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Annual Energy Outlook 2014

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

Prices from Market Trends

Range of oil price cases represents uncertainty in world oil prices


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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


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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


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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.

Costs and regulatory uncertainties vary across options for new capacity


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Technology choices for new generating capacity are based largely on capital, operating, and transmission costs [134]. Coal, nuclear, and wind plants are capital-intensive (Figure 80), whereas operating (fuel) expenditures make up most of the costs for natural gas plants. Capital costs depend on such factors as equipment costs, interest rates, and cost recovery periods, which vary with technology. Fuel costs vary with operating efficiency, fuel price, and transportation costs.

In addition to considerations of levelized costs [135], some technologies and fuels receive subsidies, such as production or ITCs. Also, new plants must satisfy local and federal emissions standards and must be compatible with the utility's load profile.

Regulatory uncertainty also affects capacity planning. New coal plants may require carbon control and sequestration equipment, resulting in higher material, labor, and operating costs. Alternatively, coal plants without carbon controls could incur higher costs for siting and permitting. Because nuclear and renewable power plants (including wind plants) do not emit GHGs, their costs are not directly affected by regulatory uncertainty in this area.

Capital costs can decline over time as developers gain technology experience, with the largest rate of decline observed in new technologies. In the AEO2013 Reference case, the capital costs of new technologies are adjusted upward initially to compensate for the optimism inherent in early estimates of project costs, then decline as project developers gain experience. The decline continues at a progressively slower rate as more units are built. Operating efficiencies also are assumed to improve over time, resulting in reduced variable costs unless increases in fuel costs exceed the savings from efficiency gains.

Natural gas prices rise with an expected increase in production costs after 2015


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U.S. natural gas prices have remained relatively low over the past several years as a result of abundant domestic supply and efficient methods of production. However, the cost of developing new incremental production needed to support continued growth in natural gas consumption and exports rises gradually in the AEO2013 Reference case, leading to an increase in the Henry Hub spot price. Henry Hub spot prices for natural gas increase by an average of about 2.4 percent per year, to $7.83 per million Btu (2011 dollars) in 2040 (Figure 86).

As of January 1, 2011, total proved and unproved U.S. natural gas resources (total recoverable resources) were estimated to total 2,327 trillion cubic feet. Over time, however, the depletion of resources in inexpensive areas leads producers to basins where recovery of the gas is more difficult and more expensive, causing the cost of production to rise gradually.

In the Reference case, natural gas prices remain low at the beginning of the projection period, as producers continue to extract natural gas resources from the most productive and inexpensive areas. Drilling activity remains robust despite the relatively low prices (below $4 per million Btu), particularly as producers extract natural gas from areas with high contents of NGL or oil. Prices begin to rise after 2015, and they continue rising in the projection through 2040.

Energy from natural gas remains far less expensive than energy from oil through 2040


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The ratio of oil prices to natural gas prices is defined in terms of the Brent crude oil price and the Henry Hub spot natural gas price on an energy-equivalent basis. U.S. natural gas prices are determined largely on a regional basis, in response to supply and demand conditions in North America. Oil prices are more responsive to global supply and demand. A 1:1 ratio indicates that crude oil and natural gas cost the same in terms of energy content. On that basis, crude oil remains far more expensive than natural gas through 2040 (Figure 87), but the difference in the costs of the two fuels narrows over time.

With rising demand and production costs, both crude oil and natural gas prices increase through 2040; however, the oil price rises more slowly than the natural gas price, bringing the oil-to-gas price ratio down from its 2012 level. Low natural gas prices, the result of abundant domestic supply and weak winter demand, combined with high oil prices, caused a sharp rise in the oil-to-gas price ratio in 2012.

Natural gas prices nearly double in the AEO2013 Reference case, from $3.98 per million Btu in 2011 to $7.83 in 2040 (2011 dollars), and oil prices increase by about 50 percent, to $28.05 per million Btu in 2040. Over the entire period, the ratio remains well above the levels of the two previous decades. Oil and natural gas prices were more strongly aligned until about 2006, and the ratio of oil prices to natural gas prices was lower. Since 2006, however, natural gas prices have fallen as a result of abundant domestic supplies and production. In contrast, oil prices have increased and remained relatively high as global demand has increased over the past several years.

U.S. natural gas production is affected by oil prices through consumption and exports


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U.S. natural gas production is affected by crude oil prices primarily through changes in natural gas consumption and exports. Across the AEO2013 oil price cases, the largest changes in natural gas use occur in natural gas converted into liquid fuels via GTL, directly consumed in transportation as CNG or LNG, and exported as LNG. Because world LNG prices are directly affected by crude oil prices, depending on regional market conditions, crude oil prices are important to the market value of LNG exported from the United States.

The profitability of using natural gas as a transportation fuel, or for exporting LNG, depends largely on the price differential between crude oil and natural gas. The greater the difference between crude oil and natural gas prices, the greater the incentive to use natural gas. For example, in the Low Oil Price case, average oil prices are about $7.80 per million Btu higher than natural gas prices from 2012 through 2040—a relatively low price differential that leads to virtually no use of natural gas for transportation and very little for LNG exports. In the High Oil Price case, the average price difference is about $24.30 per million Btu from 2012 through 2040, providing the incentives necessary to promote natural gas use in transportation applications and for export.

Across the price cases, total natural gas production varies by 5.6 trillion cubic feet in 2040 (Figure 90). Changes in LNG exports account for 3.6 trillion cubic feet of the difference. Direct consumption of natural gas for transportation varies by 2.1 trillion cubic feet between the two cases, and consumption for GTL production varies by 1.1 trillion cubic feet. Across the price cases, as natural gas production rises, so do natural gas prices; and as natural gas prices rise, consumption in the other end-use sectors falls by as much as 2.5 trillion cubic feet.

Increasing U.S. supply results in decreasing net imports of petroleum and other liquids


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The net import share of U.S. petroleum and other liquids consumption (including crude oil, petroleum liquids, and liquids derived from nonpetroleum sources) grew steadily from the mid-1980s to 2005 but has fallen in every year since then. In the AEO2013 Reference and High Oil Price cases, U.S. imports of petroleum and other liquids decline through 2020, while still providing approximately one-third of total U.S. supply. As a result of increased production of domestic petroleum, primarily from tight oil formations, and a moderation of demand growth with tightening fuel efficiency standards, the import share of total supply declines. Domestic production of crude oil from tight oil formations, primarily from the Williston, Western Gulf, and Permian basins, increases by about 1.5 million barrels per day from 2011 to 2016 in both the Reference and High Oil Price cases.

The net import share of U.S. petroleum and other liquids consumption, which fell from 60 percent in 2005 to 45 percent in 2011, continues to decline in the Reference case, with the net import share falling to 34 percent in 2019 before increasing to 37 percent in 2040 (Figure 99). In the High Oil Price case, the net import share falls to an even lower 27 percent in 2040. In the Low Oil Price case, the net import share remains relatively flat in the near term but rises to 51 percent in 2040, as domestic demand increases, and imports become less expensive than domestically produced crude oil.

As a result of increased domestic production and slow growth in consumption, the United States becomes a net exporter of petroleum products, with net exports in the Reference case increasing from 0.3 million barrels per day in 2011 to 0.7 million barrels per day in 2040. In the High Oil Price case, net exports of petroleum products increase to 1.2 million barrels per day in 2040.

Expected declines in mining productivity lead to further increases in average minemouth prices


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In the AEO2013 Reference case, the average real minemouth price for U.S. coal increases by 1.4 percent per year, from $2.04 per million Btu in 2011 to $3.08 in 2040, continuing the upward trend in coal prices that began in 2000 (Figure 106). A key factor underlying the higher coal prices in the projection is an expectation that coal mining productivity will continue to decline, but at slower rates than during the 2000s.

In the Appalachian region, the average minemouth coal price increases by 1.5 percent per year from 2011 to 2040. In addition to continued declines in coal mining productivity, the higher price outlook for the Appalachian region reflects a shift to higher-value coking coal, resulting from the combination of growing exports of coking coal and declining shipments of steam/thermal coal to domestic markets. Recent increases in the average price of Appalachian coal, from $1.31 per million Btu in 2000 to $3.33 per million Btu in 2011, in part as a result of significant declines in mining productivity over the past decade, have substantially reduced the competitiveness of Appalachian coal with coal from other regions.

In the Western and Interior coal supply regions, declines in mining productivity, combined with increasing production, lead to increases in the real minemouth price of coal, averaging 2.3 percent per year for the Western region and 1.2 percent per year for the Interior region from 2011 to 2040.

In two alternative coal cost cases developed for AEO2013, the average U.S. minemouth coal price in 2040 is as low as $1.70 per million Btu in the Low Coal Cost case (45 percent below the Reference case) and as high as $6.20 per million Btu in the High Coal Cost case (101 percent higher than in the Reference case). Results for the two cases, which are based on different assumptions about mining productivity, labor costs, mine equipment costs, and coal transportation rates, are provided in Appendix D.

 

Prices from Issues in Focus

1. No sunset and extended policies cases

Background

The AEO2013 Reference case is best described as a current laws and regulations case because it generally assumes that existing laws and regulations remain unchanged throughout the projection period, unless the legislation establishing them sets a sunset date or specifies how they will change. The Reference case often serves as a starting point for analysis of proposed changes in legislation or regulations. While the definition of the Reference case is relatively straightforward, there may be considerable interest in a variety of alternative cases that reflect updates or extensions of current laws and regulations. Areas of particular interest include:

  • Laws or regulations that have a history of being extended beyond their legislated sunset dates. Examples include the various tax credits for renewable fuels and technologies, which have been extended with or without modifications several times since their initial implementation.
  • Laws or regulations that call for periodic updating of initial specifications. Examples include appliance efficiency standards issued by the U.S. Department of Energy (DOE) and CAFE and greenhouse gas (GHG) emissions standards for vehicles issued by the National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA).
  • Laws or regulations that allow or require the appropriate regulatory agency to issue new or revised regulations under certain conditions. Examples include the numerous provisions of the Clean Air Act that require EPA to issue or revise regulations if it finds that an environmental quality target is not being met.

Two alternative cases are discussed in this section to provide some insight into the sensitivity of results to scenarios in which existing tax credits or other policies do not sunset. No attempt is made to cover the full range of possible uncertainties in these areas, and readers should not view the cases discussed as EIA projections of how laws or regulations might or should be changed. The cases examined here look only at federal laws or regulations and do not examine state laws or regulations.

