the energy market and emissions.
Net Energy Exporter
As petroleum liquid imports fall and natural gas exports rise, the US becomes a net energy exporter in most AEO2017 cases. Exports are highest, and grow throughout the projection period, in the High Oil and Gas Resource and Technology case, as favorable geology and technological developments combine to produce oil and gas at lower prices.
“EIA’s projections show how advances in technology are driving oil and natural gas production, renewables penetration, and demand-side efficiencies and reshaping the energy future,” said EIA Administrator Adam Sieminski. “The variation across the analysis cases of projected net energy export levels—as well as other findings in AEO2017—demonstrates the importance of considering the full set of AEO cases.”
Enabling the most rapid transition to net exporter status, the High Oil Price case provides favorable economic conditions for producers while restraining domestic consumption. In all cases but the High Oil and Gas Resource Technology case, which assumes substantial improvements in production technology and more favorable resource availability, US production declines in the 2030s, which slows or reverses projected growth in net energy exports.
The US has been a net energy importer since 1953, but declining energy imports and growing energy exports make the US a net energy exporter by 2026 in the Reference case. Also in the Reference case projection, the US is both an importer and exporter of petroleum liquids, importing mostly crude oil and exporting mostly petroleum products, such as gasoline and diesel.
Energy Production, Consumption
Bound by the High and Low Economic Growth cases, energy consumption varies minimally across all AEO cases. The largest consumer of energy in all AEO cases is the electric power sector. Total energy consumption increases by 5% between 2016 and 2040 in the Reference case. A portion of energy consumption is related to economic activity, thus, energy consumption is projected to increase by about 11% in the High Economic Growth case, but remains nearly flat in the Low Economic Growth case. The Oil and Gas Resource and Technology cases affect energy production, but the impact on energy consumption is less significant.
In the Reference case, domestic energy consumption remains relatively flat, rising 5% from the 2016 level by 2040 and close to its previous peak, but there is a significant change in the fuel mix. (Assumptions about economic growth rates or energy prices considered in AEO2017 side cases affect projected consumption.)
Led by the demand from the industrial and electric power sectors, natural gas use increases more than other fuel sources. And it is no surprise that renewable energy grows the fastest because capital costs fall with increased penetration and current state and federal policies encourage its use. Cost reductions and existing policies at the federal and state level promote the use of wind and solar energy, thus, non-hydroelectric renewable energy production grows.
Petroleum consumption remains relatively flat as increases in energy efficiency offset growth in transportation and industrial activity measures, and growth of liquid biofuels is constrained by relatively flat transportation energy use and blending limitations. Coal consumption decreases and loses market share to natural gas and renewable generation in the electric power sector.
In the Reference case, US energy production continues to increase, led by growth in natural gas and renewables. By 2040, natural gas production accounts for nearly 40% of US energy production. Varying assumptions about resources, technology, and prices in alternative cases affect the projection for US production.
Crude oil production increases from current levels, but then levels off around 2025 as tight oil development moves into less productive areas. Projected crude oil production varies with assumptions about resources and technology.
Nuclear generation declines modestly over 2017–2040 as new builds are already being developed and plant upgrades nearly offset retirements. The decline in nuclear generation accelerates beyond 2040 as a significant share of existing plants are retired.
Petroleum, Other Liquids Consumption
In most AEO2017 cases, US petroleum product consumption remains below 2005 levels through 2040 as crude oil production rebounds from recent decades. US petroleum consumption is projected to remain below the 2005 level—in all cases—which is the highest recorded to date, through 2040.
US crude oil production is projected to recover from recent declines—upstream producers increase output due to the combined effects of the rise in prices from recent lows and cost reductions—in the Reference case. Also, higher refinery inputs in the near term absorb higher forecast levels of US crude oil production—this limits changes to imports. And eventually, net crude oil imports increase because domestic crude production doesn’t keep pace with refinery inputs while domestic refiners expand product exports.
In Economic Growth cases, the domestic wellhead price doesn’t change much, which results in consumption that is similar to the Reference case. In the Low Oil Price case, low oil prices result in increased domestic consumption. At the same time, low prices drive down production, thus, creating higher import levels.
In the Reference case, tight oil dominates US production, but other types of oil production continue to yield significant volumes. Regardless of rising prices, US crude oil production levels off between 10 and 11 million barrels per day as tight oil development moves into less productive areas as well productivity decreases.
