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35–991 PDF 2007

S. HRG. 110–59

2007 ANNUAL ENERGY OUTLOOK

HEARING

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

TO

EXAMINE ENERGY INFORMATION ADMINISTRATION’S NEW ANNUAL 

ENERGY OUTLOOK

MARCH 1, 2007

(

Printed for the use of the 

Committee on Energy and Natural Resources 
(II)

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

KEN SALAZAR, Colorado 

ROBERT MENENDEZ, New Jersey 

BLANCHE L. LINCOLN, Arkansas 

BERNARD SANDERS, Vermont 

JON TESTER, Montana 

PETE V. DOMENICI, New Mexico 

LARRY E. CRAIG, Idaho 

CRAIG THOMAS, Wyoming 

LISA MURKOWSKI, Alaska 

RICHARD BURR, North Carolina 

JIM DEMINT, South Carolina 

BOB CORKER, Tennessee 

JEFF SESSIONS, Alabama 

GORDON H. SMITH, Oregon 

JIM BUNNING, Kentucky 

MEL MARTINEZ, Florida

ROBERT M. SIMON, Staff Director 

SAM E. FOWLER, Chief Counsel 

FRANK MACCHIAROLA, Republican Staff Director 

JUDITH K. PENSABENE, Republican Chief Counsel 

TARA BILLINGSLEY, Professional Staff Member 
(III)

C O N T E N T S 

STATEMENTS 

Page

Bingaman, Hon. Jeff, U.S. Senator from New Mexico .......................................... 1

Caruso, Guy, Administrator, Energy Information Administration, Department 

of Energy ............................................................................................................... 4

Domenici, Hon. Pete V., U.S. Senator from New Mexico ..................................... 2

Sanders, Hon. Bernard, U.S. Senator from Vermont ........................................... 3

(1)

2007 ANNUAL ENERGY OUTLOOK 

THURSDAY, MARCH 1, 2007 

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 9:32 a.m., in room 

SD–364, Dirksen Senate Office Building, Hon. Jeff Bingaman, 

chairman, presiding. 

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. 

SENATOR FROM NEW MEXICO 

The CHAIRMAN. All right. Why don’t we go ahead and get started? 

Thank you very much for joining us, Mr. Caruso. We appreciate 

your being here, and look forward to discussing the recently released Annual Energy Outlook. 

I’d start the discussion by noting that the Energy Outlook is a 

forecast of U.S. energy prices and supply and demand through 

2030, assuming current policies and current technology. As I understand it—and you can correct any of this that I misstate—but 

we can think of this forecast as a prediction of where we are going 

to wind up in 2030 if we do not change current energy policies. 

The forecast predicts that energy-related carbon emissions will 

continue to increase by an average of 1.2 percent per year. This increase is higher than the average increase in total energy consumption due to an increased share of coal production. Carbon neutral 

energy consumption does not increase from 2005 levels in your 

forecast, as I read it. So without legislative action, according to the 

Energy Information Administration, the Energy Information Administration does not predict any use of carbon sequestration technology. 

The forecast also predicts very slow growth in the use of biofuels. Only trace amounts of cellulosic ethanol are predicted by 

2030. I think the figure is 240 million gallons per year by 2030. 

That’s obviously far less than the 20 billion gallons of cellulosic 

ethanol that the President called for in his State of the Union Address. I think he was calling for that by 2017, instead of 2030. 

I note that the forecast does not take into account the loan guarantee program that we authorized as part of EPAct. I hope the Department of Energy is moving as quickly as possible to make that 

guarantee program a useful tool for development of new technologies, and I trust that the realization of the program will reflect 

positively on EIA’s outlook for cellulosic ethanol. 
2

In the near term, I understand that EIA sees the potential for 

capacity of ethanol produced from corn to exceed demand. I’m not 

sure. I’ll get back to that in the question rounds. I’m concerned 

that idle ethanol capacity in the near-term could do serious longterm harm to that industry. 

Obviously, today’s discussion is an opportunity for us to consider 

what changes in policy are appropriate as we move toward 2030, 

and we very much appreciate your being here. 

Let me call on Senator Domenici for his comments. 

STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM 

NEW MEXICO 

Senator DOMENICI. Thank you, Senator Bingaman. 

Mr. Caruso, your appearance has become somewhat of an event. 

And we think that you and your Department are continuing to do 

a better and better job of what you were charged to do. And I personally want to compliment you for the quality of what you’re 

doing. It’s very important that we have your Department, and 

somebody like you willing to stay at the helm and keep it going. 

The Energy Outlook is the first that could fully consider the impacts of our 2005 Act. There are some success stories: for example, 

projected increases in the use of bio-fuels, increases in the appliance efficiencies, and breakthroughs in enhanced oil recovery. 

However, the new Energy Outlook reminds us that passing a law 

isn’t enough. We have to follow-up to make sure it’s actually funded and implemented. The 2005 Energy Bill contained a number of 

requirements that will help us achieve energy security, but they 

aren’t taken into account in the EIA’s analysis. Part of the reason 

is justified, and part of it we could change by doing some things. 

In some cases the EIA just decided that the impacts of R&D efforts are too speculative. A good example is cellulosic ethanol. 

While EIA finds the EPAct incentives will result in the first cellulosic production facilities being brought online, they also conclude 

that its use will not be widespread unless there are sufficient technological breakthroughs for ethanol, cellulosic ethanol, and other 

technologies, too numerous to list. EPAct provides for R&D programs that make those essential advances that we hope will bring 

new technologies to market. 

While I understand the EIA’s reluctance to try to predict the outcome of the cutting edge R&D programs, we must recognize the 

limitations of the forecast in this respect. Another more taunting 

aspect of the EPAct program that was not considered in the forecast because of lack of implementation, it will come as no surprise 

to those who attended the DOE budget hearing, that I am deeply 

disturbed by the lack of progress in EPAct’s loan guarantee program. Senator Bingaman alluded to that. 

In the 2007 Outlook, EIA finds that loan guarantees could substantially affect the economies of new power plants, lowering the 

costs of new, more efficient nuclear and wind plants by around 25 

percent. A very big number—this is huge. But because of a lack of 

implementation by DOE, the impact of the loan guarantee program 

is not taken into account. As a result, while the EIA predicts the 

EPAct provisions will result in 12 gigawatts of new nuclear power 

capacity by 2030, the market share of nuclear will decline, as 90 
3

percent of new power plants will burn coal and natural gas. I think 

that that forecast on nuclear is off the mark, even without the loan 

guarantee program. But, it is clear that the loan guarantee program could make a huge difference in our country’s energy security, as well as the air we breathe. 

For example, there is a company currently planning to build the 

world’s first commercial cellulosic ethanol plant in Idaho. It needs 

a title XVII loan guarantee to make the financing work. These 

folks are business men; they can’t wait forever. If the Department 

of Energy does not get on with implementing the title XVII loan 

guarantee, passed by Congress almost 19 months ago, this potential capital investment in cellulosic ethanol will almost certainly be 

deployed elsewhere. DOE’s failure to expeditiously implement title 

XVII could mean the difference between creating a whole new cellulosic industry here in the U.S., and sending it all off to Europe. 

Having said that, I believe that we don’t need to sit here, and 

look at this outlook, and wring our hands. We know what to do, 

and in most cases we’re ready to set up the necessary legal authorities in EPAct. Now all we have to do is to make it happen. 

Thank you, Senator Bingaman, and I look forward to the testimony. 

The CHAIRMAN. Thank you very much. 

Let me just see if Senator Salazar had any opening statement, 

since he’s the only other Senator here; we’ll make a special opportunity for him if he had any statement before we hear from the 

witness. 

Senator SALAZAR. I’ll just include it at the time I ask questions. 

The CHAIRMAN. Okay. 

Senator SALAZAR. Thank you very much. 

The CHAIRMAN. Okay, well we will proceed then. 

And thank you very much for being here, Mr. Caruso. We look 

forward to hearing your testimony. 

[The prepared statement of Senator Sanders follows:]

PREPARED STATEMENT OF HON. BERNARD SANDERS, U.S. SENATOR FROM VERMONT

Chairman Dorgan, Ranking Member Murkowski, thank you for convening this 

very vital hearing on one of the best ways to address the problems of global warming: energy efficiency. 

Energy efficiency is so important. In fact, it is one of those win-win things: you 

reduce consumers’ bills and you reduce the amount of global warming pollutants released to our atmosphere. So, why is it that we aren’t funding the excellent energy 

efficiency programs that are already on the books, including weatherization? Additionally, when it comes to energy efficiency, we need to make sure that the federal 

government leads by example. One simple way to do this is to utilize energy performance contracts, which do not require any up-front capital from the agency. We 

also need to authorize additional energy efficiency programs, including some mentioned by the witnesses at today’s hearing. I am particularly intrigued by the notion 

of allowing utilities to make a profit, perhaps even a greater profit than they would 

otherwise, by promoting energy efficiency over generation. I look forward to exploring this issue more. 

I look forward to working with my colleagues and member of the community to 

determine the best ways to move forward because I know that we all share the desire to ensure a better energy future for our country so that good jobs and a good 

economy will peacefully co-exist with a healthy environment.
4

STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY 

INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY 

Mr. CARUSO. Thank you very much, Chairman Bingaman, Senators Domenici and Salazar, for giving us the opportunity to 

present the Energy Information Administration’s latest long-term 

energy outlook, our Annual Energy Outlook 2007. 

The reference case is from the outlook that we released on our 

website in December, and just last week we released the full report, which has more than two dozen alternative cases that address 

some of the issues that both Senators Bingaman and Domenici 

have mentioned in their opening statements. 

I think it’s accurate to think of the reference case in this outlook 

as the path we’re on if we keep doing what we’re doing—in terms 

of policy, in terms of the pace of technological change, the R&D 

that feeds into that, as well as the economic relationships in our 

economy between the use of energy and the production of energy. 

I think, as Senator Bingaman had mentioned, one of the key assumptions here is that the policies in place as of October 2006, 

both at Federal, State, and local levels are projected to remain in 

place. Of course, we all recognize, and I can’t emphasize enough, 

that future changes in energy and, particularly, environmental 

policies could have a significant impact on these projections. Some 

of the work we’ve done for Senator Salazar, Senator Bingaman, 

and others has shown impacts of changes in policies. 

Let me start with one of the key assumptions, which is energy 

prices. All the prices I’ll be referring to in this statement are adjusted for the effects of inflation, so they’re in real terms at 2005 

dollars. For oil, in the reference case, we’re expecting oil prices to 

trend downward from their current levels. Just this week they’re 

running about $61, $62 per barrel. We see that trending down to 

about $50 over the next 5 to 7 years, as new supplies come online, 

but then, in the middle part of the next decade, starting to increase 

again as a result of more difficulties in finding new oil and the 

higher costs to do so. In the long-run, our oil price assumption in 

real terms ranges between $50 and $60 per barrel for light sweet 

crude oil. 

We recognize there’s enormous uncertainty in that assumption, 

and therefore in the side cases we do—a range of a low-price case, 

which goes as low as $36 in real terms, to a high case of $100. 

Even that probably does not really encompass the full range at any 

given month or week. Prices could go above or below that over this 

25-year time frame. So we do look at that in these side cases. 

We also expect the average natural gas wellhead price to trend downward from current levels of a bit over $7 per thousand cubic 

feet, to just under $5 by the middle of next decade, as new import 

sources and increased domestic production do come on-stream. 

After 2015, we expect natural gas prices to increase to about $6 per 

thousand cubic feet in real terms. 

For coal prices, we do not expect huge changes—although we do 

have a slightly higher expectation for coal prices than we did last 

year. The average price of coal over this 25-year timeframe ranges 

between about $1.10 per million Btus, to about $1.15. Again, meaning quite attractive with respect to base-load electric power use in 

this reference case. 
5

Electricity prices follow the prices of natural gas and coal, initially falling but then slowly rising so that they’re averaging about 

8 cents per kilowatt hour over this timeframe. Eight-point-three 

cents in 2006, then dipping to 7.7 cents and back to 8.1 cents, are 

the actual numbers for electricity. 

The key driver to this outlook is economic growth. We expect the 

U.S. economy to grow at just under 3 percent per year during this 

25-year timeframe. That’s slightly less than the 20-year track 

record for our economy between 1985 and 2005. The impact on consumption with that kind of economic growth, and the prices that 

I’ve mentioned, means that we’re looking at about a 30 percent increase in total energy consumption in this country, between now 

and 2030. Going from 100 quadrillion Btu to about 130 quadrillion 

Btu. 

