Annual Energy Outlook 2010

Reference Case

The Paul H. Nitze School of Advanced International Studies

December 14, 2009
Washington, DC

Richard Newell, Administrator

Richard Newell, SAIS, December 14, 2009 1

 How does the AEO2010 reference case handle
public policy and technology?

• Generally assumes current laws and regulations

– provisions sunset if specified (e.g., renewable tax credits expire)
– excludes potential future laws and regulations (e.g., proposed
greenhouse gas legislation is not included)
– some grey areas
• adopts proposed regulations that are not yet final, in order to
inform the likely implementation of a statute
• adds a premium to the capital cost of CO2-intensive technologies
to reflect market behavior regarding possible CO2 regulation
• assumes implementation of existing regulations that enable
building new energy infrastructure and resource extraction
• Includes technologies that are commercial or reasonably
expected to become commercial in the next decade or so
– includes cost and efficiency improvements from learning, but not
revolutionary or breakthrough technologies

Richard Newell, SAIS, December 14, 2009 2

 Key updates included in the AEO2010 reference case

• Extended projection period to 2035

• Changes in Federal and State laws and regulations
– revised handling of fuel economy standards to reflect the proposal
for light-duty vehicles in model years 2012-2016
– assumes permission will be granted to extend nuclear power unit
operating licenses beyond 60 years; no retirements through 2035
• Revised capital costs for capital-intensive projects
– overnight costs for nuclear and coal power up 10-20%
• Changes to assumptions about oil and gas resource base
– updated characterization of natural gas shales, reflecting evolution
of shale gas resources and technology
– new lower-48 onshore oil and gas supply submodule

Richard Newell, SAIS, December 14, 2009 3

 Oil prices in the reference case rise steadily; the full
AEO2010 will include a wide range of prices

2008 dollars per barrel

History Projections
225
High oil price
200
175
150 AEO2009 reference
125
100
AEO2010 reference
75
50
Low oil price
25
0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 4
 Oil to natural gas price ratio remains high over the projection
Oil and natural gas prices
2008 dollars per million Btu
Ratio of oil price to natural gas price 25

20
5 Crude oil
15

10

4 5
U.S. natural gas wellhead
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

1
History Projections
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 5
 Non-fossil energy use grows rapidly, but fossil fuels still
provide 78 percent of total energy use in 2035

quadrillion Btu
History Projections
120
Renewables (excluding liquid biofuels)

100
Liquid biofuels
80
Liquid fuels
60
Coal
40

20 Natural gas

Nuclear
0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 6
 Energy and CO2 per dollar GDP continue to decline;
per capita energy use also declines

index, 2005=1
History Projections
1.75

1.50

1.25

1.00 Energy per capita

0.75 Energy per dollar GDP

CO2 per dollar GDP
0.50

0.25

0.00
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 7
Energy efficiency gains reduce consumption 15% from where it
would otherwise be; structural change is even larger

quadrillion Btu

200 192
Constant intensity
Structural
150 change
Constant efficiency 133
Efficiency
change
115
100 AEO2010 reference case

50

0
2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 8
 U.S. reliance on imported liquid fuels is reduced by increased
domestic production and greater fuel efficiency

million barrels per day

History Projections
25

20
Consumption
40% 45%
15 Net imports
60% 57%

10 Production

5 AEO2010 reference case

Updated AEO2009 reference case
0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 9
 Biofuels meet most of the growth in liquid fuels supply

million barrels per day

25 History Projections

Biofuels including imports

20

15 Petroleum supply

Natural gas plant liquids

10

5 Net petroleum imports

0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 10
 Biofuels grow, but fall short of the 36 billion gallon RFS
target in 2022, exceed it in 2035

billion gallon-equivalents

45 Legislated RFS in 2022 Renewable

diesel
40
Biomass-to-
35 RFS with liquids
adjustments under
30 Biodiesel
CAA Sec.211(o)(7)
25 Net ethanol
imports
20 Other
feedstocks Cellulosic
15 ethanol
10
Corn ethanol
5
0
2008 2022 2022 in 2035
AEO2009

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 11
New light duty vehicle efficiency reaches 40 mpg by 2035

miles per gallon

45
40
35
30
25
20
15 History
AEO2010
10
Updated AEO2009 reference case
5
0
2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 12
 Mild and full hybrid systems dominate new light-duty
vehicle sales by 2035

millions
History Projections
10
9 Electric/fuel cell
8 Plug-in hybrid electric
7 Hybrid electric
6 Mild hybrid electric
5 Gaseous
4 Flex fuel
3 Diesel
2
1
0
2000 2008 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 13
 Natural gas wellhead price is projected to rise from low levels
experienced during 2008-2009 recession

