‹ Analysis & Projections

Annual Energy Outlook 2014

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

Market Trends — International

Range of oil price cases represents uncertainty in world oil prices

figure data

In AEO2013, the Brent crude oil price is tracked as the main benchmark for world oil prices. The West Texas Intermediate (WTI) crude oil price has recently been discounted relative to other world benchmark crude prices. The recent growth in U.S. mid-continental oil production has exceeded the capacity of the oil transportation infrastructure out of Cushing, Oklahoma, the market center for WTI prices. The U.S. Energy Information Administration (EIA) expects the WTI price to approach levels near the Brent price as new oil pipeline capacity is added and begins operation.

Future oil prices are uncertain. EIA develops three oil price cases—Reference, High, and Low—to examine how alternative price paths could affect future energy markets (Figure 49). The AEO2013 price cases were developed by changing assumptions about four key factors: (1) the economics of petroleum liquids supply from countries outside the Organization of the Petroleum Exporting Countries (non-OPEC), (2) OPEC investment and production decisions, (3) the economics of other nonpetroleum liquids supply, and (4) world demand for petroleum and other liquids.

Relative to the Reference case, the Low Oil Price case assumes lower levels of world economic growth and liquid fuels demand, as well as more abundant and less costly non-OPEC liquid fuels supply. In the Low Oil Price case, OPEC supplies 49 percent of the world’s liquid fuels in 2040, compared with 43 percent in the Reference case. The High Oil Price case assumes higher levels of world economic growth and liquid fuels demand, along with less abundant and more costly non-OPEC liquid fuels supply. In the High Oil Price case, OPEC supplies 40 percent of the world’s liquid fuels in 2040.

Trends in petroleum and other liquids markets are defined largely by the developing nations

figure data

In the AEO2013 Reference, High Oil Price, and Low Oil Price cases, total world consumption of petroleum and other liquids in 2040 ranges from 111 to 118 million barrels per day (Figure 50). The alternative oil price cases reflect shifts in both supply and demand. Although demand at the margin in the Organization for Economic Cooperation and Development (OECD) countries is influenced primarily by price, demand in non-OECD regions, where future growth in world demand is concentrated, is driven primarily by rates of economic growth that are particularly uncertain. The AEO2013 Low Oil Price case reflects a scenario where slightly weaker economic growth limits non-OECD oil demand growth.

OECD petroleum and other liquids use grows in the Reference case to 47 million barrels per day in 2040, while non-OECD use grows to 65 million barrels per day. In the Low Oil Price case, OECD petroleum and other liquids use in 2040 is higher than in the Reference case, at 52 million barrels per day, but demand in the slow-growing non-OECD economies rises to only 59 million barrels per day. In the High Oil Price case, OECD consumption grows to 45 million barrels per day in 2040, and fast-growing non-OECD use—driven by higher GDP growth—increases to 73 million barrels per day in 2040.

The supply response also varies across the price cases. In the Low Oil Price case, OPEC's ability to manage its market share is weakened. Low prices have a negative impact on non-OPEC petroleum supply in comparison with the Reference case. In the High Oil Price case, OPEC restricts production, non-OPEC petroleum resources become more economical, and high oil prices make other liquids more economically attractive.

Production of liquid fuels from biomass, coal, and natural gas increases

figure data

In 2011, world production of liquid fuels from biomass, coal, and natural gas totaled 2.1 million barrels per day, or about 2 percent of the energy supplied by all liquid fuels. In the AEO2013 Reference case, production from the three sources grows to 5.7 million barrels per day in 2040 (Figure 51), or about 4 percent of the energy supplied by all liquid fuels.

In the Low Oil Price case, production of liquid fuels from these sources grows to 6.7 million barrels per day in 2040, as technology development is faster than projected in the Reference case, making the liquids easier to produce at lower cost, and demand for ethanol for use in existing blend ratios is higher. In the High Oil Price case, production grows to 9.1 million barrels per day in 2040, as higher prices stimulate greater investment in advanced liquid fuels technologies.

Across the three oil price cases, the largest contributions to production of advanced liquid fuels come from U.S. and Brazilian biofuels. In the Reference case, biofuel production totals 4.0 million barrels per day in 2040, and production of gas-to-liquids (GTL) and coal-to-liquids (CTL) fuels accounts for 1.7 million barrels per day of additional production in 2040. Biofuels production in 2040 totals 5.5 million barrels per day in the Low Oil Price case and 5.9 million barrels per day in the High Oil Price case. The projections for CTL and GTL production are more sensitive to world oil prices, varying from 1.2 million barrels per day in the Low Oil Price case to 3.3 million barrels per day in the High Oil Price case in 2040. In the Reference case, the U.S. share of world GTL production in 2040 is 36 percent, as recent developments in domestic shale gas supply have contributed to optimism about the long-term outlook for U.S. GTL plants.