The most rapid growth in energy demand will be in the commercial sector, and the second-most rapid growing sector will be transportation. As lower demand results from higher prices, we do have 

some increase in efficiency in all of the sectors as the use of more 

energy-efficient appliances continues to penetrate, partly as a result of the implementation of the provisions in EPAct 2005. 

The U.S. economy also continues to become more energy efficient. 

Energy intensity measured as energy use per dollar of GDP—Gross 

Domestic Product—declines at an average rate of 1.8 percent per 

year through 2030, as shown in the written testimony in Figure 7. 

This is due to improved efficiency and shifts continuing in the economy to less energy-intensive goods and services. 

Liquid fuels, mostly derived from petroleum but including biofuels, are expected to remain the primary fuels in the U.S., keeping 

a market share of just under 40 percent. The growth in liquid fuels 

is, of course, led by the transportation sector which uses 73 percent 

of all liquid fuels in 2030. Although improved efficiency moves 

ahead steadily, this can not offset the growth in travel that we expect in our economy over the next 20 to 25 years. 

In 2030, the average fuel economy of new light-duty vehicles is 

projected to be 29.2 miles per gallon. That’s 4 miles per gallon 

higher than 2005. Part of the improvement is due to recent standards for light trucks, and we expect steady increases in the sales 

of vehicles using unconventional technology, such as hybrids and 

turbo-charged diesels, as well as steady growth in flexible-fueled 

vehicles to be able to make use of alternatives fuels and the renewable bio-fuels. 

Total demand for natural gas grows through 2020 then remains 

relatively flat. Between 2020 and 2030, rising natural gas prices 

cause it to lose market share to coal for electricity generation, but 

gas consumption in other sectors continues to increase. Under the 

no-change-in-policy assumption, coal remains the primary fuel for 

electricity generation, and its share of generation increases from 50 

percent in 2005 to 57 percent in 2030. Total coal use is projected 

to increase from over 1,100 to nearly 1,800 million short-tons in 

2030, with about 1,570 million short-tons being used for power generation and over 110 million short-tons in coal-to-liquids plants. 

Total renewable energy is expected to increase from a 6 percent 

share of total energy consumption to nearly 8 percent in 2030, with 

the most rapid growth in non-hydro renewables. 
6

Turning to fossil fuel supply, U.S. liquid fuels demand grows 

from about 21 million barrels a day to 27 million barrels per day, 

in 2030. At the same time, U.S. crude oil production increases from 

5.7 million barrels per day in 2005 to 5.9 million barrels per day 

in 2015, as a result of deep-water off-shore production. But then 

the steady decline resumes, and domestic production falls to 5.4 

million barrel per day by 2030. 

The share of liquid fuels demand net-by-net imports decreases 

from 60.5 percent in 2005 to 54 percent in 2009, then increases to 

61 percent in 2030. 

In the alternative prices cases, U.S. crude production ranges 

from 5.3 to 6.0 million barrels per day, and the net import share 

of consumption ranges from 49 percent in the high price case to 67 

percent in the low price case. 

The total petroleum supply includes a significant amount of coalto-liquids in this scenario—in the reference case, over 400,000 barrels a day, and in the high- price case, it includes 1.7 million barrels per day of liquids from coal. 

U.S. natural gas production is projected to increase to 20.8 trillion cubic feet in 2020, before declining slightly in 2030. The production of unconventional natural gas is expected to be a significant source of domestic supply, increasing to about a 50 percent 

share of total production in 2030. 

The pipeline to bring the gas from Alaska’s North Slope to the 

Lower 48, is projected to commence operation before 2020, allowing 

Alaskan production to increase from 0.5 trillion cubic feet in 2005, 

to 2.2 trillion cubic feet in 2021. Net pipeline imports are expected 

to decline from 3 trillion cubic feet in 2005, to less than 1 trillion 

cubic feet by 2030—due to both accelerating decline rates in older 

fields in Canada, and growing domestic demand in Canada. Therefore, to meet growing demand, LNG imports are expected to increase from 0.6 trillion cubic feet in 2005, to 4.5 trillion cubic feet 

in 2030. 

Of the fossil fuels, coal has the most rapid growth production, as 

shown in Figure 12 in the written testimony. 

Turning to ethanol and other bio-fuels, we project a significant 

steady rise in the production of ethanol to reach 14.6 billion gallons 

of ethanol consumption in 2030, about 20 percent higher than we 

were projecting last year. Most of this is expected to be from cornbased sources, based on current technology, and current economics 

and current policy. These projections do not reflect the effect of new 

policy proposals, such as the President’s plan to displace 20 percent 

of gasoline consumption of the next 10 years through a combination 

of higher CAFE standards and increased use of renewable and alternative fuels. 

Electricity consumption, including onsite generation, is expected 

to increase from 3,800 to 5,500 billion kilowatt hours during the 

25-year timeframe. This is a slightly lower rate of growth than we 

expected last year, in last year’s outlook, due to the use of more 

efficient appliances. To meet growing demand, total electricity generation increases by 44 percent between 2005 and 2030, with coal 

supplying about 75 percent of the increase. 

About 292 gigawatts of new generation capacity is expected, and 

coal is expected to account for about 54 percent. In the latter part 
7

of the projection, natural gas will lose market share to coal due to 

rising prices, declining from 19 percent to 16 percent of the generation market. 

Renewable generation will increase, in part, due to EPAct 2005 

and various State programs, but will remain at about 9 percent of 

total generation. While hydro-power continues to dominate renewable generation, significant increases are expected for both biomass and wind. 

Nuclear capacity is expected to increase from 100 to 113 

gigawatts by 2030. This includes 12.5 gigawatts of capacity of new 

plants, and 3 gigawatts of upgrades of existing plants, offset somewhat by 2.6 gigawatts of retiring capacity. 

Energy-related carbon dioxide emissions account for about 80 

percent of total U.S. greenhouse gas emissions. CO2 emissions from 

the use of energy are expected to increase by about one-third between 2005 and 2030. This is slightly faster than the rate of increase of energy consumption, due to the increasing reliance on 

coal in this reference case. 

To wrap up, Mr. Chairman, our projections include significant 

improvements in technology cost and performance over time. However, the pace of these improvements may be understated or overstated, since the rate at which the characteristics of energy-using 

and -producing technologies will change is highly uncertain. Therefore, we do include a number of sensitivity cases, as I mentioned, 

in the latest outlook, including a high-technology case which assumes earlier availability, lower costs, and high efficiencies for enduse technologies in all of the sectors. 

A slow-technology case assumes these characteristics are frozen 

at the 2006 level, and that side case is also in there. 

Generally, the difference between our high-and low- technology 

cases grows over the forecast horizon, reflecting the greater opportunity for advanced technologies to enter the market as the Nation’s capital stock is replaced and expanded over time. 

Mr. Chairman, this concludes the summary of our latest longterm outlook and I would be pleased to attempt to answer questions you and other members of the committee may have at this 

time. 

Thank you. 

[The prepared statement of Mr. Caruso follows:]

PREPARED STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION

ADMINISTRATION, DEPARTMENT OF ENERGY

Mr. Chairman and Members of the Committee, I appreciate the opportunity to appear before you today to discuss the long-term outlook for energy markets in the 

United States. 

The Energy Information Administration (EIA) is an independent statistical and 

analytical agency within the Department of Energy. We are charged with providing 

objective, timely, and relevant data, analyses, and projections for the use of the Congress, the Administration, and the public. We do not take positions on policy issues, 

but we do produce data, analyses, and projections that are meant to assist policymakers in their energy policy deliberations. EIA’s baseline projections on energy 

trends are widely used by government agencies, the private sector, and academia 

for their own energy analyses. Because we have an element of statutory independence with respect to the analyses, our views are strictly those of EIA and should 

not be construed as representing those of the Department of Energy or the Administration. 
8

* Figures 1 through 14 have been retained in committee files. 

The Annual Energy Outlook (AEO) provides projections and analysis of domestic 

energy consumption, supply, prices, and energy-related carbon dioxide emissions 

through 2030. The Annual Energy Outlook 2007 (AEO2007) is generally based on 

Federal and State laws and regulations in effect on or before October 31, 2006. (An 

exception to this approach is that the ethanol tax credit is assumed to continue beyond its scheduled expiration in 2010 in the AEO2007 reference case.) The potential 

impacts of pending or proposed legislation, regulations, and standards—or of sections of legislation that have been enacted but that require funds or implementing 

regulations that have not been provided or specified—are not reflected in the projections. 

The AEO2007 includes consideration of the impact of the Energy Policy Act of 

2005 (EPAct 2005), signed into law August 8, 2005. Consistent with the general approach adopted in the AEO, the reference case does not consider those sections of 

EPAct 2005 that require appropriations for implementation or sections with highly 

uncertain impacts on energy markets. For example, EIA does not try to anticipate 

the policy response to the many studies required by EPAct 2005 or the impacts of 

the research and development funding authorizations included in the law. The 

AEO2007 reference case only includes those sections of EPAct 2005 that establish 

specific tax credits, incentives, or standards—about 30 of the roughly 500 sections 

in the legislation. 

The AEO2007 is not meant to be an exact prediction of the future but represents 

a likely energy future, given technological and demographic trends, current laws 

and regulations, and consumer behavior as derived from known data. EIA recognizes that projections of energy markets are highly uncertain and subject to many 

random events that cannot be foreseen such as weather, political disruptions, and 

technological breakthroughs. In addition to these phenomena, long-term trends in 

technology development, demographics, economic growth, and energy resources may 

evolve along a different path than expected in the projections. The complete 

AEO2007, which EIA released last week, includes a large number of alternative 

cases intended to examine these uncertainties. The following discussion summarizes 

the highlights from the AEO2007 reference case for the major categories of U.S. energy prices, demand, and supply and also includes the results of some alternative 

cases. 

THE U.S. ENERGY OUTLOOK

Energy Prices 

The long-term outlook on energy prices in the AEO2007 reference case (Figure 1)* 

is similar to that in last year’s AEO. World crude oil prices, expressed in terms of 

the average price of imported low-sulfur, light crude oil to U.S. refiners, are projected to fall from 2006 levels to about $50 per barrel in (2005 dollars) in 2014, then 

rise to $59 per barrel in 2030. In nominal dollars, the projected price is about $95 

in 2030. 

Geopolitical trends, the adequacy of investment and the availability of crude oil 

resources and the degree of access to them, are all inherently uncertain. To evaluate 

the implications of uncertainty about world crude oil prices, the AEO2007 includes 

two other price cases, a high price case and a low price case, based on alternative 

paths of investment in production capacity in key resource rich regions, access restrictions, and an assessment of the Organization of Petroleum Exporting Countries’ 

(OPEC) ability to influence prices during period of volatility (Figure 2). The cases 

are designed to address the uncertainty about the market behavior of OPEC. Although the price cases reflect alternative long-term trends, they are not designed 

to reflect short-term, year-to-year volatility in world oil markets, nor are they intended to span the full range of possible outcomes. In the low price case, world 

crude oil prices are projected to gradually decline from 2006 levels to $34 per barrel 

(2005 dollars) in 2016 and remain relatively stable in real dollar terms thereafter, 

rising only slightly to $36 per barrel in 2030. In the high price case, oil prices dips 

somewhat from 2006 levels, then increase steadily to $100 per barrel (2005 dollars) 

in 2030. 

In the AEO2007 reference case, average wellhead prices for natural gas in the 

United States decline gradually from current levels, as increased drilling brings on 

new supplies and new import sources become available. The average price falls to 

just under $5 per thousand cubic feet in 2015 (2005 dollars), then rises gradually 

to about $6 per thousand cubic feet in 2030 (equivalent to $9.63 per thousand cubic 

feet in nominal dollars). Growth in liquefied natural gas (LNG) imports, Alaskan 

production, and lower-48 production from unconventional sources are not expected 
9

to increase sufficiently to offset the impacts of resource depletion and increased demand in the lower-48 States. Projections of wellhead prices in the low and high 

price cases reflect alternative assumptions about the cost and availability of natural 

gas, including imports of LNG. 

