WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE

October 17, 2013

MEMORANDUM FOR: JOHN CONTI

ASSISTANT ADMINISTRATOR FOR ENERGY ANALYSIS

 PAUL HOLTBERG 

TEAM LEADER

ANALYSIS INTEGRATION TEAM

JAMES TURNURE

DIRECTOR

OFFICE OF ENERGY CONSUMPTION & EFFICIENCY 

ANALYSIS

LYNN WESTFALL

DIRECTOR

OFFICE OF ENERGY MARKETS & FINANCIAL ANALYSIS 

FROM: MACROECONOMIC & INDUSTRIAL ENERGY

 CONSUMPTION & EFFICIENCY ANALYSIS TEAMS

SUBJECT: Second AEO2014 Macro-Industrial Working Group Meeting 

Summary (presented on 09-26-2013)

Attendees:

Bob Adler (EIA)

Robert Hershey, Consultant

Keith Jamison (Energetics)

Tom Lorenz (EIA)

Russ Tarver (EIA)

Remote attendees: Nate Aden (World Resources Institute)

Martha Moore (American Chemistry Council)

Dilo Paul, (SAIC)

Ridah Sabouni (Energetics)

Anna Shipley (SRA)

Peri Ulrey (Natural Gas Supply Association)

Frances Wood (OnLocation)

Presenters: Kay Smith, Elizabeth Sendich (Macro)

Kelly Perl, Peter Gross, Susan Hicks, Paul Otis, Mark Schipper 

(Industrial)
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

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Macro: The macro presentation provided an overview of the economic drivers that impact 

industrial value of shipments and a detailed presentation of value of shipments by industry. The 

GDP, employment, and productivity results are critical inputs for many NEMS modules, 

especially the Industrial Demand Module, thus they are produced first during AEO development, 

which allows the presentation of AEO2014 results for the second Working Group Meeting. The 

critical changes for the overall economy model are related to population revisions, which result 

from the release of the 2010 Census. These population changes include reductions in growth of 

younger age groups, lower net migration, a lower starting population size, and increased life 

expectancies, which mean longer working life (later retirement).

In comparing the AEO2014 macro industrial forecast with the AEO2013, the presenters stressed 

the importance of incorporating EIA’s shale gas expectations (both in terms of robust supply and 

low price) and how this influenced GI’s growth expectations for natural-gas intensive industries. 

In addition, GI’s lower expectations for imports of commodities such as basic chemicals, 

primary metals, and metal-based durables also contribute to the AEO2014’s higher gross output 

expectations in the short to medium term. The preliminary AEO2014 oil prices are lower than the 

AEO2013 prices, contributing to industrial output that is more similar to the GI baseline. 

Overall value of shipments (including services, over 70 percent of the economy) shows a 0.1% 

lower growth, although the composition of output is different, with manufacturing showing 

higher growth and services with lower growth when compared to AEO2013. Finally, an updated 

equation for construction, which included more detail and better accounts for the construction of 

commercial buildings, was implemented for the AEO2014.

Specific discussion/questions:

1. What drives the transportation equipment output forecast, especially towards the end 

of the projection period? Is it primarily aircraft or motor vehicles? 

a. Transportation equipment shipments are impacted by strong net export 

growth; robust consumption demand growth early in the forecast period and 

lower oil prices compared to AEO2013. 

2. Why does industrial output continually grow, especially later in the projection period 

when natural gas prices increase? Shouldn’t industrial output level off? 

a. Natural gas intensive industrial output does level off, as the bulk chemical 

output shows. Roughly half of the output in energy intensive industries is 

food processing, which would not change when natural gas prices change. 

3. Comment from participants: Recently ethane prices are decoupled from oil prices, so 

hope is that ethane prices are not solely dependent on oil prices.

a. The EIA formulation of ethane prices includes not only oil prices but also 

demand of ethane-using industries and the supply of liquids as determinants of 

ethane price.
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Industrial: The industrial part of the working group presentation provided general model changes 

associated with major updates for the AEO2014 version of the Industrial Demand Module 

(IDM). Preliminary model results were also presented. Model results are based on as of the 

9/23/2012 running of NEMS were shown. These included:

1. Process flow status and updates: preliminary glass process flow submodule results 

were shown. The food model results were shown as well, although food is not a 

process flow model, owing to its complexity. 

2. The cement submodule was enhanced to allow multi-channel burners (burners of 

more than one fuel). This change allows renewables, such as municipal waste, to be 

burned. Preliminary results were shown.

3. Results of the nonmanufacturing data update were shown. Data was updated from 

USDA and non-manufacturing surveys. This changed the distribution of fuels used in 

nonmanufacturing industries: agriculture, construction, and mining. SEDS 

benchmarking is now made across the industrial sector rather than just manufacturing 

as was done in previous years.

4. Projected naphtha and LPG feedstock consumption for bulk chemicals were shown. 

While naphtha grows about the same rate as last year, LPG feedstocks show 

considerable growth. LPG prices and naphtha prices grow on a parallel path, while 

LPG prices are lower. 

5. Showed results of the updated CHP-with industry disaggregation. The model updates 

will allow variation in utilization, risk factor, penetration rate for four major CHP 

industries allows running mini side cases. Bulk chemicals, paper, food, and iron and 

steel use the vast majority of industrial non-refining CHP.

6. Starting with IEO2013, which was released in July 2013, EIA will adopt a two-year 

production cycle for both the IEO and AEO. Under this approach, a full edition of 

the IEO and AEO will be produced in alternating years and an interim, shorter edition 

of each will completed in the “off” years. A full AEO and a lite IEO will be 

produced in 2014, and a lite AEO and full IEO in 2015.

Specific discussion/questions:

1. When will the early release of the AEO2014 will available?

a. The AEO2014 Early Release will be available on December 16th.

2. How are renewables considered in cement manufacturing?

a. The addition of a multi-channel burner as a technology choice in the cement 

module of the Industrial Demand Module will allow more varied renewable 

fuels to be modeled. However, based on European linkages and experiences 

with competing demands for renewable sources or recovered waste products 

by the power and industrial sectors, there is no corresponding supply model to 

which the demand for renewable/waste by the cement industry are 

coordinated. This linkage will likely be a consideration for future AEOs.
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3. How is the High technology case defined?

a. The high technology case assumes introducing new technologies sooner than 

the reference case, including automation, as well as enhanced recovery of 

renewable sources of energy. In some cases this can result in more energy 

intensity. Specific details on definitions may be found in Appendix E: NEMS 

overview and brief description of cases at webpage

http://www.eia.gov/forecasts/aeo/chapter_appendices.cfm.

Open discussion/questions:

1. What specifically will be in the AEO interim edition? 

a. The AEO interim will include only the Reference case, price cases, and macro 

cases, will generally only update the model to reflect changes to regulations, and

will have limited data updates. Specific data updates are not known at this time. 

This change will allow EIA to focus more resources on rapidly changing energy 

markets and how they might evolve over the next few years,