WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE

September 25, 2012

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

FROM: MACROECONOMIC & INDUSTRIAL ENERGY

 CONSUMPTION & EFFICIENCY ANALYSIS TEAMS

SUBJECT: Second AEO2013 Macro-Industrial Working Group Meeting 

Summary (presented on 09-11-2012)

Attendees: Frances Wood (OnLocation)

Keith Jamison (Energetics)

Tom Lorenz (EIA)

Bob Adler (EIA)

Russ Tarver (EIA)

David Henry (Commerce Dept.)

Susan Hicks (EIA)

Paul Otis (EIA)

Peri Ulrey (Natural Gas Supply Asscociation)

Chris Yuan (Univ. Wisconsin – Milwaukee)

David Schmalzer (ANL)

John Meyer (SAIC)

Martha Moore (American Chemistry Council)

Presenters: Kay Smith, Elizabeth Sendich (Macro)

Kelly Perl, Mark Schipper, Peter Gross (Industrial)
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE

Macro: The macro presentation provided a near-final round of GI’s (Global Insights’) long-term 

forecast of GDP, employment, productivity, and industrial gross output for a number of 

industries. In comparing the AEO2013 macro forecast with the AEO2012, 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 AEO2013’s higher gross output 

expectations in the short to medium term. Finally, it was pointed out that the AEO2013 reflects a 

more optimistic view of growth than the AEO2012 in metal-based durables, especially 

transportation equipment and machinery, on the basis that the United States’ technical advantage 

in this area would allow its export market share to remain strong through 2025. Finally, an error 

in the pharmaceuticals and miscellaneous manufacturing shipments number was corrected for the 

AEO2013.

Specific discussion/questions:

1. Invitees asked the macro presenters what helped drive the optimism in trade which 

helped to drive up gross output forecasts in AEO2013 relative to AEO2012. Kay 

Smith reminded everybody of the strong influence of cheap natural gas on industries’ 

plans for increasing utilization and even domestic capacity...this is especially true in 

the bulk chemicals industry, primary metals, and metal-based durables. While both 

imports and exports are lower in the AEO2013, growth in imports is lower by a wider 

margin from AEO2012 to AEO2013, and thus the overall the trade balance remains 

more favorable and allows for more domestic demand to be provided by domestic 

production, at least through 2025. 

2. One invitee asked how the employment rate behaved in the long-term, and Kay Smith 

said it flattened out due in part to fact that the US population is aging along with a 

growing retiree percentage of the population.

3. The decline in industrial shipments for chemicals and primary metals did not go 

unnoticed by the invitees. Elizabeth Sendich and Kay Smith explained that this 

decline was based on the assumption that the United States’ competitive advantage in 

these industries (driven by cheap natural gas and its associated liquids) was assumed 

to decline as the age (and associated efficiency) discrepancy between the bulk of the 

manufacturing equipment here and abroad begins to affect the results more strongly 

in the later years.

Industrial: The industrial part of the working group presentation provided major changes/updates 

for the AEO2013 version of the Industrial Demand Module (IDM) and some preliminary results. 

These included:

(1) implementation of the new aluminum process flow model, along with new 

assumptions regarding primary aluminum production leading to a greater 

consumption in electricity;

(2) implementation of new models for non-manufacturing sectors including construction, 

coal mining, oil & gas extraction, and other mining; emphasis placed on tying energy 

consumption in these sectors with NEMS-endogenous variables such as coal mining 
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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE

productivity, oil & gas well productivity, transportation equipment efficiency, and 

buildings efficiency;

(3) enhancement of the combined heat and power (CHP) model with diversified 

utilization to include industrial sub-sectors and four census regions;

(4) updating of the CHP database with 2011 data from EIA’s Office of Energy Statistics;

(5) upgrading the LPG (liquefied petroleum gases, mainly propane) price equations to 

include Bayesian regression coefficients; propane prices in near-term forecast reflect 

more strongly the current cheap natural gas prices;

(5) expansion of the chemical model to include price-driven feedstock choices between 

LPG and naphtha;

(6) implementation of the environmental regulations from Assembly Bill 32 (State of 

California greenhouse gas regulations) and boiler MACT (Maximum Available 

Control Technology, a Clean Air Act emissions reduction requirement). Boiler 

MACT implementation included a capital cost adder in the macro model as well as an 

increased price penalty on oil-based and coal fired boilers relative to natural gas 

boilers – the influence of these changes on industrial shipments and energy 

consumption was estimated to be minimal.

Specific discussion/questions:

1. A participant asked if the lower LPG prices affected chemical output. Elizabeth 

Sendich responded that no, not directly, but that a coefficient comprised of the natural 

gas price to oil price ratio was used to inform the chemical shipments forecast in the 

AEO2013. For AEO2014, Elizabeth said it is a goal to use feedstock prices directly.

2. It was asked if a lower consumption of naphtha as feedstock in the chemical sector 

projections would lead to lower oil imports. Peter Gross responded that it would 

possibly, but that refineries could likely make up most of that difference by producing 

other products, either for export or for domestic consumption (such as LPG). 

3. One participant asked if the industrial model’s documentation for AEO2012 had been 

published...answer: no, not yet, although documentation will come soon.

4. In a discussion about the chemicals industry, one invitee pointed out that while 

China’s ability to fully exploit its shale gas resources in the future is uncertain, it is 

currently working on plans to develop its huge coal resources as a feedstock (“coalto-olefins”). The industrial team will further investigate this possibility and possibly 

investigate how this could affect some of GI’s macro forecast assumptions.