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Annual Energy Outlook 2014

Release Dates: April 7 - 30, 2014   |  Next Early Release Date: December 2014   |  See schedule

Market Trends — Industrial sector energy demand

Growth in industrial energy consumption is slower than growth in shipments


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Despite a 76-percent increase in industrial shipments, industrial delivered energy consumption increases by only 19 percent from 2011 to 2040 in the AEO2013 Reference case. The continued decline in energy intensity of the industrial sector is explained in part by a shift in the share of shipments from energy-intensive manufacturing industries (bulk chemicals, petroleum refineries, paper products, iron and steel, food products, aluminum, cement and lime, and glass) to other, less energy-intensive industries, such as plastics, computers, and transportation equipment. Also, the decline in energy intensity for the less energy-intensive industries is almost twice that for the more energy-intensive industries.

Industrial energy consumption increases by 4.7 quadrillion Btu from 2011 to 2040 in the Reference case (Figure 63), or by an average of 0.6 percent per year. Most of the growth occurs in the near term, from 2011 to 2025, with an average yearly increase of 1 percent. After 2025, the annualized rate of increase is 0.3 percent. The share of industrial delivered energy consumption used for heat and power in manufacturing increases modestly, from 63 percent in 2011 to 67 percent in 2040.

Energy consumption for heat and power in the nonmanufacturing industries (agriculture, mining, and construction) increases by about 1.1 quadrillion Btu from 2011 to 2040 in the Reference case, but its percentage of total industrial energy consumption remains at about 16 percent. Nonfuel uses of energy (feedstocks for chemical manufacturing and asphalt for construction) increase by 1.6 percent per year from 2011 to 2025 and decrease by 0.3 percent per year after 2025. The nonfuel share of energy consumption is between 18 and 20 percent over the projection period.

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


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Much of the growth in industrial energy consumption in the AEO2013 Reference case is accounted for by natural gas use, which increases by 18 percent from 2011 and 2025 and by 6 percent from 2025 to 2040 (Figure 64). With domestic natural gas production increasing sharply in the projection, natural gas prices remain relatively low. The mix of industrial fuels changes relatively slowly, however, reflecting limited capability for fuel switching in most industries.

Consumption of renewable fuels in the industrial sector grows by 22 percent from 2011 to 2025 in the Reference case and by 37 percent from 2025 to 2040. The paper industry remains the predominant consumer of renewable energy (mostly biomass) in the industrial sector. Industrial consumption of natural gas liquids (NGL) increases by 21 percent from 2011 to 2025, followed by a 9-percent decline from 2025 to 2040. NGL are consumed predominantly as feedstocks in the bulk chemicals industry and for process heat in other industries. NGL use declines starting in 2025 as shipments of bulk chemicals begin to decline in the face of increased international competition. Industrial coal use drops by less than 1 percent from 2011 to 2040, and the use of petroleum and other liquid fuels increases by 6 percent.

Low natural gas prices and increased availability of biomass contribute to growth in the use of combined heat and power (CHP). A small decline in the purchased electricity share of industrial energy consumption (less than 1 percent from 2011 to 2040) reflects growth in CHP, as well as efficiency improvements resulting from rising standards for electric motors.

Iron and steel, cement, and glass industries are most sensitive to the economic growth rate


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Total shipments from the energy-intensive industries grow by an average of 1.0 percent per year from 2011 to 2040 in the AEO2013 Reference case, as compared with 0.6 percent in the Low Economic Growth case and 1.4 percent in the High Economic Growth case. Growth in shipments is uneven among the industrial subsectors.

The iron and steel, cement, and glass industries show the greatest variability in shipments across the three cases, because they supply downstream industries that are sensitive to investment, which is more variable than GDP. Construction is a downstream user of the output for all three industries, and the metal-based durables sector is a downstream industry for the iron and steel and glass industries. The high rate of shipments growth for those industries is related largely to recovery from the recent recession. Shipments of paper products grow steadily in each of the three cases (Figure 65).

The food, bulk chemicals, and aluminum industries show less variability among the three cases. Food shipments, which tend to grow in proportion to population, are less sensitive to investment. The bulk chemicals and aluminum industries face significant international competition, but they experience significant growth, largely related to relatively inexpensive natural gas and associated declines in electricity costs for aluminum manufacturers. Shipments from the petroleum refineries industry either decline or grow relatively slowly in each of the three cases as a result of slow growth in demand for petroleum-based fuels.