Analysis cases

The two cases prepared—the No Sunset case and the Extended Policies case—incorporate all the assumptions from the AEO2013 Reference case, except as identified below. Changes from the Reference case assumptions include the following.

No Sunset case

Tax credits for renewable energy sources in the utility, industrial, and buildings sectors, or for energy-efficient equipment in the buildings sector, are assumed to be extended, including the following:

  • The PTC of 2.2 cents per kilowatthour and the 30-percent investment tax credit (ITC) available for wind, geothermal, biomass, hydroelectric, and landfill gas resources, assumed in the Reference case to expire at the end of 2012 for wind and 2013 for the other eligible resources, are extended indefinitely. On January 1, 2013, Congress passed a one-year extension of the PTC for wind and modified the qualification rules for all eligible technologies; these changes are not included in the AEO2013 Reference case, which was completed in December 2012, but they are discussed in "Effects of energy provisions in the American Taxpayer Relief Act of 2012".
  • For solar power investments, a 30-percent ITC that is scheduled to revert to a 10-percent credit in 2016 is, instead, assumed to be extended indefinitely at 30 percent.
  • In the buildings sector, personal tax credits for the purchase of renewable equipment, including photovoltaics (PV), are assumed to be extended indefinitely, as opposed to ending in 2016 as prescribed by current law. The business ITCs for commercial-sector generation technologies and geothermal heat pumps are assumed to be extended indefinitely, as opposed to expiring in 2016; and the business ITC for solar systems is assumed to remain at 30 percent instead of reverting to 10 percent. On January 1, 2013, legislation was enacted to reinstate tax credits for energy-efficient homes and selected residential appliances. The tax credits that had expired on December 31, 2011, are now extended through December 31, 2013. This change is not included in the Reference case.
  • In the industrial sector, the 10-percent ITC for combined heat and power (CHP) that ends in 2016 in the AEO2013 Reference case [65] is assumed to be preserved through 2040, the end of the projection period.

Extended Policies case

The Extended Policies case includes additional updates to federal equipment efficiency standards that were not considered in the Reference case or No Sunset case. Residential and commercial end-use technologies eligible for incentives in the No Sunset case are not subject to new standards. Other than those exceptions, the Extended Policies case adopts the same assumptions as the No Sunset case, plus the following:

  • Federal equipment efficiency standards are assumed to be updated at periodic intervals, consistent with the provisions in existing law, at levels based on ENERGY STAR specifications or on the Federal Energy Management Program purchasing guidelines for federal agencies, as applicable. Standards are also introduced for products that currently are not subject to federal efficiency standards.
  • Updated federal energy codes for residential and commercial buildings increase by 30 percent in 2020 compared to the 2006 International Energy Conservation Code in the residential sector and the American Society of Heating, Refrigerating and Air-Conditioning Engineers Building Energy Code 90.1-2004 in the commercial sector. Two subsequent rounds in 2023 and 2026 each add an assumed 5-percent incremental improvement to building energy codes. The equipment standards and building codes assumed for the Extended Policies case are meant to illustrate the potential effects of those policies on energy consumption for buildings. No cost-benefit analysis or evaluation of impacts on consumer welfare was completed in developing the assumptions. Likewise, no technical feasibility analysis was conducted, although standards were not allowed to exceed the "maximum technologically feasible" levels described in DOE's technical support documents.
  • The AEO2013 Reference, No Sunset, and Extended Policies cases include both the attribute-based CAFE standards for light-duty vehicles (LDVs) in model year (MY) 2011 and the joint attribute-based CAFE and vehicle GHG emissions standards for MY 2012 to MY 2025. The Reference and No Sunset cases assume that the CAFE standards are then held constant at MY 2025 levels in subsequent model years, although the fuel economy of new LDVs continues to rise modestly over time. The Extended Policies case modifies the assumption in the Reference and No Sunset cases, assuming continued increases in CAFE standards after MY 2025. CAFE standards for new LDVs are assumed to increase by an annual average rate of 1.4 percent.
  • In the industrial sector, the ITC for CHP is extended to cover all properties with CHP, no matter what the system size (instead of being limited to properties with systems smaller than 50 megawatts as in the Reference case [66]), which may include multiple units. Also, the ITC is modified to increase the eligible CHP unit cap to 25 megawatts from 15 megawatts. These extensions are consistent with previously proposed legislation.

Analysis results

The changes made to the Reference case assumptions in the No Sunset and Extended Policies cases generally lead to lower estimates for overall energy consumption, increased use of renewable fuels particularly for electricity generation and reduced energy-related carbon dioxide (CO2) emissions. Because the Extended Policies case includes most of the assumptions in the No Sunset case but adds others, the effects of the Extended Policies case tend to be greater than those in the No Sunset case—but not in all cases, as discussed below. Although these cases show lower energy prices, because the tax credits and end-use efficiency standards lead to lower energy demand and reduce the costs of renewable technologies, appliance purchase costs are also affected. In addition, the government receives lower tax revenues as consumers and businesses take advantage of the tax credits.

Energy consumption

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Total energy consumption in the No Sunset case is close to the level in the Reference case (Figure 13). Improvements in energy efficiency lead to reduced consumption in this case, but somewhat lower energy prices lead to relatively higher levels of consumption, partially offsetting the impact of improved efficiency. In 2040, total energy consumption in the Extended Policies case is 3.8 percent below the Reference case projection.

Buildings energy consumption

Renewable distributed generation (DG) technologies (PV systems and small wind turbines) provide much of the buildings-related energy savings in the No Sunset case. Extended tax credits in the No Sunset case spur increased adoption of renewable DG, leading to 61 billion kilowatthours of onsite electricity generation from DG systems in 2025, compared with 28 billion kilowatthours in the Reference case. Continued availability of the tax credits results in 137 billion kilowatthours of onsite electricity generation in 2040 in the No Sunset case—more than three times the amount of onsite electricity generated in 2040 in the Reference case. Similar adoption of renewable DG occurs in the Extended Policies case. With the additional efficiency gains from assumed future standards and more stringent building codes, delivered energy consumption for buildings is 3.9 percent (0.8 quadrillion British thermal units [Btu]) lower in 2025 and 8.0 percent (1.7 quadrillion Btu) lower in 2040 in the Extended Policies case than in the Reference case. The reduction in 2040 is more than seven times as large as the 1.1-percent (0.2 quadrillion Btu) reduction in the No Sunset case.

Electricity use shows the largest reduction in the two alternative cases compared to the Reference case. Building electricity consumption is 1.3 percent and 5.8 percent lower, respectively, in the No Sunset and Extended Policies cases in 2025 and 2.1 percent and 8.7 percent lower, respectively, in 2040 than in the Reference case, as onsite generation continues to increase and updated standards affect a greater share of the equipment stock in the Extended Policies case. Space heating and cooling are affected by the assumed standards and building codes, leading to significant savings in energy consumption for heating and cooling in the Extended Policies case. In 2040, delivered energy use for space heating in buildings is 9.6 percent lower, and energy use for space cooling is 20.3 percent lower, in the Extended Policies case than in the Reference case. In addition to improved standards and codes, extended tax credits for PV prompt increased adoption, offsetting some of the costs for purchased electricity for cooling. New standards for televisions and for personal computers and related equipment in the Extended Policies case lead to savings of 28.3 percent and 31.8 percent, respectively, in residential electricity use for this equipment in 2040 relative to the Reference case. Residential and commercial natural gas use declines from 8.1 quadrillion Btu in 2011 to 7.8 quadrillion Btu in 2025 and 7.2 quadrillion Btu in 2040 in the Extended Policies case, representing a 2.2-percent reduction in 2025 and a 8.5-percent reduction in 2040 relative to the Reference case.

Industrial energy consumption

The No Sunset case modifies the Reference case assumptions by extending the existing ITC for industrial CHP through 2040. The Extended Policies case starts from the No Sunset case and expands the credit to include industrial CHP systems of all sizes and raises the maximum credit that can be claimed from 15 megawatts of installed capacity to 25 megawatts. The changes result in 1.6 gigawatts of additional industrial CHP capacity in the No Sunset case compared with the Reference case in 2025 and 3.5 gigawatts of additional capacity in 2040. From 2025 through 2040, more CHP capacity is installed in the No Sunset case than in the Extended Policy case. CHP capacity is 0.3 gigawatts higher in the No Sunset Case than in the Extended Policies Case in 2025 and 1.2 gigawatts higher in 2040. Although the Extended Policies case includes a higher tax benefit for CHP than the No Sunset case, which by itself provides greater incentive to build CHP capacity, electricity prices are lower in the Extended Policies case than in the No Sunset case starting around 2020, and the difference increases over time. Lower electricity prices, all else equal, reduce the economic attractiveness of CHP. Also, the median size of industrial CHP units size is 10 megawatts [67], and many CHP systems are well within the 50-megawatt total system size, which means that relaxing the size constraint is not as strong an incentive for investment as is allowing the current tax credit for new CHP investments to continue after 2016.

Natural gas consumption averages 9.7 quadrillion Btu per year in the industrial sector from 2011 to 2040 in the No Sunset case—about 0.1 quadrillion Btu, or 0.9 percent, above the level in the Reference case. Over the course of the projection, the difference in natural gas consumption between the No Sunset case and the Reference case is small but increases steadily. In 2025, natural gas consumption in the No Sunset case is approximately 0.1 quadrillion Btu higher than in the Reference Case, and in 2040 it is 0.2 quadrillion Btu higher. Natural gas consumption in the Extended Policies case is virtually the same as in the No Sunset case through 2030. After 2030, refinery use of natural gas stabilizes in the Extended Policies case as continued increases in CAFE standards reduce demand for petroleum products.

Transportation energy consumption

The Extended Policies case differs from the Reference and No Sunset cases in assuming that the CAFE standards recently finalized by EPA and NHTSA for MY 2017 through 2025 (which call for a 4.1-percent annual average increase in fuel economy for new LDVs) are extended through 2040 with an assumed average annual increase of 1.4 percent. Sales of vehicles that do not rely solely on a gasoline internal combustion engines for both motive and accessory power (including those that use diesel, alternative fuels, or hybrid electric systems) play a substantial role in meeting the higher fuel economy standards after 2025, growing to almost 72 percent of new LDV sales in 2040, compared with about 49 percent in the Reference case.