In the AEO2007 reference case, average real minemouth coal prices (in 2005 dollars) are expected to fall from $1.15 per million Btu ($23.34 per short ton) in 2005 

to $1.08 per million Btu ($21.51 per short ton) in 2019, as prices moderate following 

a rapid run-up over the past few years. After 2019, new coal-fired power plants are 

expected to increase total coal demand, and prices are projected to rise to $1.15 per 

million Btu ($22.60 per short ton) in 2030. Without adjustment for inflation, the average minemouth price of coal in the AEO2007 reference case rises to $1.85 per million Btu ($36.38 per ton) in 2030. 

Electricity prices follow the prices of fuels to power plants in the reference case, 

falling initially as fuel prices retreat after the rapid increases of recent years and 

then rising slowly. From a peak of 8.3 cents per kilowatthour (2005 dollars) in 2006, 

average delivered electricity prices decline to a low of 7.7 cents per kilowatthour in 

2015 and then increase to 8.1 cents per kilowatthour in 2030. 

Energy Consumption 

Total energy consumption is projected to grow by about 31 percent between 2005 

and 2030, at a rate of 1.1 percent per year or less than one-half the rate of growth 

in gross domestic product (GDP) (2.9 percent per year), as energy use per dollar of 

GDP continues to improve. Fossil fuels account for about 85 percent of the total 

growth. The increase in coal use occurs mostly in the electric power sector, where 

strong growth in electricity demand and favorable economics under current environmental policies prompt coal-fired capacity additions. About 61 percent of the projected increase in coal consumption occurs after 2020, when higher natural gas 

prices make coal the fuel of choice for most new power plants. Transportation accounts for 94 percent of the projected increase in liquids consumption, dominated 

by growth in fuel use for light-duty vehicles. The remainder of the liquids growth 

in the AEO2007 reference cases occurs in the industrial sector, primarily in refineries. Industry and buildings account for about 90 percent of the increase in natural 

gas consumption from 2005 to 2030. 

Transportation energy demand is expected to increase from 28.1 quadrillion British thermal units (Btu) in 2005 to 39.3 quadrillion Btu in 2030, an average growth 

rate of 1.4 percent per year (Figure 3). Most of the growth in demand between 2005 

and 2030 occurs in light-duty vehicles (56 percent of total growth), followed by 

heavy truck travel (23 percent of growth) and air travel (11 percent of growth). Delivered industrial energy consumption reaches 30.5 quadrillion Btu in the AEO2007 

reference case in 2030, growing at an average rate of 0.8 percent per year between 

2005 and 2030, as efficiency improvements in the use of energy only partially offset 

the impact of growth in manufacturing output. Delivered commercial sector energy 

consumption is projected to grow at a more rapid average annual rate of 1.6 percent 

between 2005 and 2030, reaching 12.4 quadrillion Btu in 2030, consistent with 

growth in commercial floorspace. The most rapid increase in commercial energy demand is projected for electricity used for office equipment, computers, telecommunications, and miscellaneous small appliances. Delivered residential energy consumption is projected to grow from 11.6 quadrillion Btu in 2005 to 13.8 quadrillion Btu 

in 2030, an average rate of 0.7 percent per year. This growth is consistent with population growth and household formation. The most rapid growth in residential energy demand is projected to be in the demand for electricity used to power computers, electronic equipment, and small appliances. 

While the EIA reference case incorporates significant improvements in technology 

cost and performance over time, it may either overstate or understate the actual future pace of improvement since the rate at which the characteristics of energy-using 

and producing technologies will change is highly uncertain. EIA does not attempt 

to estimate how increased government spending might specifically impact technology development. However, to illustrate the importance of future technology 

characteristics, EIA does develop sensitivity cases with alternative technology assumptions. Relative to the reference case, EIA’ s high technology cases generally assume earlier availability, lower costs, and higher efficiencies for end-use technologies and new fossil-fired, nuclear, and nonhydroelectric renewable generating 

technologies. Using high technology assumptions in place of the reference case technology assumptions results in lower projected levels of energy use and energy-related carbon dioxide emissions through 2030 (Figure 4) . Generally, the difference 

between the projections for the two cases grows over the projection horizon, reflecting the greater opportunity for advanced technologies to enter the market as the 
10

Nation’s energy-producing and -consuming capital stock is replaced and expanded 

over time. 

The reference case includes the effects of several policies aimed at increasing energy efficiency in both end-use technologies and supply technologies, including minimum efficiency standards and voluntary energy savings programs. However, the 

impact of efficiency improvement on energy consumption could differ from what is 

shown in the reference case, as illustrated in Figure 5 which compares energy consumption in three cases. The 2006 technology case assumes no improvement in the 

efficiency of available equipment beyond that available in 2005. By 2030, 6.5 percent 

more energy (8.6 quadrillion Btu) is required than in the reference case. The high 

technology case assumes that the most energy-efficient technologies are available 

earlier with lower costs and higher efficiencies. By 2030, total energy consumption 

is 8.8 quadrillion Btu, or 6.7 percent, lower in the high technology case when compared with the reference case. 

Total consumption of liquid fuels and other petroleum products is projected to 

grow at an average annual rate of 1.1 percent in the AEO2007 reference case, from 

20.7 million barrels per day in 2005 to 26.9 million barrels per day in 2030 (Figure 

6) led by growth in transportation uses, which account for 67 percent of total liquid 

fuels demand in 2005, increasing to 73 percent in 2030. Improvements in the efficiency of vehicles, planes, and ships are more than offset by growth in travel. In 

the low and high price cases, petroleum demand in 2030 ranges from 28.8 to 24.6 

million barrels per day, respectively. 

The AEO2007 reference case reflects the new fuel economy standards for light 

trucks finalized by the National Highway Transportation Safety Administration in 

March 2006 that are based on vehicle footprint and the product mix offered by manufacturers. The new Corporate Average Fuel Economy (CAFE) standard, coupled 

with technological advances, is expected to have a positive impact on the fuel economy of new light-duty vehicles. Market-driven increases in the sales of alternative 

vehicle technologies, such as flex-fuel, hybrid, and diesel vehicles, will also have an 

impact. In the reference case, average fuel economy for new light-duty vehicles is 

projected to increase to 29.2 miles per gallon in 2030, or 4 miles per gallon higher 

then the current average. 

Additional improvement is projected in the high technology and high price cases, 

as a result of consumer demand for more fuel-efficient cars and improved economics 

that make producing them more profitable. In the 2006 technology and low oil price 

cases, the projections for light-duty vehicle fuel economy in 2030 are lower than 

those in the reference case, but they still are higher than the 2005 CAFE standard 

for cars and the 2011 CAFE standard for light trucks. In the low price case, fuel 

economy for new light-duty vehicles in 2030 is 3.3 percent lower than projected in 

the reference case—due to consumer preference for more powerful vehicles over fuel 

economy—and in the 2006 technology case it is 7 percent lower than in the reference case. 

Total consumption of natural gas is projected to increase from 22.0 trillion cubic 

feet in 2005 to 26.1 trillion cubic feet in 2030, but there is virtually no growth over 

the last decade. Growth in natural gas consumption between 2020 and 2030 in the 

residential, commercial, and industrial sectors is offset by a decline in natural gas 

consumption for electric power generation. Natural gas is expected to lose market 

share to coal in the electric power sector as result of continued increases in natural 

gas prices in the latter half of the projection. Natural gas use in the power sector 

is projected to decline by 18 percent between 2020 and 2030. 

Total coal consumption is projected to increase from 22.9 quadrillion Btu (1,128 

million short tons) in 2005 to 34.1 quadrillion Btu (1,772 million short tons) in 2030, 

growing by 1.6 percent per year. About 92 percent of the coal is currently used for 

electricity generation. Coal remains the primary fuel for electricity generation and 

its share of generation (including end-use sector generation) is expected to increase 

from about 50 percent in 2005 to 57 percent in 2030. Total coal consumption in the 

electric power sector is projected to increase by an average of 1.6 percent per year, 

from 20.7 quadrillion Btu in 2005 to 31.1 quadrillion Btu in 2030. Another fast 

growing market for coal is expected in coal-to-liquids (CTL) plants. These plants 

convert coal to synthetic gas and create clean diesel fuel, while producing surplus 

electricity as a by-product. In the reference case, coal use in CTL plants is projected 

to reach 1.8 quadrillion Btu by 2030, or 5 percent of the total coal use. In the high 

price case, coal used in CTL plants is projected to reach 6.9 quadrillion Btu. In the 

low price case, however, the plants are not expected to be economical within the 

2030 time frame. 

Total electricity consumption, including both purchases from electric power producers and on-site generation, is projected to grow from 3,821 billion kilowatt hours 

in 2005 to 5,478 billion kilowatt hours in 2030, increasing at an average rate of 1.5 
11

percent per year. The most rapid growth (2.0 percent per year) occurs in the commercial sector, as building floorspace is expanded to accommodate growing service 

industries. Growing use of electricity for computers, office equipment, and small 

electrical appliances is partially offset in the AEO2007 reference case by improved 

efficiency. 

Total marketed renewable fuel consumption (including ethanol for gasoline blending, of which 1.2 quadrillion Btu in 2030 is included with liquid fuels consumption) 

is projected to grow by 1.9 percent per year in the reference case, from 6.2 quadrillion Btu in 2005 to 9.9 quadrillion Btu in 2030, largely as a result of State mandates 

for renewable electricity generation and the effect of production tax credits. About 

52 percent of the projected demand for renewables in 2030 is for grid-related electricity generation (including combined heat and power), and the rest is for dispersed 

heating and cooling, industrial uses, and fuel blending. 

Ethanol use grows in the AEO2007 reference case from 4 billion gallons in 2005 

to 14.6 billion gallons in 2030 (about 8 percent of total gasoline consumption by volume). Ethanol use for gasoline blending grows to 14.4 billion gallons and E85 consumption to 0.2 billion gallons in 2030. The ethanol supply is expected to be produced from both corn and cellulose feedstocks, both of which are supported by ethanol tax credits included in EPAct 2005, but domestically-grown corn is expected to 

be the primary source, accounting for 13.6 billion gallons of ethanol production in 

2030. 

Energy Intensity 

Energy intensity, as measured by primary energy use per dollar of GDP (2000 dollars), is projected to decline at an average annual rate of 1.8 percent from 2005 to 

2030. Although energy use generally increases as the economy grows, continuing improvement in the energy efficiency of the U.S. economy and a shift to less energyintensive activities are projected to keep the rate of energy consumption growth 

lower than the GDP growth rate (Figure 7). The projected rate of energy intensity 

decline in the AEO2007 approximately matches the decline rate between 1992 and 

2005 (1.9 percent per year). Energy-intensive industries’ share of overall industrial 

shipments is projected to fall at an average rate of 0.6 percent per year, a slower 

decline rate than the 1.2 percent per year experienced from 1992 to 2005. 

Historically, energy use per person has varied over time with the level of economic 

growth, weather conditions, and energy prices, among many other factors. During 

the late 1970s and early 1980s, energy consumption per capita fell in response to 

high energy prices and weak economic growth. Starting in the late 1980s and lasting through the mid-1990s, energy consumption per capita increased with declining 

energy prices and strong economic growth. Per capita energy use is projected to increase by an average of 0.3 percent per year between 2005 and 2030 in the 

AEO2007 reference case, with relatively high energy prices moderating the demand 

for energy services and promoting interest in efficiency improvements in buildings, 

transportation, and electricity generation. 

Energy Production and Imports 

Total energy consumption is expected to increase more rapidly than domestic energy supply through 2030. As a result, net imports of energy on a Btu basis are projected to meet a growing share of energy demand. 

Liquids and Other Petroleum Products.—AEO2007 includes a reorganized breakdown of fuel categories that reflects the increasing importance of conversion technologies that can produce liquid fuels from natural gas, coal, and biomass. In the 

past, petroleum production, net imports of petroleum, and refinery gain could be 

balanced against the supply of liquid fuels and other petroleum products. Now, with 

other primary energy sources being used to produce significant amounts of liquid 

fuels, those inputs must be added in order to balance production and supply. Conversely, the use of coal, biomass, and natural gas for liquid fuels production must 

be accounted for in order to balance net supply against net consumption for each 

primary fuel. In AEO2007, the conversion of nonpetroleum primary fuels to liquid 

fuels is explicitly modeled, along with petroleum refining, as part of a broadly-defined refining activity that is included in the industrial sector. AEO2007 specifically 

accounts for conversion losses and co-product outputs in the broadly defined refining 

activity. 

