‹ Analysis & Projections

AEO2014 Early Release Overview

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

Energy Prices

Crude Oil

Oil prices are influenced by several factors, including some that have mainly short-term impacts. Other factors, such as expectations about future world demand for petroleum and other liquids and production decisions by the Organization of the Petroleum Exporting Countries (OPEC), can affect prices over the longer term. Supply and demand in the world oil market are balanced through responses to price movements, with considerable complexity in the evolution of underlying supply and demand expectations. For petroleum and other liquids, the key determinants of long-term supply and prices can be summarized in four broad categories: the economics of non-OPEC supply; OPEC investment and production decisions; the economics of other liquids supply; and world demand for petroleum and other liquids.

Key assumptions driving global crude oil markets in the AEO2014 Reference case over the projection period include: average economic growth of 1.9% per year for major U.S. trading partners20 and average economic growth of 4.0% per year for other U.S. trading partners. Growth in petroleum and other liquids use occurs almost exclusively outside the Organization for Economic Cooperation and Development (OECD) member countries, with 1.8% average annual growth in petroleum and other liquids consumption by non-OECD countries, including significantly higher average annual consumption growth in both China and India.

Petroleum and other liquids production in AEO2014 from non-OPEC countries, particularly the United States, increases to levels above those in AEO2013. As a result, the OPEC market share declines to less than 40% in the near term before starting to rise again after 2016. The Brent crude oil spot price decreases from $112 per barrel (bbl) in 2012 to $92/bbl in 2017 in the Reference case (in 2012 dollars), then increases to $141/bbl in 2040 (or about $235/bbl in nominal dollars) as growing demand leads to the development of more costly resources (Figure 6). However, those resources are not as costly to develop as projected in AEO2013.

figure data

Petroleum and other liquids products

With lower crude oil prices and lower gasoline demand projected in the AEO2014 Reference case, the real end-use price of motor gasoline in the United States declines to $3.03 per gallon (2012 dollars) in 2017, then rises to $3.90 per gallon in 2040 (compared to $4.40 per gallon in 2040 in AEO2013). The end-use price of diesel fuel in the transportation sector follows a similar pattern, dropping to $3.50 per gallon in 2017 and then rising to $4.73 per gallon in 2040 (compared to $5.03 per gallon in AEO2013). Although both gasoline and diesel prices dip modestly in the early years of the projection period, they increase steadily thereafter. The diesel share of total domestic petroleum and other liquids production rises, and the gasoline share falls, mostly as a result of the greenhouse gas (GHG) and CAFE standards for LDVs beginning in model year 2017. Increasing demand for diesel puts pressure on refiners to increase diesel yields and results in a rising difference between diesel prices and gasoline prices from 2017 to 2025.

Legislated targets for cellulosic fuels use mandated by the Energy Independence and Security Act of 2007 (EISA2007) are not attained, as the U.S. Environmental Protection Agency (EPA)21 continues to make use of the flexibility provided in the statute to adjust those requirements.

Natural Gas

The Henry Hub spot price for natural gas in the AEO2014 Reference case is higher than projected in AEO2013 through 2037, with price increases in the near term driven by faster growth of consumption in the industrial and electric power sectors and, later, growing demand for export at LNG facilities. A sustained increase in production follows, leading to slower price growth over the rest of the projection period.

The Henry Hub spot natural gas price in AEO2014 reaches $4.80 per million Btu (MMBtu) (2012 dollars) in 2018, which is 77 cents/MMBtu higher than in AEO2013. The stronger near-term price growth is followed by a lagged increase in supply from producers, eventually causing prices to settle at $4.38/MMBtu in 2020, which is still notably higher than in AEO2013.

After 2020, increases in natural gas spot prices are driven by continued but slower growth in U.S. demand and net exports. The Henry Hub spot natural gas price rises to $7.65/MMBtu in 2040, an increase of $3.28 from 2020 but 4% below the 2040 price projection in AEO2013. In AEO2014, production grows to 37.5 Tcf in 2040, compared with 33.1 Tcf in AEO2013. A price increase starting in 2033 is far less pronounced than was projected in AEO2013, in part because the growth in net exports from the United States slows significantly.