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LDV energy consumption declines in the Reference case from 16.1 quadrillion Btu (8.7 million barrels per day) in 2011 to 14.0 quadrillion Btu (7.7 million barrels per day) in 2025 as a result of the increase in CAFE standards. Extension of the increases in CAFE standards in the Extended Policies case further reduces LDV energy consumption to 11.9 quadrillion Btu (6.5 million barrels per day) in 2040, or about 8 percent lower than in the Reference case. Petroleum and other liquid fuels consumption in the transportation sector is virtually identical through 2025 in the Reference and Extended Policies cases but declines in the Extended Policies case from 13.3 million barrels per day in 2025 to 12.3 million barrels per day in 2040, as compared with 13.0 million barrels per day in 2040 in the Reference case (Figure 14).

Renewable electricity generation

The extension of tax credits for renewables through 2040 would, over the long run, lead to more rapid growth in renewable generation than in the Reference case. When the renewable tax credits are extended without extending energy efficiency standards, as assumed in the No Sunset case, there is a significant increase in renewable generation in 2040 compared to the Reference case (Figure 15). Extending both renewable tax credits and energy efficiency standards in the Extended Policies case results in more modest growth in renewable generation, because renewable generation is a significant source of new generation to meet load growth, and enhanced energy efficiency standards tend to reduce overall electricity consumption and the need for new generation resources.

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The AEO2013 Reference case does not reflect the provisions of the American Taxpayer Relief Act of 2012 (P.L. 112-240) passed on January 1, 2013 [68], which extends the PTCs for renewable generation beyond what is included in the AEO2013 Reference case. While this legislation was completed too late for inclusion in the Reference case, EIA did complete an alternative case that examined key energy-related provisions of that legislation, the most important of which is the extension of the PTC for renewable generation. A brief summary of those results is presented in the box, "Effects of energy provisions in the American Taxpayer Relief Act of 2012."

Effects of energy provisions in the American Taxpayer Relief Act of 2012

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (ATRA). The law, among other things, extended several provisions for tax credits to the energy sector. Although the law was passed too late to be incorporated in the Annual Energy Outlook 2013 (AEO2013) Reference case, a special case was prepared to analyze some of its key provisions, including the extension of tax credits for utility-scale renewables, residential energy efficiency improvements, and biofuels [69]. The analysis found that the most significant impact on energy markets came from extending the production tax credits (PTCs) for utility-scale wind, and from changing the PTC qualification criteria from being in service on December 31, 2013, to being under construction by December 31, 2013, for all eligible utility-scale technologies. Although there is some uncertainty about what criteria will be used to define "under construction," this analysis assumes that the effective length of the extension is equal to the typical project development time for a qualifying project. For wind, the effective extension is 3 years.

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Compared with the AEO2013 Reference case, ATRA increases renewable generation, primarily from wind (Figure 16). Renewable generation in 2040 is about 2 percent higher in the ATRA case than in the Reference case, with the greatest growth occurring in the near term. In 2016, renewable generation in the ATRA case exceeds that in the Reference case by nearly 9 percent. Almost all the increase comes from wind generation, which in 2016 is about 34 percent higher in the ATRA case than in the Reference case. In 2040, however, wind generation is only 17 percent higher than projected in the Reference case. These results indicate that, while the short-term extension does result in additional wind generation capacity, some builds that otherwise would occur later in the projection period are moved up in time to take advantage of the extended tax credit. The increase in wind generation partially displaces other forms of generation in the Reference case, both renewable and nonrenewable—particularly solar, biomass, coal, and natural gas.

ATRA does not have significant effects on electricity or delivered natural gas prices and generally does not result in a difference of more than 1 percent either above or below Reference case prices. In the longer term (beyond 2020), electricity and natural gas prices generally both are slightly lower in the ATRA case, as increased wind capacity reduces variable fuel costs in the power sector and reduces the demand for natural gas.

Other ATRA provisions analyzed had minimal impact on all energy measures, primarily limited to short-term reductions in renewable fuel prices and a one-year window for residential customers to get tax credits for certain efficiency expenditures. Provisions of the act not addressed in this analysis are likely to have only modest impacts because of their limited scale, scope, and timing.

In the No Sunset and Extended Policies cases, renewable generation more than doubles from 2011 to 2040, as compared with a 64-percent increase in the Reference case. In 2040, the share of total electricity generation accounted for by renewables is between 22 and 23 percent in both the No Sunset and Extended Policies cases, as compared with 16 percent in the Reference case.

Construction of wind-generation units slows considerably in the Reference case from recent construction rates, following the assumed expiration of the tax credit for wind power in 2012. The combination of slow growth in electricity demand, little impact from state-level renewable generation requirements, and low prices for competing fuels like natural gas keeps growth relatively low until around 2025, when load growth finally catches up with installed capacity, and natural gas prices increase to a level at which wind is a cost-competitive option in some regions. Extending the PTC for wind spurs a brief surge in near-term development by 2014, but the factors that limit development through 2025 in the Reference case still largely apply, and growth from 2015 to about 2025 is slow, in spite of the availability of tax credits during the 10-year period. When the market picks up again after 2025, availability of the tax credits spurs additional wind development over Reference case levels. Wind generation in the No Sunset case is about 27 percent higher than in the Reference case in 2025 and 86 percent higher in 2040.

In the near term, the continuation of tax credits for solar generation results in a continuation of recent growth trends for this resource. The solar tax credits are assumed to expire in 2016 in the Reference case, after which the growth of solar generation slows significantly. Eventually, economic conditions become favorable for utility-scale solar without the federal tax credits, and the growth rate picks up substantially after 2025. With the extension of the ITC, growth continues throughout the projection period. Solar generation in the No Sunset case in 2040 is more than 30 times the 2011 level and more than twice the level in 2040 in the Reference case.

The impacts of the tax credit extensions on geothermal and biomass generation are mixed. Although the tax credits do apply to both geothermal and biomass resources, the structure of the tax credits, along with other market dynamics, makes wind and solar projects relatively more attractive. Over most of the projection period, geothermal and biomass generation are lower with the tax credits available than in the Reference case. In 2040, generation from both resources in the No Sunset and Extended Policies cases is less than 10 percent below the Reference case levels. However, generation growth lags significantly through 2020 with the tax credit extensions, and generation in 2020 from both resources is about 20 percent lower in the No Sunset and Extended Policy cases than in the Reference case.

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After 2025, renewable generation in the No Sunset and Extended Policies cases starts to increase more rapidly than in the Reference case. As a result, generation from nuclear and fossil fuels is below Reference case levels. Natural gas represents the largest source of displaced generation. In 2040, electricity generation from natural gas is 13 percent lower in the No Sunset case and 16 percent lower in the Extended Policies case than in the Reference case (Figure 17).

Energy-related CO2 emissions

In the No Sunset and Extended Policies cases, lower overall fossil energy use leads to lower levels of energy-related CO2 emissions than in the Reference case. In the Extended Policies case, the emissions reduction is larger than in the No Sunset case. From 2011 to 2040, energy-related CO2 emissions are reduced by a cumulative total of 4.6 billion metric tons (a 2.8-percent reduction over the period) in the Extended Policies case relative to the Reference case projection, as compared with 1.7 billion metric tons (a 1.0-percent reduction over the period) in the No Sunset case (Figure 18). The increase in fuel economy standards assumed for new LDVs in the Extended Policies case is responsible for 11.4 percent of the total cumulative reduction in CO2 emissions from 2011 to 2040 in comparison with the Reference case. The balance of the reduction in CO2 emissions is a result of greater improvement in appliance efficiencies and increased penetration of renewable electricity generation.

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Most of the emissions reductions in the No Sunset case result from increases in renewable electricity generation. Consistent with current EIA conventions and EPA practice, emissions associated with the combustion of biomass for electricity generation are not counted, because they are assumed to be balanced by carbon absorption when the plant feedstock is grown. Relatively small incremental reductions in emissions are attributable to renewables in the Extended Policies case, mainly because electricity demand is lower than in the Reference case, reducing the consumption of all fuels used for generation, including biomass.

In both the No Sunset and Extended Policies cases, water heating, space cooling, and space heating together account for most of the emissions reductions from Reference case levels in the buildings sector. In the industrial sector, the Extended Policies case projects reduced emissions as a result of decreases in electricity purchases and petroleum use.

Energy prices and tax credit payments

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With lower levels of fossil energy use and more consumption of renewable fuels stimulated by tax credits in the No Sunset and Extended Policies cases, energy prices are lower than in the Reference case. In 2040, average delivered natural gas prices (2011 dollars) are $0.29 per million Btu (2.7 percent) and $0.59 per million Btu (5.4 percent) lower in the No Sunset and Extended Policies cases, respectively, than in the Reference case (Figure 19), and electricity prices are 3.9 percent and 6.3 percent lower than in the Reference case (Figure 20).

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The reductions in energy consumption and CO2 emissions in the Extended Policies case are accompanied by higher equipment costs for consumers and revenue reductions for the U.S. government. From 2013 to 2040, residential and commercial consumers spend, on average, an additional $20 billion per year (2011 dollars) for newly purchased end-use equipment, DG systems, and residential building shell improvements in the Extended Policies case as compared with the Reference case. On the other hand, residential and commercial customers save an average of $30 billion per year on energy purchases.

Tax credits paid to consumers in the buildings sector (or, from the government's perspective, reduced revenue) in the No Sunset case average $4 billion (2011 dollars) more per year than in the Reference case, which assumes that existing tax credits expire as currently scheduled, mostly by 2016.

The largest response to federal tax incentives for new renewable generation is seen in the No Sunset case, with extension of the PTC and the 30-percent ITC resulting in annual average reductions in government tax revenues of approximately $2.3 billion from 2011 to 2040, as compared with $650 million per year in the Reference case.

2. Oil price and production trends in AEO2013

The benchmark oil price in AEO2013 is based on spot prices for Brent crude oil (commonly cited as Dated Brent in trade publications), an international benchmark for light sweet crude oil. The West Texas Intermediate (WTI) price has diverged from Brent and other benchmark prices over the past few years as a result of rapid growth in U.S. midcontinent and Canadian oil production, which has overwhelmed the transportation infrastructure needed to move crude oil from Cushing, Oklahoma, where WTI is quoted, to the Gulf Coast. EIA expects the WTI discount to the Brent price level to decrease over time as additional pipeline projects come on line, and will continue to report WTI prices (a critical reference point for the value of growing production in the U.S. midcontinent), as well as imported refiner acquisition costs (IRAC).