Projected U.S. crude oil production increases from 5.2 million barrels per day in 

2005 to a peak of 5.9 million barrels per day in 2017 as a result of increased production offshore, predominantly in the deep waters of the Gulf of Mexico. Production 

is subsequently projected to fall to 5.4 million barrels per day in 2030. Total domestic liquids production (crude oil, natural gas plant liquids, refinery processing gains, 

coal-to-liquids, gas-to-liquids, ethanol, blending components, and biodiesel), in-
12

creases from 8.3 million barrels per day in 2005 to a peak of 10.5 million barrels 

per day in 2022 and then remains at about that level through 2030. 

Net liquids imports, including both crude oil and refined products, drops from 60 

percent of total liquids supply in 2005 to 54 percent in 2009, before increasing to 

61 percent in 2030 (Figure 8). Under alternative oil price projections, the 2030 import fraction ranges from 67 in the low price case to 49 percent in the high price 

case. Figure 9 compares the impact of the AEO2007 reference, high price, and low 

price cases on U.S. liquids production, consumption, and imports. 

In the U.S. energy markets, the transportation sector consumes about two-thirds 

of all liquid petroleum products and the industrial sector about one-quarter. The remaining 10 percent is divided among the residential, commercial, and electric power 

sectors. With limited opportunities for fuel switching in the transportation and industrial sectors, large price-induced changes in U.S. liquid petroleum consumption 

are unlikely, unless changes in petroleum prices are very large or there are significant changes in the efficiencies of liquid petroleum-using equipment. 

Higher crude oil prices spur greater exploration and development of domestic oil 

supplies, reduce demand for petroleum, and slow the growth of oil imports in the 

high price case compared to the reference case. Total domestic liquid petroleum supply in 2030 is projected to be 2.0 million barrels per day (19 percent) higher in the 

high price case than in the reference case. Production in the high case includes 1.7 

million barrels per day in 2030 of synthetic petroleum fuel produced from coal and 

natural gas, compared to 0.4 million barrels per day in the reference case (Figure 

10). Total net imports in 2030, including crude oil and refined products, are reduced 

from 16.4 million barrels per day in the reference case to 12.0 million barrels per 

day in the high price case. 

Natural Gas.—Total domestic natural gas production, including supplemental natural gas supplies, increases from 18.3 trillion cubic feet in 2005 to 21.1 trillion cubic 

feet in 2022, before declining to 20.6 trillion cubic feet in 2030 in the AEO2007 reference case (Figure 11). Lower-48 offshore production is projected to grow from 3.4 

trillion cubic feet in 2005 to a peak of 4.6 trillion cubic feet in 2015 as new resources 

come online in the Gulf of Mexico. After 2015, lower-48 offshore production declines 

to 3.3 trillion cubic feet in 2030, as investment is inadequate to maintain production 

levels. 

Lower-48 production of unconventional natural gas is expected to be a major contributor to growth in U.S. natural gas supplies. In the AEO2007 reference case, unconventional natural gas production is projected to account for 50 percent of domestic U.S. natural gas production in 2030. Unconventional natural gas production is 

projected to grow from 8.0 trillion cubic feet in 2005 to 10.2 trillion cubic feet in 

2030. With completion of an Alaskan natural gas pipeline in 2018, total Alaskan 

production is projected to increase from 0.5 trillion cubic feet in 2005 to 2.2 trillion 

cubic feet in 2021 and to remain at about that level through 2030. 

Overall reliance on domestic natural gas supply to meet demand is projected to 

fall from 83 percent in 2005 to 79 percent in 2030. The growing dependence on imports in the United States occurs despite efficiency improvements in both the consumption and the production of natural gas. 

Net pipeline imports are expected to decline from 2005 levels of about 3.0 trillion 

cubic feet to about 0.9 trillion cubic feet by 2030 due to resource depletion in Alberta, growing domestic demand in Canada, and a downward reassessment of the 

potential for unconventional natural gas production from coal seams and tight formations in Canada. To meet a projected U.S. demand increase of 4.1 trillion cubic 

feet from 2005 to 2030 and to offset an estimated 2.1 trillion cubic feet reduction 

in pipeline imports, the United States is expected to depend increasingly on imports 

of LNG. LNG imports in the AEO2007 reference case are projected to increase from 

0.6 trillion cubic feet in 2005 to 4.5 trillion cubic feet in 2030. 

One area of uncertainty examined through sensitivity cases considers the rate of 

technological progress and its affect on future natural gas supply and prices. Technological progress affects natural gas production by reducing production costs and 

expanding the economically recoverable natural gas resource base. In the slow oil 

and gas technology case, advances in exploration and production technologies are assumed to be 50 percent slower than those assumed in the reference case, which are 

based on historical rates. As a result, domestic natural gas development costs are 

higher, production is lower, wellhead prices are higher at $6.32 per thousand cubic 

feet in 2030 (compared to $5.98 in the reference case) (2005 dollars), natural gas 

consumption is reduced, and LNG imports are higher than in the reference case. In 

2030, natural gas production is 18.7 trillion cubic feet (9 percent lower than in the 

reference case), net natural gas imports are 6.4 trillion cubic feet (18 percent higher), and domestic natural gas consumption is 25.1 trillion cubic feet (3 percent 

lower). Conversely, the rapid technology case assumes 50 percent faster improve-
13

ment in technology. In that case, natural gas production in 2030 is 23.5 trillion 

cubic feet (14 percent higher than in the reference case), net natural gas imports 

are 4.3 trillion cubic feet (21 percent lower), domestic natural gas consumption is 

27.9 trillion cubic feet (7 percent higher), and the average wellhead price is $5.21 

per thousand cubic feet. 

Coal.—As domestic coal demand grows in the AEO2007 reference case, U.S. coal 

production is projected to increase at an average rate of 1.6 percent per year, from 

1,131 million short tons (23.2 quadrillion Btu) in 2005 to 1,691 million short tons 

(33.5 quadrillion Btu) in 2030. Production from mines west of the Mississippi River 

is expected to provide the largest share of the incremental coal production and 

grows at an average rate of 2.4 percent per year, versus 0.4 percent per year for 

mines east of the Mississippi River. In 2030, almost 68 of domestic coal production 

is projected to originate from States west of the Mississippi (Figure 12). 

Electricity Generation 

In the AEO2007 reference case, total electricity generation, including generation 

by electricity producers and on-site, increases by 44 percent between 2005 and 2030, 

growing at an average rate of 1.5 percent per year. Coal is projected to supply about 

75 percent of the increase in electricity generation from 2005 to 2030. Generation 

from coal is projected to grow from about 2,015 billion kilowatthours in 2005 to 

3,330 billion kilowatt hours in 2030 in the reference case. In 2030, coal is projected 

to meet 57 percent of generation, up from 50 percent in 2005 (Figure 13). Between 

2005 and 2030, AEO2007 projects that 156 gigawatts of new coal-fired generating 

capacity will be constructed, including 11 gigawatts at coal-to-liquids plants and 67 

gigawatts of integrated gasification combined-cycle plants. Given the assumed continuation of current energy and environmental policies in the reference case, carbon 

capture and sequestration technology is not projected to come into use during the 

projection period. 

Generation from natural gas is projected to increase from 752 billion killowatt 

hours in 2005 to 1,061 billion killowatt hours in 2020, as recently-built plants are 

used more intensively to meet growing demand. After 2020, however, generation 

from new coal and nuclear plants is expected to displace some natural-gas-fired generation. Total natural-gas-fired generation declines by 12 percent after 2020 to 937 

billion kilowatt hours in 2030 and the natural gas share of electricity generation is 

projected to decline from 19 percent in 2005 to 16 percent in 2030. 

Nuclear generating capacity in the AEO2007 reference case is projected to increase from 100 gigawatts in 2005 to 112.6 gigawatts in 2030. The increase includes 

12.5 gigawatts of capacity at newly built nuclear power plants and 3 gigawatts expected from uprates of existing plants, offset by 2.6 gigawatts of retirements. The 

12.5 gigawatts of newly built capacity includes 9 gigawatts of new nuclear capacity 

built in response to the EPAct 2005 production tax credits (reflecting a prorated 

share of the credits as outlined in the 2006 Internal Revenue Service ruling) and 

3.5 additional gigawatts of capacity built without credits. AEO2007 also reflects the 

change in the Production Tax Credit (PTC) for new nuclear power plants that was 

included in the Gulf Opportunity Zone Act of 2005 (P.L. 109-135), eliminating the 

indexing provision in the value of the credit that had been provided in EPAct 2005. 

Total electricity generation from nuclear power plants is projected to grow from 

780 billion kilowatthours in 2005, 19 percent of total generation, to 896 billion kilowatt hours in 2030 in the AEO2007 reference case, accounting for about 15 percent 

of total generation in 2030. Additional nuclear capacity is projected in some of the 

alternative AEO2007 cases, particularly those that project higher demand for electricity or even higher fossil fuel prices. 

The use of renewable technologies for electricity generation is projected to grow, 

stimulated by improved technology, higher fossil fuel prices, and extended tax credits in EPAct 2005 and in State renewable energy programs (renewable portfolio 

standards, mandates, and goals). The expected impacts of State renewable portfolio 

standards, which specify a minimum share of generation or sales from renewable 

sources, are included in the projections. The AEO2007 reference case includes the 

extension and expansion of the PTC for renewable generation through December 31, 

2007, as enacted in EPAct 2005, but not the subsequent extension through the end 

of 2008 that was enacted in December 2006. Total renewable generation in the 

AEO2007 reference case, including hydroelectric power and renewables-fueled combined heat and power generation, is projected to grow by 1.5 percent per year, from 

357 billion kilowatt hours in 2005 to 519 billion kilowatt hours in 2030. The renewable share of electricity generation is projected to remain at about 9 percent of total 

generation from 2005 to 2030. 
14

Energy-Related Carbon Dioxide Emissions 

Absent the application of carbon capture and sequestration technology, which is 

not expected to come into widespread use without a decrease in the cost of capture 

and changes in current policies that are not included in the reference case, carbon 

dioxide emissions from the combustion of fossil fuels are proportional to fuel consumption and carbon content, with coal having the highest carbon content, natural 

gas the lowest, and petroleum in between. 

Carbon dioxide emissions from energy use are projected to increase from 5,945 

million metric tons in 2005 to 7,950 million metric tons in 2030 in the AEO2007, 

an average annual increase of 1.2 percent (Figure 14). The energy-related carbon 

dioxide emissions intensity of the U.S. economy is projected to fall from 538 metric 

tons per million dollars of GDP in 2005 to 353 metric tons per million dollars of 

GDP in 2030, an average decline of 1.7 percent per year. Projected increases in carbon dioxide emissions primarily result from a continued reliance on coal for electricity generation and on petroleum fuels in the transportation sector. 

CONCLUSION

As I noted at the outset, EIA does not take positions on policy issues, but we do 

produce data, analyses, and projections that are meant to assist policymakers in 

their energy policy deliberations. The AEO2007 results that I have discussed this 

morning are intended to serve that broad purpose. EIA has also completed several 

analyses of the energy and economic impacts of alternative proposals to limit greenhouse gas emissions over the past several years. 

We look forward to providing whatever further analytical support that you may 

require on topics ranging from greenhouse gas limitation to energy security challenges facing the Nation to the impacts of policies to promote greater use of renewable energy sources. We believe that such analyses can help to identify both potential synergies and potential conflicts among different energy-related objectives that 

are currently under discussion in this Committee and elsewhere. 

This concludes my testimony, Mr. Chairman and members of the Committee. I 

would be happy to answer any questions you may have.

The CHAIRMAN. Thank you very much. I think, obviously, there’s 

a lot to ask about. 

Let me ask a few questions. We’ll just have 5-minute rounds. 

You have various scenarios set out in you Annual Energy Outlook. With regard to bio-fuels though, my layman’s view of what 

you’re saying on bio-fuels is that there’s no way we can achieve the 

kinds of targets that the President has set for 2017, in terms of biofuel production—35 billion gallons of bio-fuels by 2017. 

Is there any scenario that you could envision that that could be 

achieved? 

Mr. CARUSO. To clarify, what I’m saying is that under these assumptions, which are the economics that we have in this model, 

the technology as best we know it for converting cellulose into ethanol, as well as the existing policies, gets—in this reference case—

around 12 billion gallons in 2017. 