Energy use reflects output and efficiency trends in energy-intensive industries


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Energy consumption growth in the energy-intensive industries from 2011 to 2040 ranges from no significant change in the Low Economic Growth case to an increase of 3.9 quadrillion Btu in the High Economic Growth case (Figure 66). Energy efficiency improvements reduce the rate of growth in energy consumption relative to shipments. In the AEO2013 Reference case, energy use in the energy-intensive industries increases by 13 percent, while shipments increase by 33 percent. In the Low Economic Growth case, energy use in the energy-intensive industries declines by 2 percent while shipments increase by 17 percent. In the High Economic Growth case, energy use grows by 27 percent and shipments by 48 percent.

Shipments from all industries grow in the Reference case, but the impact on energy consumption varies by industry because of structural changes and differences in the rate of energy efficiency improvement by industry. For example, shipments from the aluminum industry and the iron and steel industry increase in the projection, even as energy use declines. For the aluminum industry, shipments grow by 17 percent while energy use declines by 16 percent because of a rise in less energy-intensive secondary production. For the iron and steel industry, shipments grow by 18 percent while energy use declines by 10 percent because of a shift from the use of blast furnace steel production to the use of recycled products and electric arc furnaces.

Refining is the only industry subsector that shows an increase in energy intensity. Shipments from refineries fluctuate in the early years and then decline slightly after 2019, with a 4-percent decline in shipments overall from 2011 to 2040. In contrast, energy use for refining increases by 13 percent over the same period, as CTL production and the use of heavy crude feedstock, both of which are more energy-intensive to process than typical crude oil, increase after 2022.

Most of the growth in shipments from energy-intensive industries occurs before 2025


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Most of the growth in shipments from energy-intensive industries from 2011 to 2040 occurs before 2025 in the Reference case (Figure 67). The strong growth in the earlier period can be explained largely by low natural gas prices that result from increased domestic production of natural gas from tight formations, as well as continued economic recovery. After 2025 the growth in shipments is weaker, with declines in some industries as a result of growing international competition and rising natural gas prices.

In the bulk chemical industry, shipments grow by 27 percent from 2011 to 2025, then decline by 8 percent from 2025 to 2040. Aluminum shipments and iron and steel shipments both grow by about 50 percent more than shipments of bulk chemicals from 2011 to 2025. The decline in aluminum and iron and steel shipments after 2025, just over 20 percent, is also greater than the decline in bulk chemicals shipments. In addition to growing international competition, the growth in industries downstream from the primary metals sector, such as construction and transportation equipment, weakens after 2025.

The cement and lime and glass industries show continued growth over the period from 2025 to 2040, but at relatively low levels. Cement and lime and glass have high shipping costs, which give domestic suppliers an advantage over imports and help to maintain the sector's growth after 2025. Shipments from the refinery industry show modest declines in both the 2011-2025 and 2025-2040 periods, as demand for transportation fuels is moderated by increasing vehicle efficiencies. The food and paper products industries show the least variation in shipment growth over the projection period, with growth rates declining modestly after 2025.

Metal-based durable goods show the fastest growth among non-energy-intensive industries


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In 2040, the non-energy-intensive manufacturing and nonmanufacturing industrial subsectors account for $8.5 trillion (2005 dollars) in shipments in the AEO2013 Reference case—a 92-percent increase from 2011. The growth in those shipments from 2011 to 2040 averages 1.6 percent per year in the Low Economic Growth case and 3.0 percent per year in the High Economic Growth case, compared with 2.3 percent in the Reference case (Figure 68). Non-energy-intensive manufacturing and nonmanufacturing are segments of the industrial sector that consume fuels primarily for thermal or electrical needs, not as raw materials or feedstocks.

In the three cases, the annual rate of increase in shipments from non-energy-intensive industries generally is twice the rate of increase for the energy-intensive industries, primarily as a result of growing demand for high-technology, high-value goods. Further, the growth in shipments is fastest in the medium term. From 2011 to 2025, shipments of metal-based durables grow by an average of 3.2 percent per year; from 2025 to 2040, the growth rate slows to 2.1 percent per year.

In the Reference case, shipments from the non-energy-intensive industries grow at different rates. For metal-based durables, shipments grow by 2.6 percent per year from 2011 to 2040, led by 3.0-percent average annual growth for transportation equipment. In the nonmanufacturing sector, construction grows by an average of 2.6 percent per year, agriculture grows by 1.0 percent per year, and mining grows by 0.2 percent per year.