AEO2013 projections of future oil supply include two broad categories: petroleum liquids and other liquid fuels. The term petroleum liquids refers to crude oil and lease condensate—which includes tight oil, shale oil, extra-heavy crude oil, and bitumen (i.e., oil sands, either diluted or upgraded), plant condensate, natural gas plant liquids (NGPL), and refinery gain. The term other liquids refers to oil shale (i.e., kerogen-to-liquids), gas-to-liquids (GTL), coal-to-liquids (CTL), and biofuels (including biomass-to-liquids).

The key factors determining long-term supply, demand, and prices for petroleum and other liquids can be summarized in four broad categories: the economics of non-Organization of the Petroleum-Exporting Countries (OPEC) petroleum liquids supply; OPEC investment and production decisions; the economics of other liquids supply; and world demand for petroleum and other liquids.


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To reflect the significant uncertainty associated with future oil prices, EIA develops three price cases that examine the potential impacts of different oil price paths on U.S. energy markets (Figure 21). The three price cases are developed by adjusting the four key factors described above. The following sections discuss the adjustments made in AEO2013. Each price case represents one of potentially many combinations of supply and demand that would result in the same price path. EIA does not assign probabilities to any of the oil price cases.

Because EIA's oil price paths represent market equilibrium between supply and demand in terms of annual average prices, they do not show the price volatility that occurs over days, months, or years. As a frame of reference, over the past two decades, volatility within a single year has averaged about 30 percent [70]. Although that level of volatility could continue, the alternative oil price cases in AEO2013 assume smaller near-term price variation than in previous AEOs, because larger near-term price swings are expected to lead to market changes in supply or demand that would dampen the price.


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The AEO2013 oil price cases represent internally consistent scenarios of world energy production, consumption, and economics. One interesting outcome of the three oil price cases is that, although the price paths diverge, interactions among the four key factors lead to nearly equal total volumes of world liquids supply in the three cases in the 2030 timeframe (Figure 22).

Reference case

Among the key factors defining the Reference case are the Organization for Economic Cooperation and Development (OECD) and non-OECD gross domestic product (GDP) growth rates and liquid fuels consumption per dollar of GDP. Both the OECD and non-OECD growth rates and liquids fuels consumption per dollar of GDP decline over the projection period in the Reference case. OPEC continues restricting production in a manner that keeps its market share of total liquid fuels production between 39 percent and 43 percent for most of the projection, rising to 43 percent in the final years. Most other liquid fuels production technologies are economical at Reference case prices. In the Reference case, the Brent price declines to $96 per barrel in 2015 and then increases over the remainder of the period, to $163 per barrel in 2040, as a result of demand increases and supply pressures.

OPEC production in the Reference case grows from 35 million barrels per day in 2011 to 48 million barrels per day in 2040 (Figure 23). Although the OPEC resource base is sufficient to support much higher production levels, the OPEC countries have an incentive to restrict production in order to support higher prices and sustain revenues in the long term. The Reference case assumes that OPEC will maintain a cohesive policy of limiting supply growth, rather than maximizing total annual revenues. The Reference case also assumes that no geopolitical events will cause prolonged supply shocks in the OPEC countries that could further limit production growth.


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Non-OPEC petroleum production grows significantly in the early years of the Reference case projection, to 55 million barrels per day in 2020 from 50 million barrels per day in 2011, primarily as a result of increased production from tight oil formations. After 2020, production growth continues at a slower pace, adding another 4 million barrels per day to net production in 2040, with production from new wells increasing slightly faster than the decline in production from existing wells. The growth in non-OPEC production results primarily from the development of new fields and the application of new technologies, such as enhanced oil recovery (EOR), horizontal drilling, and hydraulic fracturing, which increase recovery rates from existing fields. The average cost per barrel of non-OPEC oil production rises as production volumes increase, and the rising costs dampen further production growth.

Non-OPEC production of other liquids grows from 1.8 million barrels per day in 2011 to 4.6 million barrels per day in 2040, as Brent crude oil prices remain sufficiently high to make other liquids production technologies economically feasible. Non-OPEC liquids production in the Reference case totals 58 million barrels per day in 2020, 61 million barrels per day in 2030, and 64 million barrels per day in 2040.

Low Oil Price case

The AEO2013 Low Oil Price case assumes slower GDP growth for the non-OECD countries than in the Reference case. OPEC is less successful in restricting production in the Low Oil Price case, and as a result its share of total world liquids production increases to 49 percent in 2040. Despite lower Brent prices than in the Reference case, non-OPEC petroleum production levels are maintained at roughly 54 million barrels per day through 2030. After 2030, total non-OPEC production declines as existing fields are depleted and not fully replaced by production from new fields and more costly EOR technologies. With higher average costs for resource development in the non-OPEC countries, the Brent crude oil price in the Low Oil Price case is not sufficient to make all undeveloped fields economically viable. Non-OPEC petroleum production rises slightly in the projection, to 54 million barrels per day, before returning to roughly current levels of 51 million barrels per day in 2040. Non-OPEC production of other liquids grows more rapidly than in the Reference case, and in 2040 it is 25 percent higher than projected in the Reference case.

Brent crude oil prices fall below $80 per barrel in 2015 in the Low Oil Price case and decline further to just below $70 per barrel in 2017, followed by a slow increase to $75 per barrel in 2040. In the near term, extra supply enters the market, and lower economic growth in the non-OECD countries leads to falling prices. The higher levels of OPEC petroleum production assumed in the Low Oil Price case keep prices from increasing appreciably in the long term.

OPEC's ability to support higher oil prices is weakened by its inability to limit production as much as in the Reference case. Lower prices squeeze the revenues of OPEC members, increasing their incentive to produce beyond their quotas. As a result, OPEC liquids production increases to 54 million barrels per day in 2040. The lower prices in the Low Oil Price case cause a decline in OPEC revenue to the lowest level among the three cases, illustrating the relatively strong incentive for OPEC members to restrict supply.

High Oil Price case

In the High Oil Price case, non-OECD GDP growth is more rapid than projected in the Reference case, and liquid fuels consumption per unit of GDP in the non-OECD countries declines more slowly than in the Reference case. Continuing restrictions on oil production keep the OPEC market share of total liquid fuels production between 37 and 40 percent, with total oil production about 1.0 million barrels per day lower than in the Reference case. Despite higher Brent oil prices, non-OPEC petroleum production initially expands at about the same rate as in the Reference case because of limited access to existing resources and lower discovery rates. Non-OPEC production of other liquids grows strongly in response to higher prices, rising to 8 million barrels per day in 2040.

Brent crude oil prices in the High Oil Price case increase to $155 per barrel in 2020 and $237 per barrel in 2040 in reaction to very high demand for liquid fuels in the non-OECD countries. The robust price increase keeps total world demand within the range of expected production capabilities.

4. Competition between coal and natural gas in the electric power sector

Over the past 20 years, natural gas has been the go-to fuel for new electricity generation capacity. From 1990 to 2011, natural gas-fired plants accounted for 77 percent of all generating capacity additions, and many of the plants added were very efficient combined-cycle plants. However, with slow growth in electricity demand and spikes in natural gas prices between 2005 and 2008, much of the added capacity was used infrequently. Since 2009 natural gas prices have been relatively low, making efficient natural gas-fired combined-cycle plants increasingly competitive to operate in comparison with existing coal-fired plants, particularly in the Southeast and other regions where they have been used to meet demand formerly served by coal-fired plants. In 2012, as natural gas prices reached historic lows, there were many months when natural gas displacement of coal-fired generation was widespread nationally.

In the AEO2013 Reference case, the competition between coal and natural gas in electricity generation is expected to continue in the near term, particularly in certain regions. However, because natural gas prices are projected to increase more rapidly than coal prices, existing coal plants gradually recapture some of the market lost in recent years. Natural gas-fired plants continue to be the favored source for new generating capacity over much of the projection period because of their relatively low costs and high efficiencies. The natural gas share of total electricity generation increases in the Reference case from 24 percent in 2011 to 30 percent in 2040. Coal remains the largest source of electricity generation, but its share of total electricity generation, which was 51 percent in 2003, declines from 42 percent in 2011 to 35 percent in 2040.

At any point, short-term competition between existing coal- and gas-fired generators—i.e., the decisions determining which generators will be dispatched to generate electricity—depends largely on the relative operating costs for each type of generation, of which fuel costs are a major portion. A second aspect of competition occurs over the longer term, as developers choose which fuels and technologies to use for new capacity builds and whether or not to make mandated or optional upgrades to existing plants. The natural gas or coal share of total generation depends both on the available capacity of each fuel type (affected by the latter type of competition) and on how intensively the capacity is operated.

There is significant uncertainty about future coal and natural gas prices, as well as about future growth in electricity demand, which determines the need for new generating capacity. In AEO2013, alternative cases with higher and lower coal and natural gas prices and variations in the rate of electricity demand growth are used to examine the potential impacts of those uncertainties. The alternative cases illustrate the influence of fuel prices and demand on dispatch and capacity planning decisions.

Recent history of price-based competition

In recent years, natural gas has come into dispatch-level competition with coal as the cost of operating natural gas-fired generators has neared the cost of operating coal-fired generators. A number of factors led to the growing competition, including:

  • A build-out of efficient combined-cycle capacity during the early 2000s, which in general was used infrequently until recently
  • Expansion of the natural gas pipeline network, reducing uncertainty about the availability of natural gas
  • Gains in natural gas production from domestic shale formations that have contributed to falling natural gas prices
  • Rising coal prices.

Until mid-2008, coal-fired generators were cheaper to operate than natural gas-fired generators in most applications and regions. Competition between available natural gas combined-cycle generators (NGCC) and generators burning eastern (Appalachian) and imported coal began in southeastern electric markets in 2009. Rough parity between NGCC and more expensive coal-fired plants continued until late 2011, when increased natural gas production led to a decline in the fuel price and, in the spring of 2012, a dramatic increase in competition between natural gas and even less expensive types of coal. With natural gas-fired generation increasing steadily, the natural gas share of U.S. electric power sector electricity generation was almost equal to the coal share for the first time in April 2012.