Regional spot price projections throughout the United States follow the same general pattern as the Henry Hub spot price. However, the average Lower 48 spot price generally increases at a slightly slower rate than the Henry Hub spot price, because regional production growth outside those areas that serve the Henry Hub is projected to be somewhat faster than the growth in production that serves the Henry Hub.


The average minemouth price of coal increases by 1.4% per year in the AEO2014 Reference case, from $1.98/MMBtu in 2012 to $2.96/MMBtu in 2040 (2012 dollars). The upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine. The upward trend in the minemouth price of coal in the AEO2014 Reference case is similar to the trend in the AEO2013 Reference case, but the average price through the projection period in AEO2014 is generally lower, primarily reflecting a lower price outlook for coking coal.

Relative to minemouth prices, the average delivered price of coal to all sectors (excluding exports) increases at a slightly slower pace of 1.0% per year, from $2.60/MMBtu in 2012 to $3.43/MMBtu in 2040. The slower growth rate primarily reflects modest growth in average coal transportation rates, which increase by 0.2% per year in AEO2014—from $0.83/MMBtu in 2012 to $0.89/MMBtu in 2040—as a result of gradually increasing fuel costs and changes over time in the pattern of coal distribution.

U.S. coal exports, which have surged in recent years from 50 million short tons in 2005 to a record 126 million short tons (MMst) in 2012, have become an increasingly important source of revenue for both U.S. coal producers and coal transportation companies (primarily railroads and barge companies). In 2012, coal export revenues totaled about $15 billion, representing about 25% of all U.S. coal revenues, despite the fact that coal exports in 2012 represented only 12% of total U.S. production (short tons). In the AEO2014 Reference case, U.S. coal export prices increase by 1.2% per year, to $6.40/MMBtu in 2040.


Following the decline of natural gas prices since 2008, real average delivered prices for electricity have dropped consistently (although more gradually) since 2009, to 9.8 cents per kilowatthour (kWh) in 2012. Retail electricity prices are influenced by fuel prices, and particularly by natural gas prices. However, the relationship between retail electricity prices and natural gas prices is complex, and many factors influence the degree to which, and the timeframe over which, they are linked. Those factors include the share of natural gas generation in a region, the level of costs associated with the electricity transmission and distribution systems,the mix of competitive versus cost-of-service pricing, and the number of customers who purchase power directly from wholesale power markets. As a result, it can take time for changes in fuel prices to affect electricity prices, and the impacts can vary from region to region.

In the AEO2014 Reference case, electricity prices are higher throughout the projection than they were in the AEO2013 Reference case. Natural gas prices for electricity generators are higher than those in AEO2013 in the first few years but fairly similar in the long term. Reliance on natural gas-fired generation remains strong, as a result of additional near-term retirements of coal-fired and nuclear capacity, and natural gas prices continue to influence electricity prices. In the long term, both natural gas prices and electricity prices rise. Electricity prices, which in 2030 are 10.4 cents/kWh (2012 dollars) in the AEO2014 Reference case, compared with 9.9 cents/kWh in the AEO2013 Reference case, continue rising to 11.1 cents/kWh in 2040 in AEO2014, compared with 11.0 cents/kWh in the AEO2013 Reference case.

The AEO2014 Reference case includes an updated calculation of electricity prices in competitive regions that better represents payments required to maintain reserve capacity, contributing to higher projected electricity prices relative to AEO2013. In addition, the updated regional reserve margin requirements in AEO2014 generally are higher and thus more costly than those in AEO2013.


20Major trading partners include Australia, Canada, Switzerland, United Kingdom, Japan, Sweden, and the Eurozone.

21U.S. Environmental Protection Agency, "2014 Standards for the Renewable Fuel Standard Program: Proposed Rule," 40 CFR Part 80 [EPA-HQ-OAR-2013-0479; FRL-9900-90-OAR], RIN 2060-AR76, Federal Register, Vol. 78, No. 230 (Washington, DC: November 29, 2013), pp. 71732-71784, http://www.gpo.gov/fdsys/pkg/FR-2013-11-29/pdf/2013-28155.pdf.

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.