Energy & Power

WORLD

Annual Energy Outlook 2007

Kamrul Hasan Khan

The United State (US) Energy Information Administration (EIA), in preparing forecast for the Annual Energy Outlook 2007 (AEO2007), evaluated a wide range of trends and issues that could have major implications for US energy markets between today and 2030.

This overview focuses on one case, the reference case, which is presented and compared with the Annual Energy Outlook 2006 (AEO2006) reference case.

Trends in energy supply and demand are affected by many factors that are difficult to predict, such as energy prices, US economic growth, advances in technologies, changes in weather patterns, and future public policy decisions.

It is clear, however, that energy markets are changing gradually in response to such readily observable factors as the higher energy prices that have been experienced since 2000, the greater influence of developing countries on worldwide energy requirements, recently enacted legislation and regulations in the US, and changing public perceptions of issues related to the use of alternative fuels, emissions of air pollutants and greenhouse gases, and the acceptability of various energy technologies, among others.

Such changes are reflected in the AEO2007 reference case, which projects increased consumption of bio-fuels (both ethanol and bio-diesel), growth in coal-to-liquids (CTL) capacity and production, growing demand for unconventional transportation technologies (such as flex-fuel, hybrid, and diesel vehicles), growth in nuclear power capacity and generation, and accelerated improvements in energy efficiency throughout the economy.

Despite the rapid growth projected for bio-fuels and other non-hydroelectric renewable energy sources and the expectation that orders will be placed for new nuclear power plants for the first time in more than 25 years, oil, coal, and natural gas still are projected to provide roughly the same 86-percent share of the total US primary energy supply in 2030 that they did in 2005 (assuming no changes in existing laws and regulations).

The expected rapid growth in the use of bio-fuels and other non-hydropower renewable energy sources begins from a very low current share of total energy use; hydroelectric power production, which accounts for the bulk of current renewable electricity supply, is nearly stagnant; and the share of total electricity supplied from nuclear power falls despite the projected new plant builds, which more than offset retirements, because the overall market for electricity continues to expand rapidly in the projection.

World oil prices since 2000 have been substantially higher than those of the 1990s, as have the prices of natural gas and coal (although coal prices began to rise somewhat later than oil and natural gas prices). The sustained increase in world oil prices caused EIA to reevaluate earlier oil price expectations in producing AEO2006.

The long-term path of world oil prices in the AEO2007 reference case is similar to that in the AEO2006 reference case, although near-term prices in AEO2007 are somewhat higher than those in AEO2006.

In the AEO2007 reference case, real world crude oil prices, expressed in terms of the average price of imported light, low-sulfur crude oil to US refiners, are projected to decline gradually from their 2006 average level through 2015, as expanded investment in exploration and development brings new supplies to the world market. After 2015, real prices begin to rise as demand continues to grow and higher cost supplies are brought to market. In 2030, the average real price of crude oil is projected to be above $59 per barrel in 2005 dollars, or about $95 per barrel in nominal dollars.

The energy price projections for natural gas and coal in the AEO2007 reference case also are similar to those in AEO2006. The real wellhead price of natural gas is projected to decline from current levels through 2015, when new supplies enter the market, but it does not return to the levels of the 1990s. After 2015, the natural gas price rises to nearly $6.00 per thousand cubic feet in 2030 in 2005 dollars (about $9.60 per thousand cubic feet in nominal dollars). For coal, the average mine-mouth price ranges between $1.08 and $1.18 per million Btu (2005 dollars) over the projection period; in 2030, the price of coal is projected to be roughly the same as it was in 2005, at $1.15 per million Btu ($1.85 per million Btu in nominal dollars).

The 2030 price projection is higher than the AEO2006 reference case projection of $1.11 per million Btu and much higher than projected in earlier AEOs --typically, below $0.90 per million Btu. Greater price increases are avoided, because lower cost production from surface mines in the West is projected to capture a growing share of the US market.

The use of alternative fuels, such as ethanol, bio-diesel, and CTL, is projected to increase substantially in the reference case as a result of the higher prices projected for traditional fuels and the support for alternative fuels provided in recently enacted Federal legislation. Ethanol use grows in the AEO2007 reference case from 4 billion gallons in 2005 to 14.6 billion gallons in 2030 (about 8 percent of total gasoline consumption by volume).

Alternative sources of distillate fuel oil are projected to be key contributors to total supply (particularly, low-sulfur diesel fuels) in 2030. Consumption of bio-diesel, also supported by tax credits in EPACT-2005, reaches 0.4 billion gallons in 2030, and distillate fuel oil produced from CTL reaches 5.7 billion gallons in 2030. In total, these two alternative sources of distillate fuel oil account for more than 7 percent of the total distillate pool in 2030.