The following discussion focuses on the electric power sector, excluding other generation sources in the residential, commercial, and industrial end-use sectors. The industrial sector in particular may also respond to changes in coal and natural gas fuel prices by varying their level of development, but industrial users typically do not have the option to choose between the fuels as in the power sector, and there are fewer opportunities for direct competition between coal and natural gas for electricity generation.

Outlook for fuel competition in power generation.

The difference between average annual prices per million Btu for natural gas and coal delivered to U.S. electric power plants narrowed substantially in 2012, so that the fuel costs of generating power from NGCC units and coal steam turbines per megawatthour were essentially equal on a national average basis (Figure 26), given that combined-cycle plants are much more efficient than coal-fired plants. When the ratio of natural gas prices to coal prices is approximately 1.5 or lower, a typical natural gas-fired combined-cycle plant has lower generating costs than a typical coal-fired plant. In the Reference case projection, natural gas plants begin to lose competitive advantage over time, as natural gas prices increase relative to coal prices. Because fuel prices vary by region, and because there is also considerable variation in efficiencies across the existing fleet of both coal-fired and combined-cycle plants, dispatch-level competition between coal and natural gas continues.


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In the Reference case, coal-fired generation increases from 2012 levels and recaptures some of the power generation market lost to natural gas in recent years. The extent of that recovery varies significantly, however, depending on assumptions about the relative prices of the two fuels. The following alternative cases, which assume higher or lower availability or prices for natural gas and coal than in the Reference case are used to examine the likely effects of different market conditions:

  • The Low Oil and Gas Resource case assumes that the EUR per shale gas, tight gas, or tight oil well is 50 percent lower than in the Reference Case. In 2040, delivered natural gas prices to the electric power sector are 26 percent higher than in the Reference case.
  • The High Oil and Gas Resource case assumes that the EUR per shale gas, tight gas, or tight oil well is 100 percent higher than in the Reference case, and the maximum well spacing for shale gas, tight gas, and tight oil plays is assumed to be 40 acres. This case also assumes that the EUR for wells in the Alaska offshore and the Federal Gulf of Mexico is 50 percent higher than in the Reference case, that there is development of kerogen resources in the lower 48 states, and that the schedule for development of Alaskan resources is accelerated. In 2040, delivered natural gas prices are 39 percent lower than projected in the Reference case.
  • The High Coal Cost case assumes lower mine productivity and higher costs for labor, mine equipment, and coal transportation, which ultimately result in higher coal prices for electric power plants. In 2040, the delivered coal price is 77 percent higher than in the Reference case.
  • The Low Coal Cost case assumes higher mining productivity and lower costs for labor, mine equipment, and coal transportation, leading to lower coal prices for electric power plants. In 2040, the delivered coal price is 41 percent lower than in the Reference case.


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Figure 27 compares the ratio of average per-megawatthour fuel costs for NGCC plants and coal steam turbines at the national level across the cases. It illustrates the relative competitiveness of dispatching coal-fired steam turbines versus NGCC plants, including the differences in efficiency (heat rates) of the two types of generators. The ratio of natural gas to coal would be about 1.5 without considering the difference in efficiency. Higher coal prices or lower natural gas prices move the ratio closer to the line of competitive parity, where NGCC plants have more opportunities to displace coal-fired generators. In contrast, when coal prices are much lower than in the Reference case, or natural gas prices are much higher, the ratio is higher, indicating less likelihood of dispatch-level competition between coal and natural gas. In both the High Oil and Gas Resource case and the High Coal Cost case, the average NGCC plant is close to parity with, or more economical than, the average coal-fired steam turbine.

Capacity by plant type


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In all five cases, coal-fired generating capacity in 2025 (Figure 28) is below the 2011 total and remains lower through 2040 (Figure 29), as retirements outpace new additions of coal-fired capacity. Coal and natural gas prices are key factors in the decision to retire a power plant, along with environmental regulations and the demand for electricity. In the Low Oil and Gas Resource case and Low Coal Cost case, there are slightly fewer retirements than in the Reference case, as a higher fuel cost ratio for power generation is more favorable to coal-fired power plants. In the High Oil and Gas Resource case and High Coal Cost case, coal-fired plants are used less, and more coal-fired capacity is retired than in the Reference case. In the Reference case, 49 gigawatts of coal-fired capacity is retired from 2011 to 2040, compared with a range from 38 gigawatts to 73 gigawatts in the alternative cases. The interaction of fuel prices and environmental rules is a key factor in coal plant retirements. AEO2013 assumes that all coal-fired plants have flue gas desulfurization equipment (scrubbers) or dry sorbent injection systems installed by 2016 to comply with the Mercury and Air Toxics Standards. Higher coal prices, lower wholesale electricity prices (often tied to natural gas prices), and reduced use may make investment in such equipment uneconomical in some cases, resulting in plant retirements.


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In all the cases examined, new additions of coal-fired capacity from 2012 to 2040 total less than 15 gigawatts. For new builds, natural gas and renewables generally are more competitive than coal, and concerns surrounding potential future GHG legislation also dampen interest in new coal-fired capacity [82]. New capacity additions are not the most important factor in the competition between coal and natural gas for electricity generation. There is also significant dispatch-level competition in determining how intensively to operate existing coal-fired power plants versus new and existing natural gas-fired plants.

New natural gas-fired capacity, including combined-cycle units and combustion turbines, comprises the majority of new additions in the Reference case. The total capacity of all U.S. natural gas-fired power plants grows in each of the cases, but the levels vary depending on the relative fuel prices projected. Across the resource cases, NGCC capacity in 2025 ranges between 227 and 243 gigawatts, and in 2040 it ranges between 262 and 344 gigawatts, reflecting the impacts of fuel prices on the operating costs of new capacity.

New nuclear capacity and renewable capacity are affected primarily by changes in natural gas prices, with substantial growth in both technologies occurring in the Low Oil and Gas Resource case. Most of the increase occurs after 2025, when delivered natural gas prices in that case exceed $7 per million Btu, and the costs of the nuclear and renewable technologies have fallen from current levels. In this case, higher natural gas prices reduce the competitiveness of natural gas as a fuel for new capacity builds, leading to higher prices and lower demand for electricity. Total generating capacity is similar in the Reference case and the Low Oil and Gas Resource case, but the large amount of renewable capacity built in the Low Oil and Gas Resource case—particularly wind and solar—does not contribute as much generation as NGCC capacity toward meeting either electricity demand or reserve margin requirements.

Generation by fuel


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In the Reference case, coal-fired generation increases by an average of 0.2 percent per year from 2011 through 2040. Even though less capacity is available in 2040 than in 2011, the average capacity utilization of coal-fired generators increases over time. In recent years, as natural gas prices have fallen and natural gas-fired generators have displaced coal in the dispatch order, the average capacity factor for coal-fired plants has declined substantially. The coal fleet maintained an average annual capacity factor above 70 percent from 2002 through 2008, but the capacity factor has declined since then, falling to about 57 percent in 2012. As natural gas prices increase in the AEO2013 Reference case, the utilization rate of coal-fired generators returns to previous historical levels and continues to rise, to an average of around 74 percent in 2025 and 78 percent in 2040. Across the alternative cases, coal-fired generation varies slightly in 2025 (Figure 30) and 2040 (Figure 31) as a result of differences in plant retirements and slight differences in utilization rates. The capacity factor for coal-fired power plants in 2040 ranges from 69 percent in the High Oil and Gas Resource case to 81 percent in the Low Oil and Gas Resource case.


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Natural gas-fired generation varies more widely across the alternative cases, as a result of changes in the utilization of NGCC capacity, as well as the overall amount of combined-cycle capacity available. In recent years, the utilization rate for NGCC plants has increased, while the utilization rate for coal-fired steam turbines has declined. Capacity factors for the two technologies were about equal at approximately 57 percent in 2012. As natural gas prices rise in the Reference case, the average capacity factor for combined-cycle plants drops below 50 percent in the near term and remains between 48 percent and 54 percent over the remainder of projection period. In the High Oil and Gas Resource case, where combined-cycle generation is more competitive with existing coal-fired generation and the largest amount of new combined-cycle capacity is added, the average capacity factor for combined-cycle plants rises to 70 percent in the middle years of the projection period and remains about 63 percent through the remainder of the projection period. In the Low Oil and Gas Resource case, generation from combined-cycle plants is 37 percent lower in 2040 than in the Reference case, and the capacity factor for NGCC plants declines from around 45 percent in the mid term to 36 percent in 2040. Natural gas-fired generation in the Low Oil and Gas Resource case is replaced primarily with generation from new nuclear and renewable power plants. Similar fluctuations in natural gas-fired generation, but smaller in magnitude, are also seen across the coal cost cases.


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The coal and natural gas shares of total electricity generation vary widely across the alternative cases. The coal share of total generation varies from 30 percent to 43 percent in 2025 and from 28 percent to 40 percent in 2040. The natural gas share varies from 22 percent to 36 percent in 2025 and from 18 percent to 42 percent in 2040. In the High Oil and Gas Resource case, natural gas becomes the dominant generation fuel after 2015, and its share of total generation is 42 percent in 2040 (Figure 32).

Regional impacts

Competition in the southeastern United States

While examining the national-level results is useful, the competition between coal and natural gas is best examined in a region that has significant amounts of both coal-fired and natural gas-fired capacity, such as the southeastern United States. In the southeastern subregion of the SERC Reliability Corporation (EMM Region 14), the ratio of average fuel costs for NGCC plants to average fuel costs for coal-fired steam turbines in both the High Coal Cost case and the High Oil and Gas Resource case is below that in the Reference case (Figure 33). In this region, which has a particularly efficient fleet of NGCC plants, the fuel cost ratios in both the High Coal Cost case and the High Oil and Gas Resource case remain near or below competitive parity for the majority of the projection period, indicating continued strong competition in the region. While average coal steam turbine heat rates remain largely static over the projection period, the average NGCC heat rates in this region drop appreciably by 2040, and are among the lowest in the nation.

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The delivered cost of coal in the region is somewhat higher than in many other regions. Central Appalachian and Illinois Basin coals must be transported by rail or barge to the Southeast, and coal from the Powder River Basin must travel great distances by rail. The region also uses some imported coal, typically along the Gulf Coast, which tends to be more expensive.

