Energy Trends to 2030

The Energy Information Administration (EIA), in preparing projections for the Annual Energy Outlook 2007 (AEO2007), evaluated a wide range of trends and issues that could have major implications for U.S. energy markets between today and 2030. This over-view focuses on one case, the reference case, which is presented and compared with the Annual Energy Outlook 2006 (AEO2006) reference case (see Table 1). Readers are encouraged to review the full range of al-ternative cases included in AEO2007 when the com-plete report is released in early 2007. As in previous editions of the AEO, the reference case assumes that current policies affecting the energy sector remain unchanged throughout the projection period. Some possible policy changes—notably, the adoption of policies to limit or reduce greenhouse gas emis-sions—could change the reference case projections significantly.

Trends in energy supply and demand are affected by many factors that are difficult to predict, such as energy prices, U.S. economic growth, advances in technologies, changes in weather patterns, and future public policy decisions. It is clear, however, that energy markets are changing gradually in response to such readily observable factors as the higher energy prices that have been experienced since 2000, the greater influence of developing countries on world-wide energy requirements, recently enacted legislation and regulations in the United States, and changing public perceptions of issues related to the use of alternative fuels, emissions of air pollutants and greenhouse gases, and the acceptability of vari-ous energy technologies, among others. Such changes are reflected in the AEO2007 reference case, which projects increased consumption of biofuels (both eth-anol and biodiesel), growth in coal-to-liquids (CTL) capacity and production, growing demand for uncon-ventional transportation technologies (such as flex-fuel, hybrid, and diesel vehicles), growth in nuclear power capacity and generation, and accelerated improvements in energy efficiency throughout the economy.

Despite the rapid growth projected for biofuels and other nonhydroelectric renewable energy sources and the expectation that orders will be placed for new nu-clear power plants for the first time in more than 25 years, oil, coal, and natural gas still are projected to provide roughly the same 86-percent share of the to-tal U.S. primary energy supply in 2030 that they did in 2005 (assuming no changes in existing laws and regulations). The expected rapid growth in the use of biofuels and other nonhydropower renewable energy sources begins from a very low current share of total energy use; hydroelectric power production, which accounts for the bulk of current renewable electricity supply, is nearly stagnant; and the share of total elec-tricity supplied from nuclear power falls despite the projected new plant builds, which more than offset re-tirements, because the overall market for electricity continues to expand rapidly in the projection.

World oil prices since 2000 have been substantially higher than those of the 1990s, as have the prices of natural gas and coal (although coal prices began to rise somewhat later than oil and natural gas prices). The sustained increase in world oil prices caused EIA to reevaluate earlier oil price expectations in produc-ing AEO2006. The long-term path of world oil prices in the AEO2007 reference case is similar to that in the AEO2006 reference case, although near-term prices in AEO2007 are somewhat higher than those in AEO2006.

In the AEO2007 reference case, real world crude oil prices, expressed in terms of the average price of im-ported light, low-sulfur crude oil to U.S. refiners, are projected to decline gradually from their 2006 aver-age level through 2015, as expanded investment in ex-ploration and development brings new supplies to the world market. After 2015, real prices begin to rise as demand continues to grow and higher cost supplies are brought to market. In 2030, the average real price of crude oil is projected to be above $59 per barrel in 2005 dollars, or about $95 per barrel in nominal dollars.

The energy price projections for natural gas and coal in the AEO2007 reference case also are similar to those in AEO2006. The real wellhead price of natural gas is projected to decline from current levels through 2015, when new supplies enter the market, but it does not return to the levels of the 1990s. After 2015, the natural gas price rises to nearly $6.00 per thousand cubic feet in 2030 in 2005 dollars (about $9.60 per thousand cubic feet in nominal dollars). For coal, the average minemouth price ranges between $1.08 and $1.18 per million Btu (2005 dollars) over the projec-tion period; in 2030, the price of coal is projected to be roughly the same as it was in 2005, at $1.15 per mil-lion Btu ($1.85 per million Btu in nominal dollars). The 2030 price projection is higher than the AEO2006 reference case projection of $1.11 per million Btu and much higher than projected in earlier AEOs—typi-cally, below $0.90 per million Btu. Greater price in-creases are avoided, because lower cost production from surface mines in the West is projected to capture a growing share of the U.S. market.

