# Annual Energy Outlook 2011 Reference Case

The Paul H. Nitze School of Advanced International Studies December 16, 2010 Washington, DC 

# Richard Newell, Administrator

## • Increased estimates for U.S. shale gas resources drive increased U.S. production, lower prices, and lower imports of natural gas

• Industrial natural gas demand recovers, reversing recent trend

• Non

- hydro renewables and natural gas are the fastest growing electricity generation sources, but coal remains the dominant fuel because of the large amount of existing capacity

• Oil imports fall due to increased domestic production

— including biofuels

— and greater fuel efficiency

• U.S. carbon dioxide emissions rise slowly, but do not pass 2005 levels again until 2027 

# Key results from the **AEO2011** Reference case, which assumes current laws remain unchanged

Richard Newell, December 16, 2010 2

## • Generally assumes current laws and regulations

– excludes potential future laws and regulations (e.g., proposed greenhouse gas legislation and proposed fuel economy standards are not included)

– provisions generally sunset as specified in law (e.g., renewable tax credits expire)



## • Some grey areas

– adds a premium to the capital cost of CO 2 

### - intensive technologies to reflect market behavior regarding possible CO 2 

### regulation

– assumes implementation of existing regulations that enable the building of new energy infrastructure and resource extraction



## • Includes technologies that are commercial or reasonably expected to become commercial over next decade or so

– includes projected technology cost and efficiency improvements, as well as cost reductions linked to cumulative deployment levels

– does not assume revolutionary or breakthrough technologies

Richard Newell, December 16, 2010 

# What is included (and excluded) in developing EIA’s “Reference case” projections?

3

## • Natural gas and oil supply

– More than doubled the technically recoverable U.S. shale gas resources assumed in AEO2010 and added new shale oil resources

– Updated offshore data and assumptions, pushing out start dates for several projects as a result of the drilling moratoria and delaying Atlantic and Pacific offshore leasing beyond 2017



## • Electricity

– Updated costs for new power plants

– Expanded number of electricity regions to 22 from 13, allowing better regional representation of market structure and power flow



## • Transport

– Increased limit for ethanol blending into gasoline from E10 to E15 for approved vehicles, as a result of the EPA waiver granted in October 2010

– Includes California’s Low Carbon Fuel Standard, which reduces the carbon intensity of gasoline and diesel fuels in that state by 10% from 2012 through 2020

– Revised light duty vehicle miles travelled downward

– Updated electric and plug

- in hybrid electric battery cost and size 

# Key updates included in the **AEO2011** Reference case

Richard Newell, December 16, 2010 4Richard Newell, December 16, 2010 

# Global energy consumption

5Richard Newell, December 16, 2010 

# Non
- OECD countries account for vast majority of the nearly 50% projected increase in global energy use by 2035

0 200 400 600 800

2007 2015 2020 2025 2030 2035 Non-OECD OECD w/o U.S. U.S.

495 543 590 639 687 739

50% 62%

50% 38%

16% 20% energy consumption quadrillion Btu

Source: EIA, International Energy Outlook 2010 6Richard Newell, December 16, 2010 

# Overview of U.S. energy supply and demand

7

# Current U.S. energy supply is 83% fossil fuels; demand is broadly distributed among the major sectors

Energy supply Energy demand

Source: EIA Annual Energy Review 2009 Nuclear 9% Renewable 8%

Coal 21%

Natural Gas 25% Petroleum 37% Transportation 29%

Electricity

– Residential 15% Industrial (non
- electric) 20% Electricity

– Industrial 10% Electricity

– Commercial 15% Residential & Commercial (non
- electric) 11%

Residential & Commercial 42% Industrial 30% 

### 2009 total U.S. energy use = 94.6 quadrillion Btu

Richard Newell, December 16, 2010 8

### 0 25 50 75 100 125

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

# Renewables grow rapidly, but under current policies fossil fuels still provide 78% of U.S. energy use in 2035

U.S. primary energy consumption quadrillion Btu per year

Coal

Oil and other liquid fuels Natural gas Projections History

Nuclear Liquid biofuels Renewables (excluding liquid biofuels)

