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AEO2014 Early Release Overview

Release Date: December 16, 2013   |  Full Report Release Date: Early Spring 2014   |  correction   |   Report Number: DOE/EIA-0383ER(2014)

Introduction

In preparing the AEO2014 Reference case, the U.S. Energy Information Administration (EIA) evaluated a wide range of trends and issues that could have major implications for U.S. energy markets. This overview presents the AEO2014 Reference case and compares it with the AEO2013 Reference case released in April 2013 (see Table 1 on pages 17-18). Because of the uncertainties inherent in any energy market projection, the Reference case results should not be viewed in isolation. Readers are encouraged to review the alternative cases when the complete AEO2014 publication is released, to gain perspective on how variations in key assumptions can lead to different outlooks for energy markets.

To provide a basis against which alternative cases and policies can be compared, the AEO2014 Reference case generally assumes that current laws and regulations affecting the energy sector remain unchanged throughout the projection (including the implication that laws that include sunset dates do, in fact, expire at the time of those sunset dates). This assumption clarifies the relationship of the Reference case to other AEO2014 cases and enables policy analysis with less uncertainty regarding unstated legal or regulatory assumptions.

As in past editions, the complete AEO2014 will include additional cases, many of which reflect the effects of extending a variety of current energy programs beyond their current expiration dates and the permanent retention of a broad set of programs that currently are subject to sunset provisions. In addition to the alternative cases prepared for AEO2014, EIA has examined proposed policies at the request of Congress over the past few years. Reports describing the results of those analyses are available on EIA's website.1

Key updates made for the AEO2014 Reference case include the following:

Macroeconomic

  • Revised U.S. Census Bureau population projections.2 The population projection for 2040 in the AEO2014 Reference case is almost 6% below the 2040 projection used for the AEO2013 Reference case. Most of the revision in overall population growth results from a lower projection for net international migration, with younger age groups showing the largest differences from the earlier projection. The slower rate of population growth leads to less labor force growth, which contributes to slower GDP growth.

Residential, commercial, an industrial

  • Revised base year residential equipment stocks and energy consumption for space heating, space cooling, and water heating, based on data from EIA's 2009 Residential Energy Consumption Survey (RECS), the most recent data available.3 Estimates of appliance stocks and energy consumption for several miscellaneous electric loads also were updated, based on a report by Navigant Consulting Inc., to better reflect recent changes and trends in the residential sector.4
  • Updated and expanded representation of miscellaneous electric loads in the commercial sector, as well as personal computers and data center servers, based on the Navigant report, reflecting recent and expected trends in electronics use.5
  • Updated costs and improved representation of residential lighting applications, including wider representation of light emitting diode (LED) lighting and outdoor lighting, based on the 2009 RECS and two U.S. Department of Energy (DOE) reports.6,7
  • Revised handling of the regional efficiency standard for residential furnaces, based on an ongoing legal appeal of the standard. The regional standard scheduled to take effect in 2013 is not included in AEO2014 because of a court challenge and proposed settlement that would vacate the standard in question and require DOE to develop new residential furnace standards.
  • Revised commercial capacity factors governing annual usage of major end-use equipment, based on an EIA-contracted analysis.
  • Updated manufacturing sector data to reflect the 2010 Manufacturing Energy Consumption Survey (MECS).8
  • Revised outlook for industrial production to reflect the effects of increased shale gas production and lower natural gas prices, resulting in faster growth for industrial production and energy consumption. The industries primarily affected include energy-intensive bulk chemicals and primary metals, both of which provide products used by the mining and other downstream industries such as fabricated metals and machinery. The bulk chemicals industry is also a major user of natural gas and, increasingly, hydrocarbon gas liquid (HGL) feedstocks.9
  • Expanded process flow models for the cement and lime industry and the aluminum industry, allowing technologies based on energy efficiency to be incorporated, as well as enhancement of the cement model to include renewable fuels.