In the High Oil and Gas Resource case, retirements of coal-fired generators in this region total 8 gigawatts in 2016 (5 gigawatts higher than in the Reference case) and remain at that level through 2040. Lower fuel prices for new natural gas-fired capacity, along with requirements to install environmental control equipment on existing coal-fired capacity, leads to additional retirements of coal-fired plants. As a result, the coal share of total capacity in the region drops from 39 percent in 2011 to 23 percent in 2040 in the High Oil and Gas Resource case, and the NGCC share rises from 24 percent in 2011 to 40 percent in 2040, when it accounts for the largest share of total generating capacity.

The capacity factors of coal-fired and NGCC power plants also vary across the cases, resulting in a significant shift in the shares of generation by fuel. The natural gas share of total electric power generation in the SERC southeast subregion grows from 31 percent in 2011 to 36 percent in 2040 in the Reference case, as compared with 56 percent in 2040 in the High Oil and Gas Resource case. Conversely, the coal share drops from 47 percent in 2011 to 40 percent in 2040 in the Reference case, compared with 20 percent in 2040 in the High Oil and Gas Resource case.

Competition in the Midwest

In the western portion of the ReliabilityFirst Corporation (RFC) region (EMM Region 11), which covers Ohio, Indiana, and West Virginia as well as portions of neighboring states, the ratio of the average fuel cost for natural gas-fired combined-cycle plants to the average fuel cost for coal-fired steam turbines approaches parity in the High Coal Cost case and the High Oil and Gas Resource case (Figure 34). The RFC west subregion is more heavily dependent on coal, with coal-fired capacity accounting for 58 percent of the total in 2011. The coal share of total capacity falls to 48 percent in 2040 in the Reference case with the retirement of nearly 15 gigawatts of coal-fired capacity from 2011 to 2017. NGCC capacity, which represented only 7 percent of the region's total generating capacity in 2011, accounts for 11 percent of the total in 2040 in the Reference case.


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In the High Coal Cost case, only a limited amount of shifting from coal to natural gas occurs in this region, which has a large amount of existing coal-fired capacity and access to multiple sources of coal, including western basins as well as the Illinois and Appalachian basins. Higher transportation rates in this case deter the use of Western coal in favor of more locally sourced Interior and Appalachian coal. The ability to switch coal sources to moderate fuel expenditures reduces the economic incentive to build new NGCC plants, even with coal prices that are higher than those in the Reference case. The NGCC share of the region's total capacity does increase in the High Oil and Gas Resource case relative to the Reference case, to 16 percent in 2040. In all the cases, however, coal-fired generating capacity makes up more than 42 percent of the total in 2040.

The different capacity factors of coal-fired steam turbines and NGCC capacity contribute to a shift in the generation fuel shares, but the lower levels of natural gas-fired capacity in the region limit the impacts relative to those seen in the Southeast. The natural gas share of total generation in the region grows from 6 percent in 2011 to 8 percent in 2040 in the Reference case, 10 percent in 2040 in the High Coal Cost case, and 18 percent in 2040 the High Oil and Gas Resource case. Coal's share of the region's electric power sector generation declines from 66 percent in 2011 to 64 percent in 2040 in the Reference case, and to 54 percent in both the High Coal Cost case and the High Oil and Gas Resource case. In the High Coal Cost case, much of the coal-fired generation is replaced with biomass co-firing rather than natural gas, because without the lower natural gas prices in the High Oil and Gas Resource case, it is more economical to use biomass in existing coal-fired units than to build and operate new natural gas-fired generators.

Other factors affecting competition

In addition to relative fuel prices, a number of factors influence the competition between coal-fired steam turbines and natural gas-fired combined-cycle units. One factor in the dispatch-level competition is the availability of capacity of each type. In New England, for example, competition between coal and natural gas is not discussed, because very little coal-fired capacity exists or is projected to be built in that region, even in the AEO2013 alternative fuel price cases. New England is located far from coal sources, and a regional cap on GHG emissions is in place, which makes investment in new coal-fired capacity unlikely. In the southeastern United States, however, there is more balance between natural gas-fired and coal-fired generating resources.

Further limitations not discussed above include:

  • Start-up and shutdown costs. In general, combined-cycle units are considered to be more flexible than steam turbines. They can ramp their output up and down more easily, and their start-up and shutdown procedures involve less time and expense. However, plants that are operated more flexibly (i.e., ramping up and down and cycling on and off) often have higher maintenance requirements and higher maintenance costs.
  • Emission rates and allowance costs. Another component of operating costs not mentioned above is the cost of buying emissions allowances for plants covered by the Acid Rain Program and Clean Air Interstate Rule. In recent years, allowance prices have dropped to levels that make them essentially negligible, although for many years they were a significant component of operating costs.
  • Transmission constraints on the electricity grid and other reliability requirements. Certain plants, often referred to as reliability must-run plants, are located in geographic areas where they are required to operate whenever they are available. In other cases, transmission limitations on the grid at any given time may determine maximum output levels for some plants.

Prices from Comparison with other projections

2. Oil prices

In AEO2013, oil prices are represented by spot prices for Brent crude. Prices rise in the Reference case from $111 per barrel in 2011 to about $117 per barrel in 2025 and $163 per barrel in 2040 (Table 9). The price rise starts slowly, then accelerates toward the end of the projection period. In the Annual Energy Outlook 2012 (AEO2012) Reference case, where oil prices were represented by the West Texas Intermediate (WTI) spot price, prices rose more sharply in the early years and more slowly at the end of the projection period. AEO2013 also presents the annual average WTI spot price of light, low-sulfur crude oil delivered in Cushing, Oklahoma, and includes the U.S. annual average refiners' acquisition cost (RAC) of imported crude oil, which is more representative of the average cost of all crude oils used by domestic refiners. In 2011, the WTI and Brent prices differed by $16 per barrel. In the AEO2013 Reference case, the gap closes to a difference of $2 per barrel in 2025, following resolution of transportation system constraints in the United States. In each of the other outlooks in the comparison, oil spot prices are based on either Brent or WTI prices, with the exception of IEA, which represents the international average of crude oil import prices.

Market volatility and different assumptions about the future of the world economy are reflected in the range of oil price projections for both the near and long term; however, most projections show oil prices rising over the entire projection period. The projections for 2025 range from $78 per barrel (WTI) to $137 per barrel (Brent) in 2025—a span of $59 per barrel—and from $81 per barrel (WTI) to $163 per barrel (Brent) in 2040—a span of $82 per barrel. The wide range underscores the uncertainty inherent in the projections. The range of the projections is encompassed in the range of the AEO2013 Low and High Oil Price cases, from $68 per barrel (WTI) to $173 per barrel (Brent) in 2025 and from $71 per barrel (WTI) to $213 per barrel (Brent) in 2035.

5. Natural gas

Projections for natural gas consumption, production, imports, and prices differ significantly among the outlooks compared in Table 12. The variations result, in large part, from differences in underlying assumptions. For example, the AEO2013 Reference case assumes that current laws and regulations are unchanged through the projection period, whereas some of the other projections include assumptions about anticipated policy developments over the next 25 years. In particular, the AEO2013 Reference case does not incorporate any future changes in policy directed at carbon emissions or other environmental issues, whereas ExxonMobil and some of the other outlooks include explicit assumptions about policies aimed at reducing carbon emissions.

IHSGI and ICF project large increases in natural gas production and consumption over the projection period. IHSGI projects that, as production increases, prices will remain low and U.S. consumers, particularly in the electric power sector, will continue to benefit from an abundance of relatively inexpensive natural gas. In contrast, ICF projects that prices will rise at a more rapid rate than in the IHSGI projection. EVA projects growth in natural gas production, but at lower rates than IHSGI and ICF. Both EVA and ExxonMobil also project strong growth in natural gas consumption in the electric power sector through 2035. EVA differs from the others, however, by projecting strong growth in natural gas consumption despite a rise in natural gas prices to $8.00 per million Btu in 2035. Timing of the growth in consumption is somewhat different between the ExxonMobil projection and the other outlooks. ExxonMobil expects consumption to increase only through 2025, after which it remains relatively flat. The AEO2013 Reference case projects a smaller increase in natural gas consumption for electric power generation than in the other outlooks, with additional natural gas production allowing for a sharp increase in net exports, particularly as liquefied natural gas (LNG). The INFORUM projection shows a smaller rise in production and consumption of natural gas than in any of the other projections.

Production

All the outlooks shown in Table 12 project increases in natural gas production from the 2011 production level of 23.0 trillion cubic feet. IHSGI projects the largest increase, to 36.1 trillion cubic feet in 2035—13.1 trillion cubic feet or 57 percent more than the 2011 levels—with most of the increase coming in the near term (9.3 trillion cubic feet from 2011 to 2025). An additional 1.5 trillion cubic feet of natural gas production is added from 2035 to 2040. In the ICF projection, natural gas production grows by 12.5 trillion cubic feet over the period from 2011, to 35.5 trillion cubic feet in 2035. More than one-half of the increase (6.5 trillion cubic feet) occurs before 2020. INFORUM projects the smallest increase in natural gas production, at only 4.9 trillion cubic feet from 2011 to the 2035 total of 27.9 trillion cubic feet.

The AEO2013 Reference case and EVA project more modest growth in natural gas production. In the AEO2013 Reference case and EVA projections, natural gas production grows to 31.4 trillion cubic feet in 2035, an increase of 8.4 trillion cubic feet from 2011 levels. The AEO2013 Reference case and EVA projections show slower growth in natural gas production from 2011 to 2025, at 5.6 trillion cubic feet and 6.9 trillion cubic feet, respectively. Although the AEO2013 Reference case shows the least aggressive near-term growth in natural gas production, it shows the strongest growth from 2025 to 2035 among the projections, with another increase of 1.8 trillion cubic feet from 2035 to 2040.

Net imports/exports

Differences among the projections for natural gas production generally coincide with differences in total natural gas consumption or net imports/exports. EVA projects positive growth in net imports throughout the projection period, driven by strong growth in natural gas consumption. Although the EVA projection shows significant growth in pipeline imports, it shows no growth in net LNG exports. In contrast, the IHSGI, ICF, and AEO2013 Reference case projections show net exports of natural gas starting on or before 2020. The AEO2013 Reference case projects the largest increase in net exports of natural gas, with net pipeline exports increasing alongside steady growth in net LNG exports. In the ICF projection, the United States becomes a net exporter of natural gas by 2020 but remains a net importer of pipeline through 2035. Combined net exports of natural gas grow to 0.7 trillion cubic feet in 2035 in the ICF projection, with all the growth accounted for by LNG exports, which increase by 1.5 trillion cubic feet from 2011 to 2035. IHSGI projects a U.S. shift from net importer to net exporter of natural gas after 2017, with net exports declining after 2024.