Nonmanufacturing efficiency gains are slowed by rising energy intensity in the mining industry


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From 2011 to 2040, total energy consumption in the non-energy-intensive manufacturing and nonmanufacturing industrial subsectors increases by 18 percent (1.4 quadrillion Btu) in the Low Economic Growth case, 36 percent (2.8 quadrillion Btu) in the Reference case, and 58 percent (4.6 quadrillion Btu) in the High Economic Growth case (Figure 69).

The nonmanufacturing subsector (construction, agriculture, and mining) accounts for roughly 57 percent of the energy consumed in the non-energy-intensive industries but only 31 percent of the total shipments in 2040. The nonmanufacturing industries are more energy-intensive than the manufacturing industries, and there is no significant decline in energy intensity for the nonmanufacturing industries over the projection period. Construction and agriculture show annual declines in energy intensity from 2011 to 2040 (1.0 percent and 0.9 percent per year, respectively), whereas the energy intensity of the mining industry increased by 0.7 percent from 2011 to 2040 in the AEO2013 Reference case. Within the nonmanufacturing sector, the mining industry accounts for 17.3 percent of shipments in 2040 and roughly 43.2 percent of the energy consumed, as the energy intensity of mining activity increases with resource depletion over time.

In comparison, the non-energy-intensive manufacturing industries—such as plastics, computers, and transportation equipment—show a 33-percent decline in energy intensity from 2011 to 2040, or an average decline of about 1.4 percent per year. For the transportation equipment industry, which accounts for 19 percent of the increase in energy use but roughly 29 percent of the increase in shipments, energy intensity declines by 1.5 percent per year on average in the Reference case.

Reference Case Tables
Table 2. Energy Consumption by Sector and Source - United States XLS
Table 2.1. Energy Consumption by Sector and Source - New England XLS
Table 2.2. Energy Consumption by Sector and Source - Middle Atlantic XLS
Table 2.3. Energy Consumption by Sector and Source - East North Central XLS
Table 2.4. Energy Consumption by Sector and Source - West North Central XLS
Table 2.5. Energy Consumption by Sector and Source - South Atlantic XLS
Table 2.6. Energy Consumption by Sector and Source - East South Central XLS
Table 2.7. Energy Consumption by Sector and Source - West South Central XLS
Table 2.8. Energy Consumption by Sector and Source - Mountain XLS
Table 2.9. Energy Consumption by Sector and Source - Pacific XLS
Table 6. Industrial Sector Key Indicators and Consumption 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 18.1. Energy-Related Carbon Dioxide Emissions by Sector and Source - New England XLS
Table 18.2. Energy-Related Carbon Dioxide Emissions by Sector and Source - Middle Atlantic XLS
Table 18.3. Energy-Related Carbon Dioxide Emissions by Sector and Source - East North Central XLS
Table 18.4. Energy-Related Carbon Dioxide Emissions by Sector and Source - West North Central XLS
Table 18.5. Energy-Related Carbon Dioxide Emissions by Sector and Source - South Atlantic XLS
Table 18.6. Energy-Related Carbon Dioxide Emissions by Sector and Source - East South Central XLS
Table 18.7. Energy-Related Carbon Dioxide Emissions by Sector and Source - West South Central XLS
Table 18.8. Energy-Related Carbon Dioxide Emissions by Sector and Source - Mountain XLS
Table 18.9. Energy-Related Carbon Dioxide Emissions by Sector and Source - Pacific XLS
Table 19. Energy-Related Carbon Dioxide Emissions by End Use XLS
Table 24. Industrial Sector Macroeconomic Indicators XLS
Table 25. Refining Industry Energy Consumption XLS
Table 26. Food Industry Energy Consumption XLS
Table 27. Paper Industry Energy Consumption XLS
Table 28. Bulk Chemical Industry Energy Consumption XLS
Table 29. Glass Industry Energy Consumption XLS
Table 30. Cement and Lime Industry Energy Consumption XLS
Table 31. Iron and Steel Industries Energy Consumption XLS
Table 32. Aluminum Industry Energy Consumption XLS
Table 33. Metal Based Durables Energy Consumption XLS
Table 34. Other Manufacturing Sector Energy Consumption XLS
Table 35. Nonmanufacturing Sector Energy Consumption XLS
Table 73. Employment and Shipments by Industry, and Income and Employment by Region XLS