Source: EIA, Annual Energy Outlook 2011 37% 25% 21%

9% 7%

1%

33% 24% 21% 10%

8% 3% Shares of total U.S. energy

2009

Richard Newell, December 16, 2010 90 50 100 150 200

2005 2010 2015 2020 2025 2030 2035 

# Energy efficiency gains reduce consumption 13% from where it would otherwise be; structural change is even larger

quadrillion Btu

Source: EIA, Annual Energy Outlook 2011 Constant efficiency Constant intensity

Efficiency change Structural

change

AEO2011 Reference case - 33%

- 13%

Richard Newell, December 16, 2010 10

### 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75

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

# Energy and CO 2 

# per dollar of GDP continue to decline; per - capita energy use also declines

index, 2005=1 Projections History

Source: EIA, Annual Energy Outlook 2011 2009

Energy per capita Energy per dollar GDP

CO 2 per dollar GDP

Richard Newell, December 16, 2010 11

### 0 1 2 3 4 5 6 7

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 

# In the **AEO2011** Reference case, energy
- related CO 2 

# emissions grow almost 6% over 2005 levels by 2035

billion metric tons carbon dioxide

Energy

- related CO 2 emissions Projections History

Source: EIA, Annual Energy Outlook 2011 Richard Newell, December 16, 2010 2009

2005 2020 2035 Energy

- related CO 2 emissions 5.98 5.77 6.31 % change from 2005

- - - 3.4% 5.6% 2005

12Richard Newell, December 16, 2010 

# Electricity

13

# In 2009, electricity generation was 70% fossil fuels, 20% nuclear, and 10% renewable

Nuclear

20.2% Natural gas 23.3% 

### 2009 Total net generation: 3,953 billion kWh

Coal 44.6% 

### 2009 Non
- hydro renewable net generation: 141 billion kWh

Geothermal: 0.4% Other biomass: 0.5% Wood and wood

derived fuels: 0.9% Other renewable 3.6% Conventional hydroelectric 6.9%
Other 0.3% Wind: 1.8%
Solar thermal and PV: <0.1%

Petroleum 1.0% Other gases 0.3%

Source: EIA Electric Power Monthly, October 2010 Richard Newell, December 16, 2010 14Richard Newell, December 16, 2010 

### -2

0 2 4 6 8 10 12 14

1950 1960 1970 1980 1990 2000 2015 2025 2035 

# While projected electricity consumption grows by 30%, the rate of growth has slowed

percent growth (3

- year rolling average)

Projections History Period Annual Growth 1950s 9.8 1960s 7.3 1970s 4.7 1980s 2.9 1990s 2.4 2000

- 2009 0.5 2009

- 2035 1.0

Source: EIA, Annual Energy Outlook 2011 2009

15

### 0 1 2 3 4 5 6

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 electricity net generation trillion kilowatthours per year

Natural gas

Renewable Projections History

Nuclear
Oil and other Coal

20% 23% 25%

1% 1% 45% 43%

14% 10% 17% 

## The projected electricity mix gradually shifts to lower
- carbon options, with generation from natural gas rising 37% and renewables rising 73%

Source: EIA, Annual Energy Outlook 2011 2009

Richard Newell, December 16, 2010 16

# Updated electric power plant capital costs show increases for nuclear, coal, and wind, while solar costs decline

0 1000 2000 3000 4000 5000 6000 7000

Natural Gas CC Pulverized Coal IGCC CCS Nuclear Wind Biomass Solar Thermal Photovoltaic 

### AEO 2010 AEO 2011

Source: EIA, Annual Energy Outlook 2011 overnight capital cost 2009 dollars per kilowatt

Richard Newell, December 16, 2010 +39%

+25% +37%

+1% +21% - 2% - 10% - 25%

17Richard Newell, December 16, 2010 

### 0 50 100 150 200 250 300 350 400 450

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035



# Non
- hydro renewable sources grow nearly three
- fold, meeting 23% of projected electricity generation growth

non - hydropower renewable generation billion kilowatthours per year

Wind Projections History

Solar Biomass

Geothermal

Waste

Source: EIA, Annual Energy Outlook 2011 2009

18

# Natural gas, wind and other renewables account for the vast majority of capacity additions from 2009 to 2035

Coal 313 (30%)

Natural gas 351 (34%) Hydropower* 99 (10%) Nuclear 101 (10%)

Other renewables 15 (1%)

Other fossil 118 (11%) * Includes pumped storage Coal 14 (6%)

Natural gas 135 (62%) Hydropower* 3 (1%) Nuclear 6 (3%) Other renewables

27 (12%)
Other fossil 1 (0.4%) 

## 2009 capacity Capacity additions 2009 to 2035

1,033 gigawatts 220 gigawatts

Source: EIA, Annual Energy Outlook 2011 Richard Newell, December 16, 2010 Wind 27 (12%) Wind 32 (3%)

19 End

- use coal 4 (0.3%) End

- use coal 7 (3%)Richard Newell, December 16, 2010 

# Natural gas

20

# U.S. shale gas production increased 14
- fold over the last decade; reserves tripled over the last few years

0.0 1.0 2.0 3.0 4.0 5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Eagle Ford (TX) Marcellus (PA and other Eastern states) Haynesville (LA and TX) Woodford (OK) Fayetteville (AR) Barnett (TX) Antrim (MI, IN, and OH)

