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Annual Energy Outlook 2014

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

Macroeconomic from Market Trends

Productivity and investment offset slow growth in labor force

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Growth in the output of the U.S. economy depends on increases in the labor force, the growth of capital stock, and improvements in productivity. In the Annual Energy Outlook 2013 (AEO2013) Reference case, U.S. labor force growth slows over the projection period as the baby boom generation starts to retire, but projected growth in business fixed investment and spending on research and development offsets the slowdown in labor force growth. Annual real gross domestic product (GDP) growth averages 2.5 percent per year from 2011 to 2040 in the Reference case (Figure 44), which is 0.2 percentage point slower than the growth rate over the past 30 years. Slow long-run increases in the labor force indicate more moderate long-run employment growth, with total civilian employment rising by an average of 1.0 percent per year from 2011 to 2040, from 131 million in 2011 to 174 million in 2040. The manufacturing share of total employment continues to decline over the projection period, falling from 9 percent in 2011 to 6 percent in 2040.

Real consumption growth averages 2.2 percent per year in the Reference case. The share of GDP accounted for by personal consumption expenditures varies between 66 percent and 71 percent of GDP from 2011 to 2040, with the share spent on services rising mainly as a result of increasing expenditures on health care. The share of GDP devoted to business fixed investment ranges from 10 percent to 17 percent of GDP through 2040.

Issues such as financial market reform, fiscal policies, and financial problems in Europe, among others, affect both short-run and long-run growth, adding uncertainty to the projections.

Slow consumption growth, rapid investment growth, and an increasing trade surplus

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AEO2013 presents three economic growth cases: Reference, High, and Low. The High Economic Growth case assumes high growth and low inflation. The Low Economic Growth case assumes low growth and high inflation. The short-term outlook (5 years) in each case represents current thinking about economic activity in the United States and the rest of the world, about the impacts of fiscal and monetary policies, and about potential risks to economic activity. The long-term outlook includes smooth economic growth, assuming no shocks to the economy.

Differences among the Reference, High, and Low Economic Growth cases reflect different expectations for growth in population (specifically, net immigration), labor force, capital stock, and productivity, which are above trend in the High Economic Growth case and below trend in the Low Economic Growth case. The average annual growth rate for real GDP from 2011 to 2040 in the Reference case is 2.5 percent, as compared with 2.9 percent in the High Economic Growth case and 2.0 percent in the Low Economic Growth case

Figure 45 compares the average annual growth rates for output and its major components in each of the three cases. Compared with the 1985-2011 period, investment growth from 2011 to 2040 is faster in all three cases, whereas consumption, government expenditures, imports, and exports grow more slowly in all three cases. Opportunities for trade are assumed to expand in all three cases, resulting in real trade surpluses that continue to grow throughout the projection period.

Energy-intensive industries show strong early growth in output

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In recent decades, industrial sector shipments expanded more slowly than the overall economy, with imports meeting a large share of demand for goods and the service sector growing rapidly [124]. In the Reference case, real GDP grows at an average annual rate of 2.5 percent from 2011 to 2040, while the industrial sector increases by 2.0 percent per year (Figure 46).

Industrial sector output goes through two distinct growth periods in the AEO2013 Reference case, with energy-intensive industries displaying the sharpest contrast between the periods. Recovery from the recession in the U.S. industrial sector has been relatively slow, with only mining, aluminum, machinery, and transportation equipment industries recovering to 2008 levels in 2011. However, as the recovery continues and increased oil and natural gas production from shale resources begins to affect U.S. competitiveness, growth in U.S. manufacturing output accelerates through 2022.

After 2020, manufacturing output slows because of increased foreign competition and rising energy prices, which weigh most heavily on the energy-intensive industries. The energy-intensive industries grow at a rate of 1.8 percent per year from 2011 to 2020 and 0.6 percent per year from 2020 to 2040. Growth rates within the sector vary by industry, ranging from an annual average of 0.6 percent for bulk chemicals to 2.8 percent for the cement industry.

Export expansion is an important factor for industrial production growth, along with consumer demand and investment. A decline in U.S. dollar exchange rates, combined with modest escalation in unit labor costs, stimulates U.S. exports in the projection. From 2011 to 2040, real exports of goods and services increase by an average of 5.5 percent per year, while real imports of goods and services grow by an average of 3.8 percent per year.