Consumption

All the projections show total natural gas consumption growing throughout the projection periods, and most of them expect the largest increases in the electric power sector. IHSGI projects the greatest growth in natural gas consumption for electric power generation, driven by relatively low natural gas prices, followed by ExxonMobil and EVA, with somewhat higher projections for natural gas prices. The ICF projection shows less growth in natural gas consumption for electric power generation, despite lower natural gas prices, than in the EVA projection. In the AEO2013 Reference case and INFORUM projections, natural gas consumption for electric power generation is somewhat less than in the other outlooks. Some of that variation may be the result of differences in assumptions about potential fees on carbon emissions. For example, the ExxonMobil outlook assumes a tax on carbon emissions, whereas the AEO2013 Reference case does not.

Projections for natural gas consumption in the residential and commercial sectors are similar in the outlooks, with expected levels of natural gas use remaining relatively stable over time. The AEO2013 Reference case projects the lowest level of residential and commercial natural gas consumption, largely as a result of increases in equipment efficiencies, with projected consumption in those sectors falling by 0.1 trillion cubic feet from 2011 to 2040, to a level slightly below those projected by IHSGI and ICF. ExxonMobil projects a significant one-time decrease of 1.0 trillion cubic feet from 2020 to 2025.

The largest difference among the outlooks for natural gas consumption is in the industrial sector, where definitional differences can make accurate comparisons difficult. ExxonMobil and the AEO2013 Reference case both project increases in natural gas consumption in the industrial sector from 2011 to 2040 that are greater than 1.0 trillion cubic feet, with most of the growth in the AEO2013 Reference case occurring from 2015 to 2020. ICF projects the largest increase in industrial natural gas consumption, at 2.2 trillion cubic feet from 2011 to 2035, followed by EVA's projection of 1.8 trillion cubic feet over the same period. Although ExxonMobil projects a significant one-time decrease in industrial natural gas consumption—1.0 trillion cubic feet from 2025 to 2030—its projected level of industrial consumption in 2025, at 9.0 trillion cubic feet, is higher than in any of the other projections. Despite ExxonMobil's projected decrease in industrial natural gas consumption from 2025 to 2030, its projection for 2030 (8.0 trillion cubic feet) is second only to EVA's projection of 8.4 trillion cubic feet. IHSGI and INFORUM show modest increases in industrial natural gas consumption from their 2011 levels, to 6.9 trillion cubic feet in 2035 in both outlooks. Projected industrial natural gas consumption declines in the IHSGI projection after 2035, to 6.7 trillion cubic feet in 2040.

Prices

Only four of the outlooks included in Table 12 provide projections for Henry Hub natural gas spot prices. EVA shows the highest Henry Hub prices in 2035 and IHSGI the lowest. In the IHSGI projection, Henry Hub prices remain low through 2035, when they reach $4.98 per million Btu, compared with $3.98 per million Btu in 2011. Natural gas prices to the electric power sector rise from $4.87 per thousand cubic feet in 2011 to $5.47 per thousand cubic feet in 2035 in the IHSGI projection. The low Henry Hub prices in the IHSGI projection are supported by an abundant supply of relatively inexpensive natural gas, with only a small increase in net exports in comparison with the increase in the AEO2013 Reference case. EVA, in contrast, shows the Henry Hub price rising to a much higher level of $8.00 per million Btu in 2035, apparently as a result of stronger growth in natural gas consumption, particularly for electric power generation, and a lower level of natural gas exports. Indeed, the EVA outlook shows the U.S. remaining a net importer of natural gas through 2035.

Henry Hub natural gas prices in the ICF and AEO2013 Reference case projections for 2035—at $6.21 per million Btu and $6.32 per million Btu, respectively—fall within the price range bounded by IHSGI and EVA. In the AEO2013 Reference case, commercial, electric power, and industrial natural gas prices all rise by between $2 and $3 per thousand cubic feet from 2011 to 2035, while residential prices rise by $3.88 per thousand cubic feet over the same period. The residential sector is also the only sector for which the AEO2013 Reference case projects a decline in natural gas consumption to below 2011 levels in 2035. ICF projects a much smaller increase in delivered natural gas prices for the commercial, industrial, and electric power sectors, with prices rising to more than $2 per thousand cubic feet above 2011 levels by 2035 only in the electric power sector. With smaller price increases, ICF projects a much larger increase for natural gas consumption in the electric power and industrial sectors from 2011 to 2035 than in the AEO2013 Reference case.

6. Liquid fuels

In the AEO2013 Reference case, the Brent crude oil spot price (in 2011 dollars) increases to $117 per barrel in 2025, $145 per barrel in 2035, and $163 per barrel in 2040 (Table 13). Prices are higher earlier in the INFORUM and IEA projections but lower in the later years, ranging from $136 per barrel in 2025 to $150 per barrel in 2035. In the AEO2013 Reference case, the U.S. imported RAC for crude oil (in 2011 dollars) increases to $113 per barrel in 2025, $139 per barrel in 2035, and $155 per barrel in 2040. RAC prices in the INFORUM projection are higher, ranging from $126 per barrel in 2025 to $138 per barrel in 2035. EVA and ExxonMobil did not provide projections for Brent or RAC crude oil prices.

In the AEO2013 Reference case, domestic crude oil production increases from about 5.7 million barrels per day in 2011 to 6.8 million barrels per day in 2025, then declines to about 6.3 million barrels per day in 2035 and 6.1 million barrels per day in 2040. Overall, projected crude oil production in 2035 is more than 10 percent higher than the 2011 total. The INFORUM projection shows a considerable increase in crude oil production, to 9.5 million barrels per day in 2035. Similarly, the EVA projection shows crude oil production increasing consistently to 8.5 million barrels per day in 2035. The IHSGI projection is closer to the AEO2013 Reference case, with domestic crude oil production reaching 6.4 million barrels per day in 2035. Similar to the AEO2013 Reference case, all the outlooks assume continued significant growth in crude oil production from non-OPEC countries, specifically in North America from tight oil formations.

Total net imports of crude oil and other liquids in the AEO2013 Reference case increase from 8.6 million barrels per day in 2011 to 7.0 million barrels per day in 2025 and remain at that level through the remainder of the projection. The INFORUM projection is similar, at 7.1 million barrels per day in 2025 and 7.4 million barrels per day in 2035. In the IHSGI projection, however, total net imports fall dramatically, to approximately 4.7 million barrels per day in 2035 and around 4.1 million in 2040. IHSGI projects efficiency improvements that would decrease total U.S. demand for liquids and lessen the need for imports.

Biofuel production on a crude oil equivalent basis increases to about 1.1 million barrels per day in both 2025 and in 2035 and to more than 1.3 million barrels per day in 2040 in the AEO2013 Reference case. IHSGI projects biofuel production of 1.2 million barrels per day in 2025. The IHSGI projection assumes that technology hurdles and economic factors limit the growth of U.S. biofuel production to only a marginal share of total energy supply. IHSGI projects 1.4 million barrels per day of biofuel production in 2035 and a similar level in 2040. The EVA, INFORUM, IEA, and ExxonMobil outlooks do not include biofuels production.

Prices for both diesel fuel and gasoline increase through 2040 in the AEO2013 Reference case projection, with diesel prices higher than gasoline prices. INFORUM projects increasing gasoline prices and decreasing diesel prices, so that in 2035 the gasoline price is higher than the diesel price. IHSGI projects falling prices for both gasoline and diesel fuel, with 2040 prices for gasoline more than $1.00 per gallon lower and for diesel fuel prices $2.00 per gallon lower than projected in the AEO2013 Reference case. The EVA, IEA, and ExxonMobil projections do not include delivered fuel prices.

7. Coal

The AEO2013 Reference case projects the highest levels of total coal production and prices in comparison with other coal outlooks available from EVA, ICF, IHSGI, INFORUM, the IEA’s World Energy Outlook, and ExxonMobil. Total consumption in AEO2013 is also higher than in the other outlooks, except for INFORUM and ICF, whose consumption projections for 2035 are 2 percent and 5 percent higher, respectively, than projected in the AEO2013 Reference case (Table 14).

The detailed assumptions that underlie the various projections are not generally available, although there are some important known differences that contribute to the differences among the outlooks. For instance, EVA and ICF assume the implementation of new regulations for cooling water intake and coal combustion residuals; ExxonMobil, which has the lowest projection of coal consumption, assumes a carbon tax; and ICF also includes a carbon cap-and-trade program beginning in 2023. Because those policies are not current law, the AEO2013 Reference case excludes them, which contributes to the lower coal consumption projections in many of the other outlooks relative to AEO2013. Variation among the assumptions about growth in energy demand and other fuel prices, particularly for natural gas, also contribute to the differences.

Although the AEO2013 projections for total coal consumption are actually somewhat lower than the ICF and INFORUM projections, the other outlooks offer more pessimistic projections. ExxonMobil is the most pessimistic, with coal consumption 33 percent and 55 percent lower in 2025 and 2030, respectively, than in the AEO2013 Reference case. Coal consumption in 2025 is 17 percent (174 million tons) less in the EVA outlook than in the AEO2013 Reference case and 8 percent less in the IHSGI outlook. The INFORUM and ICF outlooks for total coal consumption in 2035 are between 21 million tons (2 percent) and 55 million tons (5 percent) higher, respectively, than in the AEO2013 Reference case.

The electricity sector is the predominant consumer of coal and the primary source of differences among the projections, due to their differing assumptions about regulations and the economics of coal versus other fuel choices over time. Although EVA shows a greater reduction in coal use for electricity generation in 2025 than does IHSGI, for 2035 the two projections are similar. After 2035, EVA shows a continued small increase in coal use for electricity generation, whereas it continues to fall in the IHSGI projection and in 2040 is 37 million tons less than projected by EVA. The ICF outlook for coal consumption in electricity generation is similar to the AEO2013 projection through 2025 but then declines gradually through 2035. IEA projects a level of coal use for electricity generation in 2035 that is most similar to the AEO2013 Reference case.