Source: Lippman Consulting (2010 estimated) annual shale gas production trillion cubic feet per year

Richard Newell, December 16, 2010 21

# Shale gas has been the primary source of recent growth in U.S. technically recoverable natural gas resources

0 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750

2000 2005 2006 2007 2008 2009 2010 2011 

### AEO edition U.S. dry gas resources trillion cubic feet

Unproved shale gas

Unproved other gas (including Alaska* and offshore)

Proved reserves (all types & locations)

* Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in previously published documentation. Source: EIA, Annual Energy Outlook 2011 827

1481 2552

245

Richard Newell, December 16, 2010 22

### 10 15 20 25 30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 

# 30% domestic gas production growth outpaces 16% consumption growth, leading to declining imports

Consumption

Domestic supply Net imports Projections History

AEO2011 Reference case AEO2010 Reference case 1%
6%

11%

Source: EIA, Annual Energy Outlook 2011 Richard Newell, December 16, 2010 2009 U.S. dry gas trillion cubic feet per year

23Richard Newell, December 16, 2010 

### 0 5 10 15 20 25 30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 

# Shale gas offsets declines in other U.S. supply to meet consumption growth and lower import needs
U.S. dry gas trillion cubic feet per year

Alaska Non

- associated offshore Projections History

Associated with oil Coalbed methane Net imports

Non

- associated onshore Shale gas

Source: EIA, Annual Energy Outlook 2011 2009

11% 1%

9% 7% 9% 8% 20% 14%

8% 2% 8%

7% 45%

1% Tight gas 28% 22%

24

### 0 5 10 15 20 25 30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 U.S. dry gas consumption trillion cubic feet per year

Commercial
Transportation** Residential Central electric power Industrial*

* Includes combined heat

- and

- power and lease and plant fuel. ** Includes pipeline fuel. Source: EIA, Annual Energy Outlook 2011 2009

3% 14% 35%

18% 29%

3% 14% 32%

21% 30% Projections History

Richard Newell, December 16, 2010 

# Natural gas consumption is quite dispersed; industrial and electric power use drives future demand growth

25Source: EIA, Annual Energy Outlook 2011 

# A number of key economic and market drivers underpin natural gas consumption growth

Sector TCF gas consumption Growth (2009

- 2035) 

### Key drivers 2009 2035 Industrial, including combined heat

and

- power 

### 7.3 9.3 26% +187% combined heat

- and

- power generation; +30% output of gas

intensive industry; lower natural gas prices Central electric power 6.9 7.8 13% +30% electricity consumption; lower natural gas prices; offset by +72% renewable generation and +24% coal generation Commercial 3.1 3.8 22% +37% commercial floorspace;

- 3% energy intensity Residential 4.7 4.8 <1% +30% number of households; +19% total square footage;

- 16% energy intensity

Richard Newell, December 16, 2010 26

# Natural gas price projections are significantly lower than past years due to an expanded shale gas resource base
natural gas spot price (Henry Hub) 2009 dollars per million Btu
Projections History

Source: EIA, Annual Energy Outlook 2011 2009

Richard Newell, December 16, 2010 0 1 2 3 4 5 6 7 8 9 10

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 AEO2010 Updated AEO2009

AEO2011

27Richard Newell, December 16, 2010 

# Oil and other liquid fuels

28

### 0 25 50 75 100 125 150 175 200 225

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

# Oil prices in the Reference case rise steadily; the full **AEO2011** will include a wide range of oil prices

Projections History

Source: EIA, Annual Energy Outlook 2011 2009 High oil price

Low oil price AEO2011 Reference

Richard Newell, December 16, 2010 29 annual average price of low sulfur crude oil real 2009 dollars per barrel

## Unconventional sources more than triple globally, but conventional petroleum continues to comprise the vast majority of liquids supply

0 20 40 60 80 100 120

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Source: EIA, Annual Energy Outlook 2011 global liquids production million barrels per day Projections History 2009

12%

47% 40%

39%

5%

56% OPEC conventional

Non

- OPEC conventional Unconventional

Richard Newell, December 16, 2010 30

### 0 5 10 15 20 25

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 U.S. liquid fuels consumption million barrels per day Projections History