The CHAIRMAN. Twelve, does that include corn? 

Mr. CARUSO. Almost all of that is corn-based because of the—as 

I mentioned, the economic assumptions and the technology, the 

capital cost of producing ethanol. So, is it possible to get there? 

This is a very ambitious goal that you’ve mentioned. We need a lot 

more information to be able to answer that question. There are a 

number of factors that we still don’t know about in the proposed 

mandate. I think Administrator Johnson, at a hearing yesterday, 

mentioned that there would be forthcoming legislation laying out 

the President’s proposed mandate in detail. 

Until I were to see what those proposals actually included—

there’s a safety valve included in that, and other renewables and 

alternative fuels in addition to ethanol—I would say I’d be reluc-
15

tant to say there’s no scenario that would get you there. The scenario that I’ve outlined gets you to about 12 billion. 

The CHAIRMAN. Gets you to 12 billion gallons, instead of 35? 

Mr. CARUSO. Yes, sir. 

The CHAIRMAN. On nuclear production of electricity from nuclear 

power—as I recall it in the outlook that you gave us last year—

I remember having a discussion with you last year about what your 

projection was there. You anticipated that there would be some increase in production of electricity from nuclear power for some period of time through, I think, 2017 or 2018 at which point, the increase in production of power from nuclear would flatten—would go 

away, and we would just stay where we were because of the tax 

provisions that we wrote into EPAct. 

Is that still your view, that there’s going to be some improvement 

between now and 2017 or 2018, and then at that point we’re just 

where we are? 

Mr. CARUSO. Well, I think in this reference case, we’re assuming 

there’ll be nine new nuclear plants built at existing sites by 2019, 

I believe it is. I’ll get further clarification of that. So we would have 

a steady increase in the production of electricity from nuclear as 

those new plants came on stream. In this scenario, that would tend 

to flatten out. However, as I mentioned, there are a number of side 

cases depending on—— 

Okay, I’m told we do build some additional plants beyond 2020 

in this outlook, but those are the nine new plants, giving you about 

12 gigawatts of new capacity in this outlook. 

The CHAIRMAN. So, what percent of our electricity do you anticipate in 2030 would come from nuclear power? 

Mr. CARUSO. About 15 percent. 

The CHAIRMAN. Fifteen. 

Mr. CARUSO. It’s around 19 now. 

The CHAIRMAN. It’s 19, so it will be down to 15 by 2030, given 

current expectations with regard to plant construction. 

Mr. CARUSO. That’s correct. I mentioned 54 percent of new generation capacity would be coal-based in this outlook. 

The CHAIRMAN. So coal gets a bigger and bigger portion of 

our—— 

Mr. CARUSO. Its share grows from 50 to 57 percent, and the 

share of nuclear goes down. The share of natural gas goes down, 

and the share of renewables goes up slightly. 

The CHAIRMAN. Okay, that’s it, my time’s up. 

Senator Domenici. 

Senator DOMENICI. Mr. Chairman, you could go on as long as 

you’d like. 

The CHAIRMAN. No, go ahead. 

Senator DOMENICI. Thank you. I—I imagine somewhat like you—

am looking at nuclear, and it looks like the more we do, the less 

we get. We seem to be going nowhere. 

Add to it, Mr. Chairman and fellow Senators, and I’d say this to 

you Mr. Caruso, the scenario that I’m getting out of Tennessee, 

where they’re building a new plant as part of the Tennessee Valley 

Authority. Not a new plant, but they had one that was stopped at 

about half, and it stayed at half until recently, and they made a 

policy decision to do it. Mr. Caruso, I understand—and it might be 
16

worthwhile so that I’m not just talking on the record here for nothing and may be wrong—but I understand they are having a terrifically difficult time getting the kind of personnel to build this plant. 

I want to make sure that I’m stating it right, but Mr. Chairman, 

I understand they can’t find enough welders. It takes some simple 

little proposition. Very highly paid, ready to hire as many welders 

as there are available for jobs as welders in the United States, in 

the whole United States. 

They’ve run ads in big papers saying, ‘‘If you’re in L.A., if you’re 

in Chicago wherever you are—if you’re a welder and you want a 

job for’’—I don’t know, 18 months or something—‘‘would you move 

to so-and-so, we’ve got a job for you.’’ And they haven’t even filled 

them with that. 

Now just think of that. If it’s the case, if it’s a matter of fact, that 

we’re going to license—let’s just gamble and say we license four before Christmas. And if it’s the same, they’re going to apply for permanent licenses. I don’t know how long it is before they look for 

steel, before they look for steel workers, Mr. Chairman, and all the 

others things that go into building a plant. But I have the sneaking 

hunch that we’re going to have somebody up here telling us and 

Senator Bingaman’s going to say, ‘‘Why are they so delayed?’’ 

They’re going to tell us, ‘‘We don’t have any steel workers.’’ 

Or, I heard a good one recently. You know those big pots that 

go in the middle of nuclear power plant, into which they put the 

steam. There’s only on place in America building them today. I was 

talking to my friend who has a genuine interest, Senator Craig, 

and we were saying, ‘‘Isn’t it incredible?’’ We don’t have a capacity 

to build those. We can build a small one, but not the big one. And 

even the French can’t, with all their prowess in nuclear power. The 

only country that can build one is South Korea. And do you know 

what? The countries are gutsy enough right now to order them in 

advance, and get their name on saying such-and-such utilities is 

putting a down payment, and I’m buying whatever this thing is 

called, even though I don’t know when I’m going to build my plant. 

But I know I’ll be ready before you have one built, so I’d like to 

buy one. 

I’m just amazed that this kind of thing enters your configuration, 

as to why we won’t move with more dispatch. It’s a simple one, a 

fundamental one, but I think it’s harsh. Because I don’t know how 

many young men and women are going to want these jobs. They’re 

going to pay $25 an hour, and I wrote down your State, Senator 

where they’re building this power plant. It’s big pay, isn’t it? And 

they can’t find enough workers. I’d just like to lie that before you. 

Senator CORKER. Yes, sir. 

Senator DOMENICI. I have two more quick questions. 

Mr. CARUSO. It does get reflected in the assumptions we use—

that these types of human resource scarcities as well as commodity 

scarcity, precious metals, steel, concrete—all have increased the 

cost of doing business in every sector, from petroleum through electric power. We try to keep up with them, but it’s moving so fast 

that—for example—in the exploration and production of oil and 

gas, the cost index has gone up 50 percent in just 2 years. That’s 

pretty extreme; that’s not sustainable. Even when you look at the 

10-year track record, it’s been increasing in double digits per year. 
17

The cost of finding, developing, and producing oil and gas—it’s one 

of the reasons why we think we’re not going back to $25 or $30 oil. 

Senator DOMENICI. Well, I just want to close with one last observation and question. 

It seems to this Senator that the coal people—that is, those who 

own coal that can be used for future utility coal-burning purposes—

ought not be terribly worried about whether they’re going to stay 

in business with all these alternatives. Because every one, every 

authentic study—including yours—would show that in spite of everything we’re doing, there will be more coal, not less. You are 

going to do nuclear, but you’re going to have more coal, not less. 

We’ve got Japan adding nuclear, but they’re just adding coal like 

running water. Turn on your water faucet, and there comes one 

every day. What is it, every 3 days, or an average of every 10 days 

or something? 

Senator CRAIG. China. 

Senator DOMENICI. So I don’t know why the coal companies are 

worried about a policy that might intend to take their business, 

jobs, and capital and knock it down. It’s going to be out there, in 

front and center, for the alternatives aren’t going to make it budge 

very much. 

But I think we haven’t done a very good job implementing our 

bill, in terms of making capital available for some alternatives. Not 

to brush coal aside, but to just offer some competition. And that’s 

why, you even mentioned a lack of parts of the bill being implemented for loan guarantees, that you even saw that, Mr. Craig, on 

the horizon, right? 

Senator CRAIG. Yes, sir. 

Senator DOMENICI. And we are trying our best, we want you to 

know, to see to it that the U.S. Government does something about 

the policy commitments in the law to get on with some of these 

things that we know we intended to spend money on. 

I’ll have some written questions. I’ll get them to you. One will 

be this, and you can answer with your staff. I’d like a little historical summary about how we might mobilize to get workers ready 

for the kind of jobs that nuclear might be presenting to them. 

Starting with the proposition: are there any out there, anyone 

trained? If not, how are we going to train them? How have we done 

it in the past? I think it’s probably a winner for somebody that 

wants to go into the business of training. The U.S. Government for 

one, but I stop at that. Thank you. 

Mr. CARUSO. Thank you. 

[The information follows:]

With the lack nuclear plant orders in the United States since 1978, there has 

been a consolidation in the nuclear industry and many nuclear plant component 

manufacturers, suppliers and construction companies are no longer in that business. 

In addition, the nuclear work force has aged and retired without the influx of new 

and younger people to take their place. As such there is a serious shortage of qualified construction craft, operations and maintenance technicians, and engineers to 

work in the nuclear resurgence. 

A 2004 Bechtel study found that if 50 gigawatts of new nuclear capacity were 

built before 2025, over 100,000 manufacturing, construction, and operating jobs 

would be created in the United States. Announcements by more than a dozen power 

companies of their intentions to submit applications to the Nuclear Regulatory Commission for combined Construction and Operating Licenses (COLs) for as many as 

33 new nuclear reactors (representing at least 40 gigawatts) are a marketplace indi-
18

cation that new jobs may be created as COLs are approved and new orders are 

placed. Similar motivation in the mid-1960s when reactor orders were pouring in 

at rates exceeding 20 per year led workers to acquire the skills necessary and fill 

the jobs being created. 

As part of the NP 2010 program, the Office of Nuclear Energy funded an independent review of the nuclear power plant construction infrastructure. That report, 

which is available in its entirety on the NP2010 website (http://nuclear.energy.gov/

np2010/reports/mpr2776Rev0102105.pdf), concluded that more generic construction 

trades are sufficient to build the first wave of about eight new reactors. The more 

specialized trades, including boilermakers, pipe fitters, electricians and iron workers 

are in short supply, and these workers will need to be brought in from all regions 

of the country to build the first plants. The reactor vendors and the engineering, 

procurement and construction contractors are aware of the potential shortages in 

specialized skills. National programs, sponsored by industry and the U.S. government, as well as unions, community colleges and career training centers, are all providing training opportunities for the construction trades. The challenge has been to 

recruit U.S. citizens into the more technically demanding, albeit highly paid, construction trades. 

While it appears that there are a number of programs ongoing to close the gap 

on workforce requirements for nuclear power plants, additional review is warranted. 

The Nuclear Energy Institute (NEI) is conducting a FY 2007 workforce study that 

is a follow-on to their 2003 and 2005 staffing studies looking at nuclear staffing 

needs for the existing fleet. The new study should be completed by the end of May. 

NEI has also worked with the Southeast Manpower Tripartite Alliance to examine 

skilled craft supply and demand in the southeast with a view toward new nuclear 

plant construction. These studies will provide additional insight into the availability 

of workers for new plant construction.

The CHAIRMAN. Thank you. 

Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman. 

In your projections and studies, did climate change have any impact on your projections? 

Mr. CARUSO. We do estimate the CO2 emissions from energy 

sources in our outlook. To the extent that there are any policies in 

place, in terms of renewables, fuel standards, or portfolio standards, we incorporate all of those—whether they be at the State or 

local level. As you know, we don’t have a Federal renewables portfolio standard. We incorporate any policies that are in place as of 

the end of last—or toward the end of last—year in this outlook. To 

that extent they’re included in there, but that’s it. 

Senator TESTER. So potential carbon sequestration costs are not 

part of the equation? 

Mr. CARUSO. We looked at carbon capture and sequestration 

technology and the current economics and, at the present time—or 

when we did these runs—the cost and the technology are not to the 

place where they are implemented in this outlook. 

Senator TESTER. Okay. All right. 

Then you talked about the ethanol from corn reaching about 12 

billion, if I heard you correctly. 

Mr. CARUSO. In 2017. 

Senator TESTER. Yeah, and you said that that was from both—

was mainly from corn, but was also from cellulose. 

Mr. CARUSO. A small amount. 

Senator TESTER. Did you break that down? 

Mr. CARUSO. Yes. 

Senator TESTER. How much was it from cellulose? 