In all the projections, coal consumption in the end-use sectors is low in comparison with the electric power sector; however, there are several notable differences among the outlooks. Most notably, the ICF outlook shows increasing coal use in the other sectors that offsets declining consumption for electric power. ICF is the only projection that shows an increase in coal use in the industrial and buildings sectors. AEO2013 shows the next highest level of coal consumption in the industrial and buildings sectors, but it is still less than half of ICF's projection for industrial and buildings consumption in 2035. Both IHSGI and EVA show significant declines in coal use in those sectors over the projection period. In 2040, coal use in the buildings and industrial sectors in the IHSGI and EVA projections is equal to only 39 percent and 60 percent, respectively, of the coal use in those sectors in AEO2013. In addition, only AEO2013 and ICF project coal use for liquids production. Some of the gains in the two sectors are offset in the ICF outlook by lower consumption of coal at coke plants, which falls from 21 million tons in 2011 to 12 million tons in 2035. In the other outlooks, coal use at coke plants is similar to the levels in the AEO2013 Reference case, with modest declines through the end of their projections.

Differences among the projections for U.S. domestic coal production fall within a smaller range than the projections for coal consumption, depending in part on each outlook's projections for net exports. For example, coal production in the EVA and IHSGI projections is buoyed by relatively high export levels after 2011, with total coal production falling by 13 percent and 5 percent, respectively, from 2011 to 2035, compared with a 16-percent decline in total coal consumption in both projections. The ICF and INFORUM outlooks, which project 11-percent and 8-percent increases in total coal consumption through 2035, respectively, show changes in total coal production of 4 percent and no growth, respectively, as a result of significantly lower net export levels.

The projections for coal exports in the AEO2013 Reference case generally fall between the EVA and IHSGI projections. INFORUM's projection for coal exports is the lowest among the outlooks but similar to ICF's projection for 2035. The composition of EVA's exports also differs from that in AEO2013, in that EVA expects most exports to be thermal coal, whereas most exports in the early years of the AEO2013 Reference case are coking coal. In 2025, coking coal accounts for 57 percent of total coal exports in the AEO2013 Reference case, compared with 34 percent in the EVA projection. In 2040, however, the coking coal share of exports in the AEO2013 projection declines to 44 percent, compared with 32 percent in the EVA projection. In comparison, coking coal accounts for 74 percent of total coal exports in 2035 in the ICF projection.

In the EVA and IHSGI projections, coal imports remain low and relatively flat. AEO2013 also shows low levels of imports initially, but they grow to 36 million tons in 2040 from 5 million tons in 2025. For 2035, the ICF outlook implies 136 million tons of coal imports (calculated by subtracting production from the sum of consumption and exports), which is higher than all the others shown in the comparison table. Coal imports remain above 20 million tons in the INFORUM projections, and as in the ICF and AEO2013 projections, they increase over time, doubling in 2035 from the 2025 level.

Only AEO2013, ICF, and INFORUM provide projections of minemouth coal prices. In the ICF projections, minemouth prices in 2025 are 20 percent below those in 2011 (on a dollar-per-ton basis), and they decline only slightly through 2035. INFORUM projects coal minemouth prices that are very similar to the AEO2013 prices (on a dollar-per-million Btu basis).

The ICF outlook shows the lowest price for coal delivered to the electricity sector in both 2025 and 2035, with the real coal price lower than in 2011. INFORUM's prices for coal delivered to electricity generators (on a dollar-per-ton basis) are similar. IHSGI's delivered coal prices to electricity generators are significantly lower than those in the AEO2013 Reference case and remain close to the 2011 price over the entire projection period. As a result, the IHSGI delivered coal price to electricity generators is 9 percent lower in 2025 and 22 percent lower in 2040, on a dollar-per-ton basis, than projected in the AEO2013 Reference case.

Endnotes

65. United States Internal Revenue Code, Title 26, Subtitle A—Income Taxes, §48(a)(2)(A)(ii), http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapA.pdf.
66. United States Internal Revenue Code, Title 26, Subtitle A—Income Taxes, §48(c)(3)(B)(iii), http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapA.pdf.
67. Calculations based on U.S. Energy Information Administration, Form EIA-860, Schedule 3, 2011 data (Washington, DC: January 9, 2013), http://www.eia.gov/electricity/data/eia860/index.html.
68. U.S. Congress, "American Taxpayer Relief Act of 2012," P.L. 112-240, Sections 401 through 412, http://www.gpo.gov/fdsys/pkg/PLAW-112publ240/pdf/PLAW-112publ240.pdf.
69. Modeled provisions based on U.S. Congress, "American Taxpayer Relief Act of 2012," P.L. 112-240, Sections 401, 404, 405, 407, 408, 409, and 412, http://www.gpo.gov/fdsys/pkg/PLAW-112publ240/pdf/PLAW-112publ240.pdf.
70. Volatility is a measure of variability in a data series over time (more technically, the annualized standard deviation from the mean). This analysis was conducted using the GARCH estimation method for monthly average Brent crude oil prices.
82.EPA's Proposed Carbon Pollution Standard for New Power Plants would require that new fossil fuel-fired power plants meet an output-based standard of 1,000 pounds of carbon dioxide per megawatthour of electricity generated. That standard would effectively prohibit the construction of new coal-fired power plants without carbon capture and storage. Currently, the EPA is evaluating comments and expects to issue a final rule in 2013. Because the rule is not yet final, it is not assumed to take effect in any of the AEO2013 cases.
134.Costs are for the electric power sector only.
135. The levelized costs reflect the average of regional costs. For detailed discussion of levelized costs, see U.S. Energy Information Administration, "Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013," http://www.eia.gov/forecasts/aeo/electricity_generation.cfm.

Reference Case Tables
Table 1. Total Energy Supply, Disposition, and Price Summary XLS
Table 3. Energy Prices by Sector and Source - United States XLS
Table 3.1. Energy Prices by Sector and Source - New England XLS
Table 3.2. Energy Prices by Sector and Source - Middle Atlantic XLS
Table 3.3. Energy Prices by Sector and Source - East North Central XLS
Table 3.4. Energy Prices by Sector and Source - West North Central XLS
Table 3.5. Energy Prices by Sector and Source - South Atlantic XLS
Table 3.6. Energy Prices by Sector and Source - East South Central XLS
Table 3.7. Energy Prices by Sector and Source - West South Central XLS
Table 3.8. Energy Prices by Sector and Source - Mountain XLS
Table 3.9. Energy Prices by Sector and Source - Pacific XLS
Table 6. Industrial Sector Key Indicators and Consumption XLS
Table 8. Electricity Supply, Disposition, Prices, and Emissions XLS
Table 12. Petroleum Product Prices XLS
Table 13. Natural Gas Supply, Disposition, and Prices XLS
Table 14. Oil and Gas Supply XLS
Table 15. Coal Supply, Disposition, and Prices XLS
Table 55. Electric Power Projections for EMM Region - United States XLS
Table 55.1. Electric Power Projections for EMM Region - Texas Regional Entity XLS
Table 55.1. Electric Power Projections for EMM Region - Reliability First Corporation / Michigan XLS
Table 55.11. Electric Power Projections for EMM Region - Reliability First Corporation / West XLS
Table 55.12. Electric Power Projections for EMM Region - SERC Reliability Corporation / Delta XLS
Table 55.13. Electric Power Projections for EMM Region - SERC Reliability Corporation / Gateway XLS
Table 55.14. Electric Power Projections for EMM Region - SERC Reliability Corporation / Southeastern XLS
Table 55.15. Electric Power Projections for EMM Region - SERC Reliability Corporation / Central XLS
Table 55.16. Electric Power Projections for EMM Region - SERC Reliability Corporation / Virginia-Carolina XLS
Table 55.17. Electric Power Projections for EMM Region - Southwest Power Pool / North XLS
Table 55.18. Electric Power Projections for EMM Region - Southwest Power Pool / South XLS
Table 55.19. Electric Power Projections for EMM Region - Western Electricity Coordinating Council / Southwest XLS
Table 55.2. Electric Power Projections for EMM Region - Western Electricity Coordinating Council / California XLS
Table 55.2. Electric Power Projections for EMM Region - Florida Reliability Coordinating Council XLS
Table 55.21. Electric Power Projections for EMM Region - Western Electricity Coordinating Council / Northwest Power Pool Area XLS
Table 55.22. Electric Power Projections for EMM Region - Western Electricity Coordinating Council / Rockies XLS
Table 55.3. Electric Power Projections for EMM Region - Midwest Reliability Council / East XLS
Table 55.4. Electric Power Projections for EMM Region - Midwest Reliability Council / West XLS
Table 55.5. Electric Power Projections for EMM Region - Northeast Power Coordinating Council / Northeast XLS
Table 55.6. Electric Power Projections for EMM Region - Northeast Power Coordinating Council / NYC-Westchester XLS
Table 55.7. Electric Power Projections for EMM Region - Northeast Power Coordinating Council / Long Island XLS
Table 55.8. Electric Power Projections for EMM Region - Northeast Power Coordinating Council / Upstate New York XLS
Table 55.9. Electric Power Projections for EMM Region - Reliability First Corporation / East XLS
Table 59. Components of Selected Petroleum Product Prices - United States XLS
Table 59.1. Components of Selected Petroleum Product Prices - New England XLS
Table 59.2. Components of Selected Petroleum Product Prices - Middle Atlantic XLS
Table 59.3. Components of Selected Petroleum Product Prices - East North Central XLS
Table 59.4. Components of Selected Petroleum Product Prices - West North Central XLS
Table 59.5. Components of Selected Petroleum Product Prices - South Atlantic XLS
Table 59.6. Components of Selected Petroleum Product Prices - East South Central XLS
Table 59.7. Components of Selected Petroleum Product Prices - West South Central XLS
Table 59.8. Components of Selected Petroleum Product Prices - Mountain XLS
Table 59.9. Components of Selected Petroleum Product Prices - Pacific XLS
Table 60. Lower 48 Crude Oil Production and Wellhead Prices by Supply Region XLS
Table 61. Lower 48 Natural Gas Production and Spot Prices by Supply Region XLS
Table 65. Natural Gas Delivered Prices by End-Use Sector and Census Division XLS
Table 67. Coal Production and Minemouth Prices by Region XLS
Table 69. Coal Minemouth Prices by Region and Type XLS