The lower 48 states’ onshore tight oil development continues to be the primary driver of total US crude oil production. (Tight oil is light crude oil contained in petroleum-bearing formations of shale or tight sandstone and is extracted via fracking.) This accounts for approximately 60% of the total cumulative domestic production between 2016 and 2040 in the Reference case. Also, announced discoveries in deepwater Gulf of Mexico sites lead to production increases in the lower 48 states offshore through 2020. It is also projected that offshore production declines until 2034, with the rate of decline slowing through 2040 as production from new discoveries offset declines in legacy fields.
In the High Oil and Gas Resource and Technology case, higher well productivity reduces development and production costs per unit, resulting in more resource development than in the Reference case. These assumptions are based on larger volumes of onshore lower 48 states tight oil and shale gas resources, higher rates of long-term technology improvement, and higher initial estimated ultimate recovery per well.
In the Reference case, leading the growth in tight oil production is the Southwest and Dakotas/Rocky Mountain regions, and the Gulf Coast region remains an important contributor to overall production levels.
Growth in crude oil production in the Southwest is supported by increases in the Permian basin, which includes tight and non-tight formations, while the growth in Dakotas/Rocky Mountains crude oil production is driven by increased production from the Bakken play, which is tight oil. Production in the Gulf Coast, primarily from the Eagle Ford and Austin Chalk, increases through most of the projection period.
Natural Gas Consumption
Increasing demand from industrial and electric power markets drive rising domestic consumption of natural gas while the residential and commercial sectors show little growth in the Reference case. During most years, the industrial sector is the largest consumer of natural gas. Major natural gas consumers include the petrochemical industry and other energy-intensive industries that use natural gas for heat and power, and liquefied natural gas producers.
After 2020, natural gas used for electric power generation generally increases after a brief near-term decline attributed to strong growth in renewables generation and price competition with coal. The Clean Power Plan (CPP) and the scheduled expiration of renewable tax credits in the mid-2020s result in an increase in the electric power sector’s natural gas use. Natural gas consumption in the electric power sector is approximately 6% higher in the Reference case in 2040 than the No CPP case. As a result of efficiency gains that balance increases in the number of housing units and commercial floor space, natural gas consumption in the residential and commercial sectors remains largely flat.
Crude Oil, Natural Gas Production
Crude oil production and natural gas production depend upon oil prices, resource availability and technological improvements. Projections of tight oil and shale gas production are uncertain due to large portions of the known formations having little or no production history, and evolving extraction technologies and best practices. Drilling technology improvements could increase well productivity and reduce drilling, completion, and production costs.
Both crude oil and natural gas production continue to grow in the High Oil and Gas Resource and Technology case. The difference between crude oil and natural gas prices creates more incentive to consume natural gas in energy-intensive industries and for transportation, and to export it overseas as liquefied natural gas, increasing US production, in the High Oil Price case.
US crude oil production begins to decline in the High Oil Price case—by 2040 production is nearly the same as in the Reference case—without the favorable resources and technology advancements found in the High Oil and Gas Resource and Technology case.
Renewables in the Mix
As coal’s share declines over time in the Reference case, fuel prices and current laws and regulations drive growing shares of renewables and natural gas in the electricity generation mix.
Displacing growth in natural gas, federal tax credits drive near-term growth in renewable generation. Also, fuel prices drive near-term natural gas and coal shares. Coal regains a larger generation share over natural gas through 2020, as natural gas prices rebound from 20-year lows in 2016. In the long term, policy—Clean Power Plan, renewable tax credits, and California’s SB32—and unfavorable economic conditions compared with natural gas and renewables result in declining coal generation and growing natural gas and renewables generation.
In the Reference case, lower capital costs and availability of tax credits boost near-term wind additions and sustain solar additions. Coal-fired unit retirements are driven by low natural gas prices and the Clean Power Plan in the Reference Case. Approximately 70 GW of new wind and solar photovoltaic capacity is added during 2017 to 2021—encouraged by tax credits and declining capital costs.
Most wind capacity, used to comply with the CPP, is built prior to the scheduled expiration of the production tax credits for wind plants going online by the end of 2023. But wind is still likely to be competitive even without tax credits.
For more information and to review the entire AEO2017 visit www.eia.gov/outlooks/aeo/.
Edited by Yearbook Editor Candace Roulo from information provided by the US Energy Information Adminstration