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Annual Energy Outlook 2014

Release Date: May 7, 2014   |  Next Early Release Date: February 2015   |  See schedule  |  full report

Market Trends: Industrial sector energy demand

Growth in industrial energy consumption is slower than growth in shipments

In the AEO2014 Reference case, manufacturing shipments increase by 87% from 2012 to 2040, while delivered energy consumption for heat and power in the manufacturing sector increases by only 19%. The continued decline in energy intensity of manufacturing is explained in part by continued improvement in the efficiency of industrial equipment as energy prices gradually increase, and by a shift in the share of shipments from energy-intensive manufacturing industries to non-energyintensive industries. With growing foreign competition, shipments and energy use in many trade-exposed energy-intensive industries (bulk chemicals, petroleum refineries, iron and steel, and aluminum) begin declining around 2025. For less energyintensive manufacturing industries (plastics, computers, machinery, and transportation), shipments continue to grow, capturing a larger share of total U.S. manufacturing output.

In the nonmanufacturing industries (agriculture, mining, and construction), energy intensity declines from 2012 to 2040, as shipments increase by 57% and as total delivered energy consumption increases by 41%. The decline in energy intensity is limited by the mining industry, where energy intensity increases as resource extraction moves into less productive areas.

U.S. manufacturing energy consumption for heat and power grows in the Reference case by an average of 1.1%/year from 2012 to 2025, and then slows to 0.2%/year from 2025 to 2040 (Figure MT-18). Nonmanufacturing energy consumption grows by an average of 1.9%/year from 2012 to 2025, and then slows to 0.6%/year from 2025 to 2040. Nonfuel energy use, principally bulk chemical feedstocks and asphalt, grows robustly at 2.6% annually from 2012 to 2025, largely as a result of rising bulk chemical shipments. After 2025, nonfuel energy use increases 0.1%/year, in parallel with bulk chemical shipments.


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Reliance on natural gas, natural gas liquids, and renewables rises as industrial energy use grows

Total delivered energy consumption in the industrial sector increases by 28% (6.6 quadrillion British thermal units [Btu]) from 2012 to 2040 in the AEO2014 Reference case (Figure MT-19). Much of the growth is in natural gas use, which accounts for 34% of the total increase in energy consumption from 2012 to 2025 and 59% of the increase from 2025 to 2040, as a result of relatively low natural gas prices from steady increases in domestic natural gas production through 2040. The mix of industrial energy sources stays relatively constant, however, reflecting limited remaining capability for switching from other fuels to natural gas in most industries.


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Renewable fuel consumption increases by 53% from 2012 to 2040, although as a percentage of total energy consumption, renewable fuels remain small, at 10% of total energy consumption in 2040. The paper industry remains the predominant user of renewable energy, accounting for roughly 66% of the energy consumed for heat and power in that industry.

Industrial consumption of hydrocarbon gas liquids (HGL) increases by 35% from 2012 to 2025, followed by a 5% decline from 2025 to 2040. HGL are consumed predominantly as feedstocks in the bulk chemicals industry, and smaller amounts (mostly propane) are consumed for process heat in other industries. Coal is the only industrial fuel that shows a consistent decline in consumption, from 6% of the total in 2012 to 5% in 2040.

Low natural gas prices and increased availability of biomass contribute to growth in the use of combined heat and power (CHP). Industrial CHP generation,excluding the refining industry, increases by 88%, from 111.3 billion kilowatthours (kWh) in 2012 to 208.9 billion kWh in 2040.

Bulk chemicals feedstock mix reflects both relative fuel prices and demand for chemicals

Liquid feedstock consumption in the bulk chemicals industries is divided between heavy feedstock (petroleum-based naphtha and gasoil) and light feedstock (hydrocarbon gas liquids [HGL], primarily ethane and propane), according to their relative prices. Heavy feedstock prices follow the price of oil, and prices for HGL feedstock, a composite of propane and ethane prices, vary relative to both oil and natural gas prices. Ethane prices are also influenced by production of ethane from natural gas plant liquids and by demand for organic and resin chemicals.

Shipments in the bulk chemicals industries grow by 60% from 2012 to 2028 in the AEO2014 Reference case, followed by no growth after 2028. Growth in total liquid feedstock consumption follows a similar pattern.

In the AEO2014 projections, the mix of feedstocks used to produce bulk chemicals varies with changes in supply assumptions. In the High Oil and Gas Resource case, natural gas prices in 2040 are 40% lower than in the Reference case, while crude oil prices are 12% lower. As a result, the HGL feedstock price in 2040 is 31% lower than in the Reference case, while the heavy feedstock price is only 18% lower. In the Low Oil and Gas Resource case, the HGL feedstock price in 2040 is 13% higher than in the Reference case, while the heavy feedstock price is only 3% higher.

The greater variation in feedstock prices in the High Oil and Gas Resource case leads to more change in the feedstock mix (Figure MT-20), with the use of light HGL feedstock growing faster than the use of heavy naphtha feedstock. In all the cases, consumption of heavy feedstock continues to grow from 2012 to 2040, because some chemicals, such as butadiene and aromatics, cannot be made in sufficient quantities to meet demand by cracking only HGL feedstocks.


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For manufacturing applications, heat and power use varies with economic assumptions

There are three principal uses of energy for heat and power in manufacturing: steam generation for process heat applications, direct-fired heat applications, and the use of electricity to drive machinery. Steam, produced in boilers and by CHP applications, accounted for 4.4 quadrillion Btu of the 14.8 quadrillion Btu of energy consumed for heat and power in the manufacturing sector in 2012. The remaining 10.4 quadrillion Btu of energy consumed for heat and power in manufacturing in
2012, consisting of fuels and purchased electricity, was used in applications such as motors, kilns, direct process heaters, and refining of liquid fuels. Energy for manufacturing can also be used to produce chemical feedstocks.