Transportation

  • Implemented a new approach to VMT projections for LDVs, based on an analysis of VMT by age cohorts and the aging of the driving population over the course of the projection, which resulted in a significantly lower level of VMT growth after 2018 compared with AEO2013. On balance, demographic trends (such as an aging population and decreasing rates of licensing and travel among younger age groups) combine with employment and income factors to produce a 30% increase in VMT from 2012 to 2040 in AEO2014 compared with 41% growth in AEO2013.
  • Added LNG as a potential fuel choice for freight rail locomotives and domestic marine vessels, resulting in significant penetration of natural gas as a fuel for freight rail (35% of freight rail energy consumption in 2040) but relatively minor penetration in domestic marine vessels (2% of domestic marine energy consumption in 2040).
  • Adopted a new approach for estimating freight travel demand by region and commodity for heavy-duty vehicles (HDVs), rail, and domestic marine vessels, as well as updated fuel efficiencies for freight rail and domestic marine vessels.
  • Updated handling of flex-fuel vehicle (FFV) fuel shares to better reflect consumer preferences and industry response. FFVs are necessary to meet the renewable fuels standard (RFS), but the phase-out of corporate average fuel economy (CAFE) credits for their sale, as well as limited demand from consumers, reduces their market penetration.
  • Revised attributes for battery electric vehicles—including (1) product availability, (2) electric drive fuel efficiency, and (3) non-battery system costs by vehicle size class, battery size, and added battery cost per kilowatthour based on vehicle power-to-energy ratio for vehicle type—applied to hybrid electric, plug-in hybrid electric, and all-electric vehicles.

Oil and natural gas production and product markets

  • Revised network pricing assumptions based on benchmarking of regional natural gas hub prices to historical spot natural gas prices, basing flow decisions on spot prices, setting variable tariffs based on historical spot natural gas price differentials, and estimating the price of natural gas to the electric power sector off a netback from the regional hub prices.10
  • Allowed secondary flows of natural gas out of the Middle Atlantic region to change dynamically in the model based on relative prices, which enables a larger volume of natural gas from the Middle Atlantic's Marcellus formation to supply neighboring regions.
  • Developed the estimated ultimate recovery of tight oil and shale gas on the basis of county-level data.11
  • Updated oil and gas supply module that explicitly reports technically recoverable resources of liquids in natural gas, enabling estimation of dry and wet natural gas.
  • Improved representation of the dynamics of U.S. gasoline and diesel exports versus U.S. demand, through adoption of endogenous modeling.12
  • Added representation of the U.S. crude oil distribution system (pipelines, marine, and rail), to allow crude oil imports to go to logical import regions for transport to refineries, which enables crude imports and domestic production to move among refining regions and keeps imports of Canadian crude oil from flowing directly to U.S. Gulf refiners.13
  • Revised production outlook for nonpetroleum other liquids—gas-to-liquids, coal-to-liquids (CTL), biomass-to-liquids, and pyrolysis14 —with lower production levels than in AEO2013, as more recent experience with these emerging technologies indicates higher costs than previously assumed.15
  • Revised representation of CO2-enhanced oil recovery (EOR) that better integrates the electricity, oil and gas supply, and refining modules.16

Electric power sector

  • Revised approach to reserve margins, which are set by region on the basis of North American Electric Reliability Corporation/Independent System Operator requirements,17 and capacity payments, which are calculated as a combination of levelized costs for combustion turbines and the marginal value of capacity in the electricity model.
  • Revised handling of spinning reserves, with the required levels set explicitly depending on the mix of generating technologies used to meet peak demand by region, to allow better representation of capacity requirements and costs in regions or cases with high penetration of intermittent loads.
  • Revised assumptions concerning the potential for unannounced retirement of nuclear capacity in several regions to better reflect the impact of rising operating costs and low electricity prices. Announced nuclear retirements are already incorporated as planned.
  • Updated handling of Mercury and Air Toxics Standards (MATS)18 covering the electric power sector to reflect potential upgrades of electrostatic precipitators, requirements for plants with dry scrubbers to employ fabric filters, and revised costs for retrofits of dry sorbent injection and fabric filters.
  • Updated treatment of the production tax credit (PTC) for eligible renewable electricity generation technologies—consistent with the American Taxpayer Relief Act of 2012 (ATRA) passed in January 201319 —including revision of PTC expiration dates for each PTC-eligible technology to reflect the concept of projects being declared "under construction" as opposed to being placed "in service" and extension of the expiration date of the PTC for wind generation projects by one year.

Footnotes

1See "Congressional & Other Requests," http://www.eia.gov/analysis/reports.cfm?t=138.

2The new population projections were released on December 12, 2012. See U.S. Department of Commerce, "U.S. Census Bureau Projections Show a Slower Growing, Older, More Diverse Nation a Half Century from Now" (Washington, DC: December 12, 2012), http://www.census.gov/newsroom/releases/archives/population/cb12-243.html.

3U.S. Energy Information Administration, "Residential Energy Consumption Survey (RECS)": 2009 RECS Survey Data, Public Use Microdata File (Washington, DC: January 2013), http://www.eia.gov/consumption/residential/data/2009/index.cfm?view=microdata.