2008 dollars per thousand cubic feet

History Projections
10

AEO2010 reference case

2
Updated AEO2009 reference case

0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 14
 Import share of natural gas supply declines as domestic
supply grows

trillion cubic feet

History Projections
30

25
Consumption 6%
2%

Net imports 13%

20
Domestic supply

15 AEO2010 reference case

Updated AEO2009 reference case

10
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 15
 Shale gas has been the primary source of recent growth in
U.S. technically recoverable natural gas resources
trillion cubic feet
2250

2000 Unproved shale gas &

other unconventional
1750
1500

1250
Unproved
1000 conventional
(including Alaska*)
750
500

250 Proved reserves

(all types & locations)
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
AEO edition
* Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in
previously published documentation.
Source: U.S. Geological Service, Mineral
Richard Newell, SAIS, December 14, 2009 Management Service, private data, and EIA.
16
 Shale gas and Alaska production offset declines in supply to
meet consumption growth and lower import needs

trillion cubic feet

History Projections
25
Alaska

20 Shale gas

Coalbed methane
15

Non-associated onshore
10

Non-associated offshore
5
Associated with oil
Net imports
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 17
 Growth in electricity use continues to slow

3-year rolling average percent growth Period Annual Growth

History 1950s 9.8
14 1960s 7.3
Stru 1970s 4.7
12 ctur
al C 1980s 2.9
han
ge i 1990s 2.4
10 n Eco
nom 2000-2008 0.9
y - Hi 2008-2035 1.0
8 ghe
r pric
es - St Projections
6 and
ard
s - Im
pro
4 ved
ef ficie
ncy
2

-2
1950 1960 1970 1980 1990 2000 2010 2020 2030

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 18
 Natural gas and renewables account for the majority of
capacity additions from 2008 to 2035
2008 capacity Capacity additions
2008 to 2035
Hydropower* Hydropower*
99 (10%) 1 (0.4%)
Nuclear
Coal 8 (3%) Coal
Nuclear 312 (31%) 31 (12%)
101 (10%)
Other Other
renewables renewables 250
1,008 92 (37%) gigawatts
40 (4%)
gigawatts

Other Other
119 (12%) 2 (1%) Natural gas
116 (46%)

Natural gas
338 (33%)
* Includes pumped storage

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 19
 Renewables gain electricity market share; coal share declines

billion kilowatthours and percent shares

6,000 History Projections

5,000
17.0

4,000 Renewable
9.1 20.8
Natural gas
21.4
3,000

2,000 48.5 Coal 43.8

Oil and other 1.4

1.5
1,000
19.6 Nuclear 17.1
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 20
 Nonhydropower renewable sources meet 41% of total
electricity generation growth from 2008 to 2035

billion kilowatthours
600 History Projections

500

400
Biomass

300

200 Wind

100 Solar Geothermal

0 Waste

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 21
 Assuming no new policies, growth in energy-related CO2 is
driven by electricity and transportation fuel use

2008 2035 Buildings and

Electric Power Electric Power Industrial
Buildings and
2,359 (41%) 2,634 (42%) 1,571 (25%)
Industrial
1,530 (26%)

5,814 6,320
million metric million metric
tons tons

8.7% growth
0.3% per year

Transportation
1,925 (33%) Transportation
2,115 (33%)

Richard Newell, SAIS, December 14, 2009 Source: Annual Energy Outlook 2010 22
 Key results from the AEO2010 reference case

• Recent Federal and State policies, and rising energy

prices, moderate growth in energy consumption and shift
it to renewable fuels
• U.S. oil use remains near its present level through 2035
– growth in overall liquids demand is met by biofuels, and ethanol
accounts for >17% of gasoline consumption by 2035
– U.S. reliance on imported oil as a share of U.S. liquids use,
declines to 45% over the next 25 years

• Shale gas provides the majority of growth in gas supply

• Energy-related CO2 emissions grow 0.3% per year,
absent any new policies to limit emissions

Richard Newell, SAIS, December 14, 2009 23

 For more information

U.S. Energy Information Administration home page www.eia.gov

Short-Term Energy Outlook www.eia.gov/emeu/steo/pub/contents.html

Annual Energy Outlook www.eia.gov/oiaf/aeo/index.html

International Energy Outlook www.eia.gov/oiaf/ieo/index.html

Monthly Energy Review www.eia.gov/emeu/mer/contents.html

U.S. Energy Information Administration

www.eia.gov

Richard Newell, SAIS, December 14, 2009 24