Mr. CARUSO. The cellulosic ethanol component, in 2017 is around 

240, 250 million gallons. That’s based on the requirement in the 

Energy Policy Act of 2005. That’s mandated by the EPAct 2005. 
19

Senator TESTER. Okay. So it’s based more on mandates than it 

is on potential? 

Mr. CARUSO. That’s correct. The current economics and current 

technology strongly favor corn-based ethanol in this country, and 

sugar-based ethanol from foreign sources. 

Senator TESTER. All right, okay. 

Was there, I mean—and excuse me if you went over this—but 

the coal-to-gas projections: were there any projections on that for 

electricity and gas, and potentially even fertilizer, things like that? 

Mr. CARUSO. Yes. Part of the strong growth in coal production in 

this outlook, going from a little over 1,100 million short-tons to 

1,800, is the use of coal for conversion to liquids. In the reference 

case, it’s a couple hundred million short-tons, and that adds up to 

about 400,000 barrels a day of liquid fuels in the reference case. 

That’s at roughly $55 per barrel of oil equivalent. But if you get 

a high-price case, that number can go much higher. Our high-price 

case gets up to 1.7 million barrels a day of liquids from coal, and 

that’s at almost $100 a barrel in real terms in 2030. 

Senator TESTER. So, what you’re saying is, then, with today’s technology—if you extrapolate that out, $55 a gallon is where it’s 

profitable. Is that what you’re saying? 

Mr. CARUSO. I’m saying even lower than that—probably closer to $45-per-barrel oil equivalent. It is a sufficient economic incentive to 

convert coal to liquid. 

Senator TESTER. Does the quality of the coal have any bearing on that $45 figure that you talked about? For example, there’s different quality of coal in Montana than there is in West Virginia 

than there is in North Dakota. What are the impacts of that? 

Mr. CARUSO. I’d have to answer that for the record. I don’t know 

the exact differences between the yield of liquids based on different 

qualities of coal, but I’m sure there’s a difference. We’re basing the 

economics on the Fischer-Tropsch method that’s been used by Sasol 

in South Africa. 

Senator TESTER. Okay, so the kind of coal that’s used in that 

Fischer-Tropsch method: was that looked at, at all? Was it a lignite, a bituminous? Was that looked at, at all? 

Mr. CARUSO. I’m sure it was, but I don’t have, off the top of my 

head, the specific type of coal we used in this projection. 

Senator TESTER. Something that I’d be curious about, if you have 

it in your wherewithal, is what kind of coal yields the highest percentage of product? Now I would assume that it’s, like we taught 

in school—— 

Mr. CARUSO. Uh-huh. 

Senator TESTER [continuing]. You know, the three levels are the 

best, but I don’t know that, and it would be good to know that. 

Mr. CARUSO. I’d be happy to provide that for you. 

Senator TESTER. Thank you. 

[The information follows:]

The major available coal types in the United States (bituminous, subbituminous, 

and lignite) can be converted into liquid transportation products. For FischerTropsch technology, an indirect route to liquids through gasification of the coal, the 

amount of liquids produced is directly related to the coal rank (the heating value 

of the coal). For a bituminous coal, the yield of transportation liquids is about 2 barrels per ton; for sub-bituminous, about 1.6 barrels per ton; and for lignite, about 1.1 

barrels per ton. These estimates are for self-sustaining plants, where the energy for 
20

operation of the plant is derived from coal or coal products. While the respective 

yields by coal rank would seem to favor the use of bituminous coal, the lower production costs for U.S. subbituminous and lignite coals can actually make them the 

more cost-effective fuels and feedstocks for CTL plants. In 2005, the average 

minemouth price of subbituminous coal produced in the Powder River Basin (WY, 

MT) was less than $8 per ton, and the price of North Dakota lignite was about $10 

per ton. By comparison, the average minemouth price for bituminous coal produced 

in the Eastern Interior (IL, IN, KY west) in 2005 was about $27 per ton, and Appalachian bituminous coal sold for an average price of more than $40 per ton.

The CHAIRMAN. Senator Craig. 

Senator CRAIG. Thank you, Mr. Chairman. 

Mr. Caruso, thank you for being with us this morning. 

EIA’s work has been extremely valuable to us over the years, and 

your presentation here this morning ought to be—at least—somewhat alarming to all of us, as it relates to our growing dependency 

on foreign sources, and the hurdles that we have to overcome. 

Even with the Energy Policy Act of 2005 and the beginning of 

what is happening out there in the energy field, in all types of energy, obviously when you begin to do what you all do well—and 

that’s extrapolate and measure and put it into context—it changes 

the picture somewhat. 

If by 2012, 8 billion barrels of ethanol production is where we 

will be, and as of close of business this year we were at a certain 

level that consumed 20 percent of the corn market, obviously to arrive at where we need to get, with what the President’s talking 

about, or even what you’re projecting, would suggest that in the 

American food chain, corn and its dynamics have to change a great 

deal. Do they not? 

Mr. CARUSO. That’s correct. Even getting to the numbers, in our 

reference case, which are 12 billion gallons in 2017, it’s more than 

30 percent of, I don’t have the specific—— 

Senator CRAIG. Right. 

Mr. CARUSO [continuing]. I can’t provide the specific number, but 

it’s more than 30 percent of the corn crop. 

Senator CRAIG. Have you factored in—I assume you’re looking at 

static, I should say—current production levels based on yields per 

acre and acreage available. How do you arrive at those numbers? 

Mr. CARUSO. We have looked at that, and we do work with the 

Department of Agriculture in—— 

Senator CRAIG. Yeah. 

Mr. CARUSO [continuing]. Their crop forecasts and with their 

chief economist, Keith Collins, in comparing that data. So we do 

work with them, and that’s included in our model. 

Senator CRAIG. You factored in—I think Senator Tester mentioned or you came with the figures—as it relates to cellulosic, a 

relatively low number. 

Mr. CARUSO. Yes. 

Senator CRAIG. Senator Domenici had mentioned a company, and 

a grant, and an anticipated loan guarantee to get some commercial 

activity going in the cellulosic area. There are many of us who’ve 

paid a good deal of attention to that, thinking that it is a valuable 

source, and to get to where the President is talking, you have to 

factor that in to a more significant number. Would you agree with 

that? 
21

Mr. CARUSO. I would absolutely agree. As I mentioned earlier, 

these are the assumptions on current economics, the current state 

of knowledge and technology, and we certainly hope that these 

grants that were announced yesterday, and a number of other programs that are on the way, will change that technological—— 

Senator CRAIG. Sure. 

Mr. CARUSO [continuing]. Picture. 

Senator CRAIG. So when we go from 19 percent nuclear to 15 percent, and coal picks up the margins and grows—and yet I watch 

now where there’s an attempt to site current technology coal 

plants, a very strong resistance on the part of the region or the 

area in which the siting is attempted. What are you factoring into 

this phenomenal coal growth as a part of electrical production, as 

it relates to technology in those plants? 

Mr. CARUSO. Well we—— 

Senator CRAIG. And, i.e., climate change, and all that we’re looking at now. 

Mr. CARUSO. As I mentioned to Senator Tester, we did look at 

the current economics and technology of carbon capture and sequestration, and at these prices, we don’t have that in this reference case. 

Senator CRAIG. Okay. 

Mr. CARUSO. In the coal sector as a whole, we see continued 

steady improvement in efficiency, both the combination of pulverized coal at the use of the highest technological availability, as well 

as a significant new amount of IGCC plants. I think almost half 

of the new coal-fired plants in this outlook are IGCC, Integrated 

Coal Gas Fired Combined Cycle. 

Senator CRAIG. Oh, all right. 

Mr. CARUSO. I may have the numbers slightly off, but I think for 

about a 41 percent growth in electricity generation, you’d do it with 

about a 33 or 34 percent increase in energy. So, you’re getting more 

electricity by using less energy per unit of measurement in the coal 

sector—— 

Senator CRAIG. Right. 

Mr. CARUSO [continuing]. In both pulverized and the IGCC techniques. 

Senator CRAIG. Yeah. Yeah. 

Mr. Chairman, my time is about up. 

Let me ask: Senator Domenici asked that I change the record 

based on a statement he had made. Currently it’s Japanese Steel 

Works that can forge the reactor vessel containers that he had 

mentioned. It appears that a Korean company is gearing up to supply those. So, I wanted to do that for the correction of the record 

in relation to what Senator Domenici had said. 

Senator Domenici also talked about, obviously a sense of concern 

as it relates to crafts and skills and the capability of the American 

work force. As we debated EPAct a couple years ago that became 

quite apparent to us, especially in the nuclear field—that this really was a gearing-up, again, of an industry that we had lost a large 

part of or had put in an idle mode for a long, long while. And in 

your analysis of 7, 8, 10-plus reactors, do you look at that gearing 

up? Not only the nuclear physicists, the young student at the college and the university, but the skilled technician, if you will. The 
22

skilled welder, the quality of work, and the type of work, that will 

be required to meet that licensing responsibility under the NRC. 

Mr. CARUSO. We don’t go into a great level of detail, but it does 

reflect itself in the higher costs, the higher capital and construction 

costs of building these new plants. 

Senator CRAIG. Okay. 

Mr. CARUSO. It’s been rising steadily along with, as I mentioned, 

the costs of doing business in oil, gas, and in the electric utility industry in general. 

Senator CRAIG. Sure. 

Mr. Chairman, my time is up, but let me say to you, and to the 

committee, and for the record: I grow increasingly alarmed at reality when I see these figures. I know where we can go. I know 

what we’ve done, and how long it took us to get to where we are 

today, from a policy standpoint. Yet, I see agencies not performing 

at levels, and a sense of urgency that I would hope we could have. 

I really do believe whether it’s the executive branch or the Legislative Branch, we need to declare war, in a sense of a deployment 

of resource and talent in a way that we’ve not done before, to focus 

on our energy needs. 

It just makes not only good sense for our country to do that, but 

we will grab a leadership role once again in new applied technologies that we’re so very good at doing if we martial those kinds 

of resources. I’m always frustrated about gas pipelines coming out 

of Alaska and what it’s going to take to get it. Whether it’s resource deployment, or talent deployment, or the frustration of a 

lack of quality public policy that gets us to where we need to get 

in a timely fashion. America becomes the loser if that urgency 

doesn’t exist. While we’ve moved, while we’ve nudged the noodle a 

bit, I think we—your leadership, our leadership—needs to nudge it 

a good deal more in a most urgent way. Thank you. 

The CHAIRMAN. Thank you. 

Senator Murkowski, go right ahead. 

Senator MURKOWSKI. Thank you, Mr. Chairman. 

Good morning, Mr. Caruso. I always look forward to the Annual 

Outlook. I wish our outlook looked better. I want to talk just a little bit this morning about natural gas. 

As you know we’re waiting anxiously, from the State’s perspective—the new Governor is rolling out her new legislation of inducements to get participants so we can get this gas line moving forward. But, you know, when we passed the natural gas pipeline out 

of the Congress, we anticipated that Alaska’s gas would be online 

in about 2012. A couple years ago the projection was it was going 

to be here in 2014. Last year when you came to speak to us the 

assessment was going to be 2016. This year you bumped back to 

2018. So it seems like every year you’d come to talk to us we lose 

a couple years with getting Alaska’s gas to market, which is a huge 

concern to me as an Alaskan, a huge concern to me as an American, knowing that we’ve got to meet this demand. I’m particularly 

troubled as you look at your report and the increase that we’re seeing in the out years for imported LNG. 

Now I don’t know—you’ve indicated that our reliance on foreign 

sources of oil is about 60 percent. What is it, currently, for LNG 
23

now and what do you project our imported LNG to be in 2030? Do 

you have those numbers? 

Mr. CARUSO. Last year we imported about 6 trillion cubic feet in 

the form of LNG and our total consumption was 22. So about 3 percent—— 

Senator MURKOWSKI. Yeah. 

Mr. CARUSO [continuing]. Roughly 3. We see that going up to 

perhaps, in this base case—4.5 trillion cubic feet out of 26. So, getting close to 20 percent. 

Senator MURKOWSKI. Close to 20 percent. 

Mr. CARUSO. Yes. 

Senator MURKOWSKI. Tell me what happens to your projections 

should we encounter more problems in getting Alaska’s gas to market. Where do we go? 

