# Presentation: 720948

## Understanding and Modeling the Effects of High Oil Prices

**April 21, 2006**

**Glen Sweetnam**
**Energy Information Administration**
**Modeling the Oil Transition**
**Washington, DC**

## EIA Has Raised its Oil Price Outlook

**OPEC appears less willing to increase production rates **
**Investment impediments in all areas more persistent than expected, even after two years of high oil prices**
**Exploration and development costs have increased**
**Not a depletion issue, although we continue to  follow the “Peak Oil” issue closely**

## AEO2006 vs. IEO2005:  World Oil Prices

- AEO2006

- History

- Projections

- IEO2005

- Source:  EIA, IEO2005 and AEO2006

## High Oil Prices Prompt Key Questions

**How will global economic growth be affected ?**
**How much fuel switching will occur ?  What gains in efficiency can be anticipated ?**
**What will be the impact on non-OPEC liquid supplies - both conventional and unconventional ?**
**How much will the demand for OPEC conventional oil be reduced ?**

## GDP is relatively insensitive to high oil prices

On the demand side, transportation sector is key

On the supply side, unconventional liquids are more responsive than conventional production

Natural gas consumption drops; coal consumption rises

Oil imports decline

Carbon emissions relatively insensitive

**On the demand side, transportation sector is key**
**On the supply side, unconventional liquids are more responsive than conventional production**
**Natural gas consumption drops; coal consumption rises**
**Oil imports decline**
**Carbon emissions relatively insensitive**

**The Effects of High Oil Prices in the U.S.**

## World Oil Prices in Three AEO2006 Cases,

**World Oil Prices in Three AEO2006 Cases,**
**1980-2030**

**Reference**

**High Price**

**Low Price**

**Projections**

**History**

## U.S. Real GDP in High and Low Price Cases 

**U.S. Real GDP in High and Low Price Cases **
**(percent difference from reference case)**

**Real GDP**

**High Price**

**Low Price**

**High Price**

**Low Price**

**Oil Price**

**1**

**0**

**-1**

**80**

**0**

**-40**

**-44**

**80**

**-.25**

**.29**

**80**

**0**

**-40**

- Source:  EIA, AEO2006

## U.S. Oil Consumption by Sector, 2004-2030

**2010**

**2025**

**20.8**

**23.0**

**22.2**

**27.9**

**27.6**

**Transportation**

**Residential and**
**Commercial**

**Industrial**

**Electric Power**

**2030**

**26.1**

- Source:  EIA, AEO2006

## Improved Energy Efficiency in Transportation - 2025

- Source:  EIA, AEO2006

- AEO2006

## Ethanol Consumption - 2025

- Source:  EIA, AEO2006

- AEO2006

## U.S. Oil Production - 2025

- Source:  EIA, AEO2006

- AEO2006

- 7.3

- 8.8

- 10.7

- 8.2

- 8.8

- Crude Oil

- Natural Gas Liquids

- Other

- Note: totals exclude biofuels

## U.S. Unconventional Liquid Production - 2025

- Source:  EIA, AEO2006

- AEO2006

- 1.2

- 0.6

- Coal to Liquids

- Gas to Liquids

- Oil Shale

- 0.0

- 0.0

- 0.6

- Note: totals exclude biofuels

## U.S. Net Crude Oil Imports - 2025

- Source:  EIA, AEO2006

- AEO2006

## U.S. Net Petroleum Imports - 2025

- Source:  EIA, AEO2006

- AEO2006

## U.S. Natural Gas Consumption

**2010**

**2025**

**22.4**

**25.4**

**23.4**

**30.7**

**26.9**

**Transportation**

**Residential**

**Commercial**

**Industrial**

**Electric Power**

**2030**

**27.0**

- Source:  EIA, AEO2006

## U.S. Coal Consumption

**2010**

**2025**

**1,104**

**1,229**

**1,233**

**1,508**

**1,592**

**Coal to Liquids**

**Other**

**Electric Power**

**2030**

**1,784**

- Source:  EIA, AEO2006

## U.S. Carbon Dioxide Emissions, in Three Price Cases, 2003 and 2030

**8,114**

**7,975**

**8,159**

- Source:  EIA, AEO2006

**5,795**

- Coal

- Natural Gas

- Oil

## How will regional economic growth be affected ?

How much fuel switching will occur ?  How much gain in efficiency can be anticipated ?

What impact on non-OPEC liquid supplies - both conventional and unconventional ?

What will happen to the demand for OPEC oil ?

**How much fuel switching will occur ?  How much gain in efficiency can be anticipated ?**
**What impact on non-OPEC liquid supplies - both conventional and unconventional ?**
**What will happen to the demand for OPEC oil ?**

**Effects of High Oil Prices Outside the U.S.?**

## Integrated set of regional MARKAL models provide a technology-rich basis for estimating energy consumption

Provided forecasts published in International Energy Outlook since 2003

42 end-use energy service demands in 16 regions; 5-year time steps to 2030

Residential, commercial, industrial, and transportation service demands driven by macroeconomic and demographic factors

Linear program minimizes cost of meeting energy service demands

- Provided forecasts published in *International Energy Outlook *since* *2003
- 42 end-use energy service demands in 16 regions; 5-year time steps to 2030
- Residential, commercial, industrial, and transportation service demands driven by macroeconomic and demographic factors
- Linear program minimizes cost of meeting energy service demands

**System for the Analysis of Global Energy Markets (SAGE)**

## Implement market share algorithm in two sectors 
electricity 
personal vehicles

 Enhance the Reference Energy System 
eliminate unnecessary complexity (e.g., blast furnace gas)
correct co-generation representation

Improve Refining Representation

Update ethanol supply curves

Calibrate to a “normalized”, rather than historical year

- electricity
- personal vehicles
-  Enhance the Reference Energy System
- eliminate unnecessary complexity (e.g., blast furnace gas)
- correct co-generation representation
- Improve Refining Representation
- Update ethanol supply curves
- Calibrate to a “normalized”, rather than historical year

**Planned Near-Term Enhancements**

## Market Share Algorithm

- User input
- Market identifiers (g), and the list of technologies in each market group
- “close-enough” criteria, percent of market to reallocated, degree of optimization (γ) for each market group
- Technology preference factor given equal prices (defaults to 1)
- Determine the market size of each market segment (group) that should be reallocated to marginally uncompetitive technologies
- Solve SAGE for the “reduced costs” and generate indices based on them
- Use “reduced costs” and “close enough” parameter to determine technologies within each market group that deserve a piece of the market

## Market  Share Algorithm (Cont.)

- Use “reduced costs” and “close enough” parameter to determine technologies within each market group that likely acquire some market share
- Recalculate market shares for technologies that were “close enough,”  based on relative economics in the specific market
- If necessary, handle reallocation conflict (where some “close enough” technology would gain a share above the smallest competitive technology)
- Re-solve for the current period with the “close enough” technologies receiving non-zero market share

## Implement market share algorithm in two sectors 
electricity 
personal vehicles

 Enhance the Reference Energy System 
eliminate unnecessary complexity (e.g., blast furnace gas)
correct co-generation representation

Improve Refining Representation

Update ethanol supply curves

Calibrate to a “normalized”, rather than historical year

- electricity
- personal vehicles
-  Enhance the Reference Energy System
- eliminate unnecessary complexity (e.g., blast furnace gas)
- correct co-generation representation
- Improve Refining Representation
- Update ethanol supply curves
- Calibrate to a “normalized”, rather than historical year

**Planned Near-Term Enhancements**