4Navigant Consulting, Inc., Analysis and Representation of Miscellaneous Electric Loads in the National Energy Modeling System (NEMS) (Washington, DC: May 2013), prepared for the U.S. Department of Energy, U.S. Energy Information Administration.

5Navigant Consulting, Inc., Analysis and Representation of Miscellaneous Electric Loads in the National Energy Modeling System (NEMS) (Washington, DC: May 2013), prepared for the U.S. Department of Energy, U.S. Energy Information Administration.

6U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Residential Lighting End-Use Consumption Study: Estimation Framework and Initial Estimates (Washington, DC: December 2012), http://apps1.eere.energy.gov/buildings/publications/pdfs/ssl/2012_residential-lighting-study.pdf.

7U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, 2010 U.S. Lighting Market Characterization (Washington, DC: January 2012), http://apps1.eere.energy.gov/buildings/publications/pdfs/ssl/2010-lmc-final-jan-2012.pdf.

8U.S. Energy Information Administration, "Manufacturing Energy Consumption Survey (MECS): 2010 MECS Survey Data" (Washington, DC: March 19, 2013), http://www.eia.gov/consumption/manufacturing/data/2010/.

9Growing production of wet natural gas and lighter crude oil has focused attention on natural gas liquids (NGL). EIA has developed and adopted a neutral term—"hydrocarbon gas liquid" (HGL)—to equate the supply (natural gas plant liquids [NGPL] + liquefied refinery gases [LRG]) and market (NGL + refinery olefins) terms. For example, liquefied petroleum gas (LPG) is currently defined by EIA as ethane, propane, normal butane, and isobutane and their olefins (ethylene, propylene, butylene, and isobutylene). This definition is inconsistent with definitions used by other federal agencies, international organizations, and trade groups, in that it implies that all the products are in a liquid state (ethane typically is not) and are used in the same way (higher-value olefins are used differently). Part of the HGL implementation redefines LPG to include only propane, butane, and isobutane and to exclude ethane and refinery olefins. The tables included in AEO2014 have been relabeled to conform to this newly adopted definition.

10Estimating natural gas prices to the electricity generation sector based on hub prices, rather than the citygate prices as was done in prior years, is a better reflection of current market conditions, in which many large natural gas consumers are outside the citygate.

11After accounting for infrastructure constraints and general development patterns, oil and natural gas resources in "sweet spots" are developed earlier than lower quality resources, based on net present value.

12High U.S. crude oil production and low fuel costs have given U.S. refiners a competitive advantage over foreign refiners, as evidenced by high U.S. refinery utilization and increasing U.S. exports of gasoline and diesel fuel.

13Oil imports from Canada now are required to go to Petroleum Administration for Defense District (PADD) 2 (Midwest: North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Minnesota, Iowa, Missouri, Wisconsin, Illinois, Michigan, Indiana, Ohio, Kentucky, and Tennessee); PADD 4 (Rocky Mountain: Montana, Idaho, Wyoming, Utah, and Colorado); and PADD 5 (West Coast: Washington, Oregon, Nevada, California, Arizona, Alaska, and Hawaii) for redistribution through the crude oil distribution infrastructure.

14Pyrolysis is defined as the thermal decomposition of biomass at high temperatures (greater than 400°F, or 200°C) in the absence of air.

15EIA undertook detailed assessments of these technologies in order to characterize key parameters considered in the model, such as capital cost, contingency factors, construction time, first year of operation, plant life, plant production capacity, efficiency, and feedstock and other operating costs.

16When considering CO2 EOR, the oil and gas supply module assesses a location and the availability and price of CO2 from power plants and CTL facilities. The electric power plants now consider the market size and prices for CO2 captured. The refining module assesses a location and the availability and price of CO2 from CTL facilities. The power sector now assesses opportunities for plants equipped with carbon capture and storage, as the CO2 produced at these facilities can be used for EOR operations. This enables the model to solve dynamically for the capture of CO2 and the production of oil from anthropogenic CO2 EOR.

17North American Electric Reliability Corporation, 2013 Summer Reliability Assessment (Atlanta, GA: May 2013), http://www.nerc.com/pa/RAPA/ra/Reliability%20Assessments%20DL/2013SRA_Final.pdf.

18U.S. Environmental Protection Agency, "Mercury and Air Toxics Standards (MATS)," http://www.epa.gov/mats.

19U.S. House of Representatives, 112th Congress, Public Law 112-240, "American Taxpayer Relief Act of 2012," Sections 401-412 (Washington, DC: January 2, 2013), http://www.gpo.gov/fdsys/pkg/PLAW-112publ240/pdf/PLAW-112publ240.pdf.