Mr. CARUSO. I think if you were to say to me, I now think we 

can’t, we’re not likely to have—— 

Senator MURKOWSKI. I’m not saying that, and I will not say that. 

I’m not going to give up on it. 

Mr. CARUSO. If someone else said that, I would say almost on a 

Btu-by-Btu basis, it would probably be replaced by LNG. There’d 

be a slight increase in the price—— 

Senator MURKOWSKI. Right. 

Mr. CARUSO [continuing]. If we didn’t get the Alaskan gas. So 

that would affect demand a little bit. The total would come down 

a bit. But the incremental supply of gas, and we’ve got a case in 

here which shows that very clearly, how LNG—— 

Senator MURKOWSKI. LNG comes in. 

Mr. CARUSO. It swings enormously based on—— 

Senator MURKOWSKI. Right. 

Mr. CARUSO [continuing]. The alternatives of supply, which include certainly, Alaska—— 

Senator MURKOWSKI. So, in other words—— 

Mr. CARUSO [continuing]. And price. 

Senator MURKOWSKI [continuing]. We continue down that path, 

as a Nation, of increased dependency on foreign sources, not necessarily of oil this time, but natural gas, which is a place—— 

Mr. CARUSO. Exactly. 

Senator MURKOWSKI [continuing]. That is absolutely unacceptable in my opinion. 

Mr. CARUSO. That would be what our model says. 

Senator MURKOWSKI. You mentioned the enormous increases 

that we’re seeing in our costs for oil and gas production, some 72 

percent over the past 4 years attributable to the steel costs. I was 

looking through press clips this morning. This is an article about 

Conoco, Conoco’s earnings, and they indicate that on a per-barrel 

basis, oil production in Alaska became considerably more expensive 

last year, averaging $6.38 per barrel compared with $3.91 the prior 

year. What we’re seeing in terms of production costs is just going 

through the roof. What does this mean to us, as we try to build a 

gas pipeline, recognizing how production costs are going up? And 

this is probably a little bit of a rhetorical question, but give me 

your answer here. 

Mr. CARUSO. What it means is that when companies look at 

projects, particularly in the upstream—exploration, production, and 
24

delivery—they’re looking to meet a certain rate of return. They will 

be looking at the need for higher and higher prices to be able to 

achieve that rate of return. 

Senator MURKOWSKI. Because of the costs. 

Mr. CARUSO. Clearly, costs it will affect investment. I think that 

if you’re looking for what’s the indicator to reflect these increases 

in costs, I would look at companies’ investment budgets, particularly in the upstream. 

Senator MURKOWSKI. Let me ask you about oil. 

In looking at the report, you’re predicting that oil production 

from Alaska will decline from roughly 860,000 barrels of today, to 

just about 270,000 barrels in 2013—if we fail to open up ANWR. 

In other words, if there’s no new fields coming online in that area. 

This is particularly worrisome as we hear the reports and understand the prediction of many, that it may be very, very difficult to 

keep the pipeline operating at such greatly reduced flows. Several 

different reasons for this, but does your forecast take into account 

in any way that with a decreased level of production—as you’re 

predicting—what happens to Alaska oil production if, in fact, all 

these forecasts prove true? 

Mr. CARUSO. Well, the numbers you cited are right on. I mean, 

we do see a steady decline given the current policies, and the price 

assumptions, and technology assumptions. There is a point which 

the Trans-Alaska Pipeline System cannot go below, in terms of volume, that would be needed to keep the economics of that pipeline 

favorable for running. 

So, I’m assuming, I’m sure we’ve taken that into account, that’s 

getting pretty close to my recollection of what the minimum flow 

would be required to be. 

Senator MURKOWSKI. Yeah, and one last very quick question. 

This is regarding OCS, and recognizing that you’re factoring in additional oil production—future production from OCS waters. How 

much do you account coming from Alaska? 

Mr. CARUSO. The specific OCS component of Alaska? 

Senator MURKOWSKI. Yes. 

Mr. CARUSO. I don’t have that off—— 

Senator MURKOWSKI. Okay, you can let us know. 

Mr. CARUSO [continuing]. I’d be happy to provide it for the 

record. 

[The information follows:]

EIA oil production projections off the Alaskan coast are not identified specifically 

as originating in state versus Federal waters. It is likely that an increasing portion 

of the total offshore oil production will occur in the OCS. EIA’s projections for total 

offshore oil production in Alaska are as follows:

CRUDE OIL PRODUCTION (THOUSAND BARRELS PER DAY) 

2005 2010 2015 2020 2025 2030

Offshore Alaska ....... 119 54 169 282 143 64

Senator MURKOWSKI. Great. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Landrieu. 

Senator LANDRIEU. Thank you, Mr. Chairman. 
25

I want to follow-up from my colleague from Alaska, because I 

share many of her concerns, particular as it relates to the supply 

of natural gas and our necessity of increasing domestic production 

and in a safe and environmentally-friendly way. 

The natural gas production from the Gulf is—according to your 

study—likely to decline after 2015 because in your testimony, ‘‘investment is inadequate to maintain production levels’’. Could you 

describe or comment on that statement? 

Mr. CARUSO. Yes. Given the cost of developing the conventional 

sources of gas in the OCS in the Gulf of Mexico, we see the cost 

of doing that increasing, and the ability to keep that production 

level from declining increasingly difficult. We see more and more 

of the total share of gas moving into what we label as unconventional, unsure sources of the Rocky Mountains or the tight sands, 

coal-bed methane, and the shale gas play. Fifty percent of the gas 

supply in this outlook by 2030 moves—if you will—from traditional 

sources such as offshore, particularly the shallower waters of the 

OCS to unconventional sources. 

Senator LANDRIEU. Now, I want to be very clear about this, because I think this is very important. Are you testifying that, because there are significant expenses associated with retrieving gas 

offshore—particularly in deep water—that production will move 

back onshore to non-conventional ways of extracting gas in places 

that might have difficulty with permitting? My reading of that 

process might lead one to believe there are fairly significant environmental consequences of this non-conventional gas. 

Mr. CARUSO. I’m just saying the economics of developing gas becomes more and more unfavorable as they go after more difficult 

and smaller deposits and they’re unable to take advantage of the 

economies of scale. That’s basically what’s going on. It’s a traditional long-term decline. 

Senator LANDRIEU. Because this is very concerning that, Mr. 

Chairman, this committee has an—I think, an obligation, an important duty to face this country in the right direction. If there are 

substantial deep water reserves that, with the right incentives, can 

be tapped, as opposed to driving the production to places where it’s 

more marginal, and more difficult, and potentially it could have 

more environmental negative and environmental consequences. I 

think that’s something we need to look at. 

My next question is, do you think it’s wise for this Congress to 

be cutting back on some of these incentives based on what you 

have testified this morning? 

Mr. CARUSO. We don’t really comment on policy, but that certainly is the implication of this outlook. Given the policies currently 

in place, and the economics of offshore development—we continue 

to see a steady decline in that traditional source of gas. 

Senator LANDRIEU. Let me just be clear for those that are honing 

in on this argument, that your projections estimating natural gas 

prices and oil prices to be about what, between now and 2030—so 

what are your estimates? 

Mr. CARUSO. Our current reference case has the average wellhead price of gas trending down between now and the middle of the 

next decade to about $5 per MMBtu, then increasing back to about 

$6 MMBtu by 2030. 
26

Senator LANDRIEU. The point of this question is that, even with 

your estimates of relatively high prices, historically high prices, the 

investments still will wane, driving this change of policy. 

I know my time is up, but my second real brief question is: Have 

you taken into account—I know you’re projecting an increase of liquefied natural gas—but have you taken into account the difficulty 

of permitting these facilities? For the record, how many are actually up and running, and permitted, and where are they generally 

located? 

Mr. CARUSO. Well, there are the four existing onshore plants. 

Senator LANDRIEU. Where are they? 

Mr. CARUSO. In Everett, Massachusetts; Cove Point, Maryland; 

Elba Island, Georgia; and Lake Charles, in your State. And now 

there are four under construction. 

Senator LANDRIEU. Where are they? 

Mr. CARUSO. They’re all in the Gulf region—Texas and Louisiana. 

Senator LANDRIEU. For the record, are we having difficulty permitting these facilities in other places outside of the Gulf? 

Mr. CARUSO. As of now, there are no permits beyond the FERC 

and the Coast Guard for outside of the Gulf. 

Senator LANDRIEU. Thank you. 

The CHAIRMAN. Let me ask about renewable energy generation 

from non-hydro renewables. What is the current percentage of our 

electricity produced from non-hydro renewables, and what do you 

see it going to in 2030? 

Mr. CARUSO. I think the current number is a little more that 1 

percent of non-hydro renewables—sorry, I’ll get a more accurate 

number. It’s 2.2 percent right now, going to 3.6 in 2030. 

The CHAIRMAN. In projecting that, let me just break it down a 

little more. Wind energy, you see increasing somewhat over the 

next few years, but then leveling out. Is that what I understand 

your projection to be? 

Mr. CARUSO. I believe that’s correct. Wind is the fastest growing 

of that non-hydro pertfolio. 

The CHAIRMAN. Is that because of the fact that the production 

tax credits are expiring? 

Mr. CARUSO. Yes. 

The CHAIRMAN. You’ve assumed that they are not renewed? 

Mr. CARUSO. We assume for renewables, that the tax credit expires. 

The CHAIRMAN. At the end of 2008? 

Mr. CARUSO. Under the current law. We know that the history 

has been that there have been multiple extensions of this, but we 

do not assume that it would happen in the future. 

The CHAIRMAN. Is it possible to do an estimate of what you think 

would be possible to do with renewables, either wind or solar, if we 

did extend those production tax credits for 10 years or through 

2030? 

Mr. CARUSO. Yes, we have done a side case. 

The CHAIRMAN. What is the difference there? Instead of going to 

3.2, what would we go to? 

Mr. CARUSO. It’s fairly significant. I don’t know if someone has 

it, but I would be happy to provide it for the record. We did do a 
27

model run base on this outlook which does assume that the production tax credits are extended—— 

The CHAIRMAN. Yeah, that would be—— 

Mr. CARUSO [continuing]. Ten years. 

The CHAIRMAN [continuing]. Very useful to know how that would 

change the prospect for shifting to renewable energy. 

Mr. CARUSO. Here it is. 

For example, for wind, by 2017 we project total in installed wind 

capacity of about 33 gigawatts, with the extension. In the reference 

case, without the extension, it’s 18 gigawatts. 

The CHAIRMAN. So—— 

Mr. CARUSO. And we’ve done that. 

The CHAIRMAN [continuing]. Nearly a doubling—— 

Mr. CARUSO [continuing]. Yes. 

The CHAIRMAN [continuing]. Of—— 

Mr. CARUSO. It makes a big difference. 

The CHAIRMAN. Okay. And the same could be assumed with regard to solar energy—production from solar energy? 

Mr. CARUSO. I don’t have solar here, but, for example, geothermal would increase by 700 megawatts by 2017 to 3 gigawatts 

with the extension. I would have to provide the solar number for 

you. 

The CHAIRMAN. Okay. 

Mr. CARUSO. But, it’s much smaller. 

The CHAIRMAN. Right. But it still would be substantially larger 

were we to extend the production tax credit than to just allow it 

to expire at the end of 2008? 

Mr. CARUSO. That’s correct. 

[The information follows:]

EIA prepared an analysis of a 10-year Production Tax Credit (PTC) extension at 

the request of the Congressional Joint Committee on Taxation. The Committee specified an extension of the technology in-service deadline for PTC-eligibility, without 

any further modifications of current PTC law. However, since solar is currently not 

eligible for the PTC, its penetration was not affected by the extended PTC. 

Currently, solar technologies are eligible to receive an Investment Tax Credit 

(ITC) worth 30 percent of investment costs. For commercial entities, this credit reverts to its permanent value of 10 percent at the end of 2008 (the Annual Energy 

Outlook 2007 reflects the then-current 2007 expiration of the 30 percent ITC). For 

residential installations, the credit expires completely at that time. The Committee 

did not request an extension analysis of the 30 percent ITC, and EIA has not otherwise performed such an analysis. However, an extension of the ITC would be expected to increase installations of photovoltaic systems relative to the Annual Energy Outlook 2007 reference case.