Energy expenditures decline relative to gross domestic product and gross output

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Total U.S. energy expenditures decline relative to GDP [125] in the AEO2013 Reference case (Figure 47). The projected ratio of energy expenditures to GDP averages 6.8 percent from 2011 to 2040, which is below the historical average of 8.8 percent from 1970 to 2010.

Figure 48 shows nominal energy expenditures relative to U.S. gross output, which roughly correspond to sales in the U.S. economy. Thus, the figure gives an approximation of total energy expenditures relative to total sales. Energy expenditures as a share of gross output show nearly the same pattern as their share of GDP, declining through 2040. The average shares of gross output relative to expenditures for total energy, petroleum, and natural gas, at 3.5 percent, 2.2 percent, and 0.4 percent, are close to their historical averages of 4.2 percent, 2.1 percent, and 0.7 percent, respectively.

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In the United States, average energy use per person declines from 2011 to 2040

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Population growth affects energy use through increases in housing, commercial floorspace, transportation, and economic activity. The effects can be mitigated, however, as the structure and efficiency of the U.S. economy change. In the AEO2013 Reference case, U.S. population increases by 0.9 percent per year from 2011 to 2040; the economy, as measured by GDP, increases at an average annual rate of 2.5 percent; and total energy consumption increases by 0.3 percent per year. As a result, energy intensity, measured both as energy use per person and as energy use per dollar of GDP, declines through the projection period (Figure 52).

The decline in energy use per capita is brought about largely by gains in appliance efficiency and an increase in vehicle efficiency standards by 2025. From 1970 through 2008, energy use dipped below 320 million Btu per person for only a few years in the early 1980s. In 2011, energy use per capita was about 312 million Btu. In the Reference case, it declines to less than 270 million Btu per person in 2034—a level not seen since 1963.

After some recovery through 2020, the economy continues to shift away from manufacturing (particularly, energy-intensive industries such as iron and steel, aluminum, bulk chemicals, and refineries) toward service industries. The energy-intensive industries, which represented about 5.9 percent of total shipments in 2011, represent 4.4 percent in 2040 in the Reference case. Efficiency gains in the electric power sector also reduce overall energy intensity, as older, less efficient generators are retired as a result of slower growth in electricity demand, changing dispatch economics related to fuel prices and stricter environmental regulations.

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.

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.

Nuclear power plant capacity grows slowly through uprates and new builds

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In the AEO2013 Reference case, nuclear power capacity increases from 101.1 gigawatts in 2011 to a high of 114.1 gigawatts in 2025, before declining to 108.5 gigawatts in 2036 (Figure 81), largely as a result of plant retirements. New additions in the later years of the projection bring nuclear capacity back up to 113.1 gigawatts in 2040. The capacity increase through 2025 includes 8.0 gigawatts of expansion at existing plants and 5.5 gigawatts of new capacity, which includes completion of a conventional reactor at the Watts Bar site. Four advanced reactors, reported as under construction, also are assumed to be brought online by 2020 and to be eligible for federal financial incentives. High construction costs for nuclear plants, especially relative to natural gas-fired plants, make additional options for new nuclear capacity uneconomical until the later years of the projection, when an additional 5.5 gigawatts is added. Nuclear capacity additions vary with assumptions about overall demand for electricity. Across the Economic Growth cases, net additions of nuclear capacity from 2012 to 2040 range from 5.5 gigawatts in the Low Economic Growth case to 36.1 gigawatts in the High Economic Growth case.

One nuclear unit, Oyster Creek, is expected to be retired at the end of 2019, as announced by Exelon in December 2010. An additional 6.5 gigawatts of nuclear capacity is assumed to be retired by 2036 in the Reference case. All other existing nuclear units continue to operate through 2040 in the Reference case, which assumes that they will apply for and receive operating license renewals, including in some cases a second 20-year extension after 60 years of operation (for more discussion, see "Issues in focus"). With costs for natural gas-fired generation rising in the Reference case and uncertainty about future regulation of GHG emissions, the economics of keeping existing nuclear power plants in operation are favorable.