Demand for heat in the manufacturing sector is particularly sensitive to the rate of economic growth (Figure MT-21). In the Reference case, industrial energy use for boilers and CHP grows by 32% from 2012 to 2040, compared with 45% in the High Economic Growth case and 18% in the Low Economic Growth case.


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The energy-intensive manufacturing industries account for a disproportionate amount of the energy used in boiler and CHP applications. The paper industry is the largest industrial user of boiler and CHP, which accounted for 1.6 quadrillion Btu, or roughly 80%, of total heat and power consumption in the paper industry in 2012. The paper industry also recovered 1.2 quadrillion Btu of renewable and waste fuels in 2012, specifically wood, pulping liquor, and municipal solid waste, all of which was consumed in recovery boilers. In addition, roughly half of the energy consumed for heat and power in the bulk chemicals industry in 2012 was used for boiler and CHP applications. Adoption of CHP in energy-intensive industries with stable base-steam demand offers significant potential for energy savings and cost reductions.

Energy consumption in the metal-based durables industries increases rapidly

Energy consumption in the metal-based durables industries increases at a rate that is more than twice the rate of growth in the energy-intensive industries, driven by higher growth in shipments relative to the energy-intensive industries. Energy consumption in the metal-based durables industries grows from 1.4 quadrillion Btu in 2012 to 2.0 quadrillion Btu in 2040 in the AEO2014 Reference case, compared with 1.7 quadrillion Btu in 2040 in the Low Economic Growth case and 2.4 quadrillion Btu in 2040 in the High Economic Growth case.

In each of the three cases, the energy intensity of metal-based durables industries declines from 2012 to 2040. Shipments grow more rapidly than energy use, as the industries’ energy efficiency improves significantly over the period. Energy intensity in the metal-based durables industries declines by 1.5%/year from 2012 to 2040 in both the Reference and Low Economic Growth cases and by 1.7%/year in the High Economic Growth case.

The mix of energy used in the metal-based durables industries differs significantly from that in the energy-intensive industries. With extensive use of machine drive, the metal-based durables industries use more electricity as a share of total energy consumption. Also, manufacturing in the metal-based durables industries uses energy for facility support activities, such as lighting and climate control.

Growth varies among specific segments of the metal-based durables industries (Figure MT-22). After 2025, shipments and energy use slow significantly in the fabricated metals and machinery segments but only slightly in other segments of the metal-based durables industries. The segment with the fastest growth in shipments and energy use is computers and electronic products.


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Nonmanufacturing energy intensity reductions are tempered by the mining industry

In 2040, nonmanufacturing industries account for $2.6 trillion (2005 dollars) in shipments in the AEO2014 Reference case—a 57% increase from 2012. From 2012 to 2040, total energy consumption in the nonmanufacturing subsector increases by 27% (1.3 quadrillion Btu) in the Low Economic Growth case, 41% (2.0 quadrillion Btu) in the Reference case, and 55% (2.6 quadrillion Btu) in the High Economic Growth case (Figure MT-23).


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The nonmanufacturing subsector consists of the construction, agriculture, and mining industries. In the Reference case, it accounts for roughly 23% of total value of shipments and about 23% of total delivered energy consumed in the industrial sector in 2040. The mining industry is the most energy-intensive of the three industries, accounting for 53% of the energy consumed in the nonmanufacturing subsector in 2040 but only 20% of the value of shipments. In contrast, the construction industry accounts for 65% of the shipments in 2040 but only 33% of the energy consumed, and the agriculture sector accounts for 15% of the shipments and 14% of the energy consumed.

Overall, energy intensity declines in the nonmanufacturing subsector by 10% from 2012 to 2040 in the Reference case Construction and agriculture both show a decline in energy intensity of 17% from 2012 to 2040, whereas the mining industry shows an increase in energy intensity of 26% over the same period. The energy intensity of mining increases as producers move into less-productive areas over time.


Reference Case Tables
Table 1. Total Energy Supply, Disposition, and Price Summary XLS
Table 2. Energy Consumption by Sector and Source - United States XLS
Table 3. Energy Prices by Sector and Source - United States XLS
Table 4. Residential Sector Key Indicators and Consumption XLS
Table 5. Commercial Sector Key Indicators and Consumption XLS
Table 6. Industrial Sector Key Indicators and Consumption XLS
Table 7. Transportation Sector Key Indicators and Delivered Energy Consumption XLS
Table 8. Electricity Supply, Disposition, Prices, and Emissions XLS
Table 9. Electricity Generating Capacity XLS
Table 10. Electricity Trade XLS
Table 11. Petroleum and Other Liquids Supply and Disposition XLS
Table 12. Petroleum and Other Liquids Prices XLS
Table 13. Natural Gas Supply, Disposition, and Prices XLS
Table 14. Oil and Gas Supply XLS
Table 15. Coal Supply, Disposition, and Prices XLS
Table 16. Renewable Energy Generating Capacity and Generation XLS
Table 17. Renewable Energy Consumption by Sector and Source XLS
Table 18. Energy-Related Carbon Dioxide Emissions by Sector and Source - United States XLS
Table 19. Energy-Related Carbon Dioxide Emissions by End Use XLS
Table 20. Macroeconomic Indicators XLS
Table 21. International Petroleum and Other Liquids Supply, Disposition, and Prices XLS