The CHAIRMAN. You have something in your forecast about potential for excess production capacity for ethanol in the near term, 

as I understand it. As the capacity increases, it’s expected to outpace the demand in the next few years. Could you just explain 

what that is, and what the problem there is? 

Mr. CARUSO. In our short-term outlook, which we do every 

month, we look at demand for gasoline, and what the blending 

component of that would be accounted for by, in this case, ethanol. 

What we see is the availability of ethanol with the increasing production announced, the number of plants that have been announced, increasing faster than what we think will be required as 

a blending component in the total gasoline pool. We have that only 

going up to—even in the long-run—about 8 percent of the total gas-
28

oline pool. We think there’ll be more corn-based ethanol capacity, 

in the near-term, than there will be demand for it in the gasoline 

pool. 

The CHAIRMAN. So, in order that all of the ethanol that we’re 

planning to produce actually be needed or used, you’re saying that 

we need to also increase the requirement for blending of ethanol 

from where it is today. Is that what I’m understanding? 

Mr. CARUSO. All I’m saying is that right now, it varies by refiner, 

and most are blending at about 10 percent in their use of ethanol. 

California is 5.7 percent. It appears that the pace of production of 

ethanol is moving quicker than the demand for the use of that as 

a blending component. Therefore, last year when we testified, the 

price of ethanol had risen dramatically since it was needed to replace MTBE as an oxygenate component, and that short-term demand to replace phasing out of MTBE was met with reasonably efficiently. Now we’ve gone past that in terms of the supply of ethanol needed. We’re looking at a relatively softer market for ethanol 

this driving season than last driving season. 

The CHAIRMAN. Okay. 

Senator Tester. 

Senator TESTER. Yeah, thank you, Mr. Chairman. 

Guy, thanks for being here today. I mean, this has been very interesting. 

I want to switch gears a second, and I want to talk about foreign 

oil and what impact it had on your Energy Outlook for America. 

I mean right now—and I’ll get more specific—right now we import 

a fair amount of energy. Were you using the same ratios moving 

up, or were you making some assumptions that we were going to 

wean ourselves of, particularly, the Middle Eastern oil? 

Mr. CARUSO. The outcome of this business-as-usual reference 

case is that our net import dependency will go down over the next 

5 to 7 years as we bring on some deep water offshore production 

in the Gulf of Mexico. By the end of this projection period it’s back 

to about where we are now—— 

Senator TESTER. Okay. 

Mr. CARUSO [continuing]. Which is roughly 60 percent—— 

Senator TESTER [continuing]. Okay. 

Mr. CARUSO [continuing]. Of import dependency. 

Senator TESTER. Okay, and then was conservation looked at? Because what I’m getting at is often times when you anticipate energy production, a lot of it’s market-driven. In fact, it’s probably all 

market-driven. So, was there any conservation percentages pumped 

into the analysis? 

Mr. CARUSO. We do have embedded within this projection increasing efficiency in the use of all energy, but, in particular, liquid 

fuels, as people buy more efficient vehicles. We have hybrid sales 

growing steadily, even dieselization of the fleet increasing. 

Senator TESTER. Did you use a flat percentage figure increase 

every year? Or what did you use? 

Mr. CARUSO. No, what we try to do is look at it on a sector-bysector basis—for example, in the automobile sector we have growth 

in miles per gallon per vehicle going at about 2 percent per year 

in that case. Then other factors that could be put into that category 

of efficiency of conservation include consumer behavior. We do ac-
29

tually see a slowing down of the vehicle miles traveled per driver 

over this time frame. That’s partly demographics, with the aging 

of the population and the movement of our population toward the 

South and Southwest. 

Senator TESTER. Okay. So it would be fair to say that you can 

not project what may come out of this body as far as measures that 

may encourage more public transportation or house, home business, heating, that kind of thing, fertilizer use, I mean the list goes 

on and on. It’s really very difficult to project that until you know 

what the policies are? 

Mr. CARUSO. That’s correct. 

The other overriding issue is one of our general economy. We 

continue to see a movement away from energy-intensive consumption particularly in the industrial sector. If you look at this on a 

global basis, where is it moving? It’s moving to China and other 

Asian—— 

Senator TESTER. I’ve got you. 

Mr. CARUSO. So. 

Senator TESTER. Okay, well thank you very much. I appreciate 

your time. 

Thank you, Mr. Chairman. 

Mr. CARUSO. Thank you. 

The CHAIRMAN. Thank you. 

Senator Murkowski. 

Senator MURKOWSKI. Thank you. 

Mr. Chairman, your comment that prompted the response about 

geothermal encouraged me to stay for another round. 

I have really gotten very excited about the potential for geothermal, not only in Alaska, but around the country. On page 162, 

we found your projections here as you look at geothermal through 

the out-years, and you’re predicting a annual growth in the geothermal area of 1.6 percent. 

When you make these assumptions—and this goes to the Chairman’s question—do you factor in policies that we put in place that 

would allow for, whether it’s tax credits or—how do you arrive at 

that particular rate of growth in the area of geothermal? 

Mr. CARUSO. Similarly to other renewable sources, we look at the 

economics of existing sites for potential—as well as the policies you 

mentioned, the production tax credit—and try to make a best judgment as to where the increase in the supply of that particular technology would occur, and when it would come on stream. 

Senator MURKOWSKI. So, if we would get more aggressive here in 

the Congress or in the administration in support of geothermal, 

your outlook would theoretically be changing down the road? 

Mr. CARUSO. We certainly look, every year, for any changes in 

Federal, State, and local laws, and try to incorporate them in the 

outlook, particularly with things like renewable portfolio standards, 

now adopted in a large number of States. 

Senator MURKOWSKI. We’ll bring you up to Alaska and show you 

what we’re doing up there. It’s really very, very exciting. 

I want to ask one last question about natural gas, and this relates to the imports that we receive from Canada. As we’ve looked 

at development of Alaska’s natural gas, we’ve been working with 

our Canadian neighbors and talking about the Mackenzie Line. 
30

We’ve never viewed them as competing projects, but really projects 

that are very necessary for all. 

Your report indicates that you’re anticipating that the Mackenzie 

Delta Line comes online in 2012. As you know, they too have experienced some delays, and I don’t know whether that 2012 prediction is still accurate. What I’m hearing is that it probably is not. 

What does that do to the level of imports here in this country? I 

understand that most of that Mackenzie gas would go into the Alberta area and for domestic consumption. But, does it have a ripple 

effect into the lower 48 States as well? 

Mr. CARUSO. It definitely would. We’ve pushed that—as you 

noted—pushed that back 1 year, for every year I’ve been Administrator. No connection. 

But they are somewhat similar issues to what you’ve been having 

in Alaska. We do assume that Mackenzie Delta gas would be needed to meet domestic demand for Canada, particularly for processing 

of the heavy oils, for heavy sands. The longer it’s delayed, it will 

have some effect on the pipeline gas available for delivery to the 

United States. 

Senator MURKOWSKI. So, does that then impact the LNG that 

we’re bringing in to our coastal communities? 

Mr. CARUSO. Definitely. I think I said, in an answer to a previous 

question, to the extent that either Alaskan gas is delayed or unavailable for whatever reasons, and similarly for Canadian gas, any 

pipeline gas that’s not available will have two effects. One, it will 

certainly raise the price of gas to all of our consumers, and, second, 

it would require more LNG, maybe not on a Btu-for-Btu basis, but 

close to that. 

As a side note, I’m going to be in Calgary on Sunday, and meeting with Canadian industry and Government officials, so I’ll have 

the latest estimate of when that Mackenzie Delta line might be 

available, probably early next week. 

Senator MURKOWSKI. Good, maybe we’ll check in with you. 

Mr. CARUSO. I’d be happy to provide that. 

[The information follows:]

The latest annual projections from the Energy Information Administration and 

the most recent information from the National Energy Board of Canada project a 

start date of 2012. However, recent statements from Imperial Oil, Ltd., (one of the 

consortium of producers involved in the project) indicate that their earliest start 

date has been delayed until 2014. The announced change in the schedule corresponds to significant increases in the project cost estimate and the belief that Federal support, in the form of royalties and tax incentives, is necessary for the project 

to be viable.

Senator MURKOWSKI. Mr. Chairman, I’ve focused most of my 

questions on the natural gas situation. We know in Alaska we’ve 

got a great deal to offer the rest of the country, but I think it just 

goes to show that the delays that we experience up North have profound repercussions, in terms of supply around this country. So, I 

look forward to working with you on ways that we can’t speed that 

along. Thank you. 

The CHAIRMAN. Thank you very much. 

Let me just ask one or two other questions, and then we’ll let you 

go on about your business here. 

There’s a lot of discussion around the Congress every time we 

discuss energy efficiency about, ‘‘Where is the low hanging fruit?’’ 
31

That’s the metaphor that everyone likes to trot out. You know, 

where are the areas that we could change our behavior or our policy, and achieve substantial savings or reductions in energy use? 

The Mackenzie Global Institute came out with their recent report, you reference that in your report. Where they said that there 

are a lot of opportunities to cut the growth in annual global energy 

demand—and they project it could be cut from 2.2 percent annual 

increase to a 2.6 percent annual increase, as I understand their report—they talk about residential use, industrial use, power generation, various areas. Have you done a similar analysis as to where 

the opportunities are for us to substantially improve energy efficiency, or reduction in energy use? Or could you do that kind of 

analysis? Or could you give us a reaction to the Mackenzie Report’s 

analysis in that regard? 

Mr. CARUSO. Yes, we have met with the Mackenzie people and 

we’re looking in more detail at that report. 

But what we do do, on a sectoral basis, is look at best available 

technology. In this outlook, which is not static when it comes to 

technology or efficiency change, we assume a continued rate of improvement, of utilization of energy, on a sector-by-sector basis 

based on the track record of the last 20 years. 

We also look at what our best available technologies are, and 

where the gap is largest. Clearly, it’s largest in the residential sector, when you look just at best available technology and how much 

is actually being taken up. There’s a substantial amount, percentage-wise, of improvement available in the residential sector. 

It’s lesser so—but to some extent true—in the commercial sector, 

although, given the incentives of businesses, they try to utilize the 

best technologies. An area where there probably is the closest 

match between best available technology and what’s actually being 

taken up is the industrial sector, because there’s so much at stake 

for these different industries to maintain competitiveness. 

Then, finally, if you’re looking for biggest impact—clearly it’s 

transportation, where there is such a large share of our total use 

of energy. So, if you’re looking for where the impact can be the 

greatest, I think the transportation sector is the one. We’ve done 

work on this and I’d be happy to share it in more detail with you, 

but that is the general snapshot. 

The CHAIRMAN. So, your assessment of current available technology leads you to conclude that the greatest potential energy savings are in the transportation sector? 

Mr. CARUSO. Volumetrically, yes. 

The CHAIRMAN. Right, okay. That’s helpful. 

Let me ask about one other subject. I don’t know if your study 

really tells us much about this or not, but the President has asked 

that we increase the strategic petroleum reserve, double it by 2027. 

Frankly, I have trouble understanding how that gives us an advantage to any substantial extent. I’m not clear when we’re going to 

use the strategic petroleum reserve. I’m not sure what adding those 

additional barrels of oil to the strategic petroleum reserve would do 

to the pressure on the price of oil. There are just a lot of questions 

in my mind. 

Does anything in your report, anything that you’ve done by way 

of analysis give us some insight into the advisability of that, or the 
32

benefits to be achieved from that, or the potential consequences of 

doing that? 

Mr. CARUSO. No, there is nothing in this report or anything that 

we’ve done in recent years that’s publicly available. 

Clearly, with respect to the value of going from, let’s say, 700 

million to 1 billion barrels, that relies heavily on your assessment 

of the risk. I remember having been involved in studies looking at 

the size of the SPR. The probability you assign to a large disruption with long duration has to get relatively high, using the models 

that we use, to give you a significant benefit relative to the cost. 

We don’t have anything that’s been done very recently on that. 

In terms of the impact on the market—it really depends, of 

course, on the fill rate and over what time. As I understand it now, 

they’re talking about relatively low levels of fill over a relatively 

long period of time. So I would anticipate that that would not have 

any significant impact on the oil market. 

The CHAIRMAN. Well, thank you very much, it’s been very interesting, and we appreciate your good work, and we’ll continue to 

have more questions for you. 

Thank you. 

Mr. CARUSO. Thank you. 

[Whereupon, at 11:04 a.m., the hearing was adjourned.]

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