Natural gas plant liquids Biofuels including imports

Petroleum supply

Net petroleum imports 

# U.S. imports of liquid fuels fall due to increased domestic production

— including biofuels

— and greater fuel efficiency

2009

Source: EIA, Annual Energy Outlook 2011 13% 12%

42% 31% 10%

4%

52% 34%

Richard Newell, December 16, 2010 Liquids from coal 2%

31

### 0 2 4 6 8 10 12 14 16 18 20 22 2009 2035 U.S. liquid fuels million barrels per day

Net product imports Net crude oil imports

Natural gas plant liquids Liquids from coal 

# Biofuels, natural gas liquids, and crude oil production are key sources of increased domestic liquids supply

Source: EIA, Annual Energy Outlook 2011 Gulf of Mexico Crude oil production

Biofuels (including net imports) Refinery processing gain

Richard Newell, December 16, 2010 Total consumption

32billions ethanol

- equivalent gallons



### 0 5 10 15 20 25 30 35 40 45

2009 2022 2035 

# Biofuels fall short of the goal in 2022, but exceed the 36 billion gallon RFS target by 2030

Legislated RFS in 2022

RFS with adjustments under CAA Sec.211(o)(7) Biodiesel

Other Advanced Net imports

Cellulosic biofuels

Corn ethanol

Source: EIA, Annual Energy Outlook 2011 Richard Newell, December 16, 2010 33

### 0 5 10 15 20 25 30 35 40 45

2000 2005 2010 2015 2020 2025 2030 2035 

# New light duty vehicle fuel economy achieves almost 38 mpg by 2035 in the Reference case

miles per gallon

Source: EIA, Annual Energy Outlook 2011 2009 Projections History

Richard Newell, December 16, 2010 34 Summary of standards
2012

- 2016: 34.1 mpg CAFE average (based on NHTSA vehicle footprint sales distribution) 2020: 35 mpg by statute 2017

- 2025: Reference case does not include proposal planned for September 2011

### 0 4 8 12 16

1995 2000 2005 2010 2015 2020 2025 2030 2035 

# Most transport fuel growth is in light and heavy duty vehicles

U.S. transportation energy consumption million barrels per day oil equivalent

Rail Air Projections History

Heavy

- duty vehicles Light

- duty vehicles

Marine

Source: EIA, Annual Energy Outlook 2011 2009

4% 67%

2% 10% 16% 64%

20%

9% 4% 2%

Richard Newell, December 16, 2010 35Source: EIA, Annual Energy Outlook 2011 

# Efficiency improvements partially offset underlying drivers of growth in transportation services

2009 2035 Growth (2009

- 2035) 

## Light duty vehicles Fuel consumption (million barrels per day oil equivalent) 

### 8.9 10.2 15% Number of licensed drivers (millions) 

### 207 265 28% Miles per licensed driver 13,100 15,300 17% Efficiency of vehicle stock (mpg) 

### 20.8 27.8 34%* 

## Heavy duty vehicles Fuel consumption (million barrels per day oil equivalent) 

### 2.2 3.2 47% Manufacturing output (billion 2005 dollars) 

### 4,197 6,761 61% Number of freight trucks (millions) 

### 8.7 16.6 90% Miles per vehicle 23,700 20,200

- 15% Efficiency of vehicle stock (mpg) 

### 6.1 6.6 9%**

Richard Newell, December 16, 2010

* Equal to a 25% reduction in fuel use per mile. ** Equal to an 8% reduction in fuel use per mile.
36Richard Newell, December 16, 2010 

# Unconventional vehicles meet over 40% of U.S. light
- duty vehicle sales in 2035

0 5 10 15 20

2000 2009 2015 2020 2025 2030 2035 Conventional gasoline Diesel Gaseous and fuel cell Mild hybrid electric Hybrid electric Plug-in hybrid and all-electric E85 flex fuel U.S. light car and truck sales millions

Source: EIA, Annual Energy Outlook 2011 Projections History

37

## • Increased estimates for U.S. shale gas resources drive increased U.S. production, lower prices, and lower imports of natural gas

• Industrial natural gas demand recovers, reversing recent trend

• Non

- hydro renewables and natural gas are the fastest growing electricity generation sources, but coal remains the dominant fuel because of the large amount of existing capacity

• Oil imports fall due to increased domestic production

— including biofuels

— and greater fuel efficiency

• U.S. carbon dioxide emissions rise slowly, but do not pass 2005 levels again until 2027 

# Key results from the **AEO2011** Reference case, which assumes current laws remain unchanged

Richard Newell, December 16, 2010 38

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- Term Energy Outlook www.eia.gov/emeu/steo/pub/contents.html
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Monthly Energy Review www.eia.gov/emeu/mer/contents.html

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Richard Newell, December 16, 2010 39 2011 EIA Energy Conference

— April 26

- 27, 2011 For information and email updates: www.eia.gov/conference/2011Richard Newell, December 16, 2010 

# Some supply sources and demand sectors are strongly linked, while others are more dispersed

Source: EIA Annual Energy Review 2009 40 2009