Natural gas prices depend on economic growth and resource recovery rates among other factors

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Future levels of natural gas prices depend on many factors, including macroeconomic growth rates and expected rates of resource recovery from natural gas wells. Higher rates of economic growth lead to increased consumption of natural gas (primarily in response to higher levels of housing starts, commercial floorspace, and industrial output), causing more rapid depletion of natural gas resources and a more rapid increase in the cost of developing new production, which push natural gas prices higher. The converse is true in the Low Economic Growth case (Figure 88).

A lower rate of recovery from oil and gas wells implies higher costs per unit and higher prices. A higher rate of recovery implies lower costs per unit and lower prices. In comparison with the Reference case, the Low Oil and Gas Resource case assumes lower estimated ultimate recovery (EUR) from each shale well or tight well. The High Oil and Gas Resource case represents a more extreme case, with higher estimates for recoverable crude oil and natural gas resources in tight wells and shale formations and for offshore resources in the lower 48 states and Alaska.

In both cases, there are mitigating effects that dampen the initial price response from the demand or supply shift. For example, lower natural gas prices lead to an increase in natural gas exports, which places some upward pressure on natural gas prices. In addition, lower prices are likely to lead to less drilling for natural gas and lower production potential, placing some upward pressure on natural gas prices.

Macroeconomic from Comparison with other projections

1. Economic growth

The range of projected economic growth in the outlooks included in the comparison tends to be wider over the first 5 years of the projection than over a longer period, because the group of variables—such as population, productivity, and labor force growth—that influence long-run economic growth is smaller than the group of variables that affect projections of short-run growth. The average annual rate of growth of real gross domestic product (GDP) from 2011 to 2015 (in 2005 dollars) ranges from 2.2 percent to 2.9 percent (Table 8). From 2011 to 2025, the 14-year average annual growth rate ranges from 2.5 percent to 2.8 percent.

From 2011 to 2015, real GDP grows at a 2.5-percent average annual rate in the AEO2013 Reference case, lower than projected by the Congressional Budget Office (CBO), the Social Security Administration (SSA) (in The 2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds), Oxford Economic Group (OEG), and the Interindustry Forecasting Project at the University of Maryland (INFORUM) but higher than projected by Blue Chip Consensus (Blue Chip) and the Office of Management and Budget (OMB). The AEO2013 projection of GDP growth is similar to the average annual rate of 2.5 percent over the same period projected by IHSGI and by the International Energy Agency (IEA), in its November 2012 World Energy Outlook Current Policies Scenario.

The average annual GDP growth of 2.6 percent in the AEO2013 Reference case from 2011 to 2025 is at the mid-range of the outlooks, with OMB, CBO, and the SSA projecting the strongest recovery from the 2007-2009 recession. OMB and CBO project average annual GDP growth from 2011 to 2023 of 2.8 percent and 2.7 percent, respectively. The SSA and OEG project annual average growth of 2.7 percent from 2011 to 2025. IEA projects growth at a rate similar to that in the AEO2013 Reference case from 2011 to 2025—as do IHSGI and INFORUM—at 2.6 per year over the next 14 years. Blue Chip and ExxonMobil project growth at 2.5 percent, or 0.1 percentage point lower than in the AEO2013 Reference case.

There are few public or private projections of GDP growth for the United States that extend to 2040. The AEO2013 Reference case projects 2.5-percent average annual GDP growth from 2011 to 2040, consistent with trends in labor force and productivity growth. IHSGI and INFORUM also project GDP growth averaging 2.5 percent per year from 2011 to 2040. The SSA, ExxonMobil, and IEA project a lower rate of 2.4 percent per year, while the OEG and ICF International (ICF) project a higher rate of 2.6 percent per year from 2011 to 2040.


124 The industrial sector includes manufacturing, agriculture, construction, and mining. The energy-intensive manufacturing sectors include food, paper, bulk chemicals, petroleum refining, glass, cement, steel, and aluminum.
125 These expenditures relative to GDP are not the energy-share of GDP, since expenditures include energy as an intermediate product. The energy-share of GDP corresponds to the share of value added due to domestic energy-producing sectors, which would exclude the value of energy as an intermediate product.

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 20. Macroeconomic Indicators XLS
Table 24. Industrial Sector Macroeconomic Indicators XLS
Table 73. Employment and Shipments by Industry, and Income and Employment by Region XLS