The use of alternative fuels, such as ethanol, bio-diesel, and CTL, is projected to increase substantially in the reference case as a result of the higher prices projected for traditional fuels and the support for al-ternative fuels provided in recently enacted Federal legislation. Ethanol use grows in the AEO2007 refer-ence case from 4 billion gallons in 2005 to 14.6 billion gallons in 2030 (about 8 percent of total gasoline con-sumption by volume). Ethanol use for gasoline blend-ing grows to 14.4 billion gallons and E85 consumption to 0.2 billion gallons in 2030. The ethanol supply is ex-pected to be produced from both corn and cellulose feedstocks, both of which are supported by ethanol tax credits included in the Energy Policy Act of 2005 (EPACT2005),1 but domestically grown corn is ex-pected to be the primary source, accounting for 13.6 billion gallons of ethanol production in 2030.

Alternative sources of distillate fuel oil are projected to be key contributors to total supply (particularly, low-sulfur diesel fuels) in 2030. Consumption of biodiesel, also supported by tax credits in EPACT2005, reaches 0.4 billion gallons in 2030, and distillate fuel oil produced from CTL reaches 5.7 billion gallons in 2030. In total, these two alternative sources of dis-tillate fuel oil account for more than 7 percent of the total distillate pool in 2030.

The AEO2007 reference case also reflects growing market penetration by unconventional vehicle tech-nologies, such as flex-fuel, hybrid, and diesel vehicles. Sales of flex-fuel vehicles, which are capable of using gasoline and E85, reach 2 million per year in 2030, or 10 percent of total sales of new light-duty vehicles. Sales of hybrids, including both full and mild hy-brids,2 are projected to reach 2 million per year by 2030, accounting for another 10 percent of total light-duty vehicles sales. Diesel vehicles sales reach 1.2 million per year in 2030, or 6 percent of new light-duty vehicle sales. Including other alternative vehicle technologies (such as gaseous, electric, and fuel cell), all the projected sales of alternative vehicle technologies account for nearly 28 percent of projected new light-duty vehicle sales in 2030, up from just over 8 percent in 2005.

In the electric power sector, the last new nuclear generating unit brought on line in the United States be-gan operation in 1996. Since then, changes in U.S. nuclear capacity have resulted only from uprating of existing units and retirements. The AEO2007 reference case projects total operable nuclear generating capacity of 112.6 gigawatts in 2030, including 3 gigawatts of additional capacity uprates, 9 gigawatts of new capacity built primarily in response to EPACT2005 tax credits, 3.5 gigawatts added in later years in response to higher fossil fuel prices, and 2.6 gigawatts of older plant retirements. As a result of the growth in available capacity, total nuclear generation is projected to grow from 780 billion kilowatthours in 2005 to 896 billion kilowatthours in 2030. Even with the projected increase in nuclear capacity and generation, however, the nuclear share of total electricity generation is expected to fall from 19 percent in 2005 to 15 percent in 2030.

Natural gas consumption is projected to grow to 26.1 trillion cubic feet in 2030, down from the projection of 26.9 trillion cubic feet in 2030 in the AEO2006 reference case and well below the projections of 30 trillion cubic feet or more included in AEO reference cases only a few years ago. The generally higher natural gas prices projected in the AEO2007 reference case result in lower projected growth of natural gas use for electricity generation over the last decade of the projection period. Total natural gas consumption is almost flat from 2020 through 2030, when growth in residential, commercial, and industrial consump-tion is offset by a decline in natural gas use for elec-tricity generation as a result of greater coal use.

As in AEO2006, coal is projected to play a major role in the AEO2007 reference case, particularly for electricity generation. Coal consumption is projected to increase from 22.9 quadrillion Btu (1,128 million short tons) in 2005 to more than 34 quadrillion Btu (1,772 million short tons) in 2030, with significant additions of new coal-fired generation capacity over the last decade of the projection period, when rising natural gas prices are projected. The reference case projections for coal consumption are particularly sensitive to the underlying assumption that current energy and environmental policies remain unchanged throughout the projection period. Recent EIA service reports have shown that steps to reduce greenhouse gas emissions through the use of an economy-wide emissions tax or cap-and-trade system could have a significant impact on coal use.3

Table 1

Reference Notes