The AEO2007 reference case also reflects growing market penetration by unconventional vehicle technologies, such as flex-fuel, hybrid, and diesel vehicles.

Sales of flex-fuel vehicles, which are capable of using gasoline and E85, reach 2 million per year in 2030, or 10 percent of total sales of new light-duty vehicles. Sales of hybrids, including both full and mild hybrids, are projected to reach 2 million per year by 2030, accounting for another 10 percent of total light-duty vehicles sales. Diesel vehicles sales reach 1.2 million per year in 2030, or 6 percent of new light-duty vehicle sales. Including other alternative vehicle technologies (such as gaseous, electric, and fuel cell), all the projected sales of alternative vehicle technologies account for nearly 28 percent of projected new light-duty vehicle sales in 2030, up from just over 8 percent in 2005.

The AEO20 07 reference case projects total operable nuclear generating capacity of 112.6 gigawatts in 2030, including 3 gigawatts of additional capacity uprates, 9 gigawatts of new capacity built primarily in response to EPACT2005 tax credits, 3.5 gigawatts added in later years in response to higher fossil fuel prices, and 2.6 gigawatts of older plant retirements. As a result of the growth in available capacity, total nuclear generation is projected to grow from 780 billion kilowatthours in 2005 to 896 billion kilowatthours in 2030. Even with the projected increase in nuclear capacity and generation, however, the nuclear share of total electricity generation is expected to fall from 19 percent in 2005 to 15 percent in 2030.

Natural gas consumption is projected to grow to 26.1 trillion cubic feet in 2030, down from the projection of 26.9 trillion cubic feet in 2030 in the AEO2006 reference case and well below the projections of 30 trillion cubic feet or more included in AEO reference cases only a few years ago. The generally higher natural gas prices projected in the AEO2007 reference case result in lower projected growth of natural gas use for electricity generation over the last decade of the projection period. Total natural gas consumption is almost flat from 2020 through 2030, when growth in residential, commercial, and industrial consumption is offset by a decline in natural gas use for electricity generation as a result of greater coal use.

As in AEO2006, coal is projected to play a major role in the AEO2007 reference case, particularly for electricity generation. Coal consumption is projected to increase from 22.9 quadrillion Btu (1,128 million short tons) in 2005 to more than 34 quadrillion Btu (1,772 million short tons) in 2030, with significant additions of new coal-fired generation capacity over the last decade of the projection period, when rising natural gas prices are projected. The reference case projections for coal consumption are particularly sensitive to the underlying assumption that current energy and environmental policies remain unchanged throughout the projection period. Recent EIA service reports have shown that steps to reduce greenhouse gas emissions through the use of an economy-wide emissions tax or cap-and-trade system could have a significant impact on coal use.

Economic Growth

US gross domestic product (GDP) is projected to grow at an average annual rate of 2.9 percent from 2005 to 2030 in the AEO2007 reference case. The main factors influencing the change in long-term GDP are growth in the labor force and labor productivity. The slightly lower rate of growth in the AEO2007 reference case reflects a slowing of the economy as a result of higher energy prices in the near term.

The projections for key interest rates (the Federal funds rate, the nominal yield on the 10-year Treasury note, and the AA utility bond rate) in the AEO2007 reference case are slightly lower than those in the AEO2006 reference case during most of the projection period, based on an expected lower rate of inflation over the long term. The projected value of industrial shipments is also lower in AEO2007, reflecting higher energy prices in the early years of the period.

Energy Prices

In the reference case --one of several cases included in AEO2007—the average world crude oil price declines slowly in real terms (2005 dollars), from a 2006 average of more than $69 per barrel ($11.56 per million Btu) to just under $50 per barrel ($8.30 per million Btu) in 2014 as new supplies enter the market, then rises slowly to about $59 per barrel ($9.89 per million Btu) in 2030 (Figure 1). The 2030 world oil price in the AEO2007 reference case is slightly above the 2030 price in the AEO2006 reference case. Alternative AEO2007 cases address higher and lower world oil prices and US natural gas prices.

This year’s reference case anticipates substantial increases in conventional oil production in several Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries over the next 10 years, as well as substantial development of

Figure 1. Energy prices, 1980-2030 (2005 dollars per million Btu)

The prices in the AEO2007 reference case are high enough to trigger entry into the market of some alternative energy supplies that are expected to become economically viable in the range of $25 to $50 per barrel. They include oil sands, ultra-heavy oils, gas-toliquids (GTL), and CTL.

The reference case also projects significant long-term supply potential from non-OPEC producers. In several resource-rich regions, with wars ending, new pipelines being built, new exploration and drilling technologies becoming available, and world oil prices rising, access to resources has increased and production has risen.

The average US wellhead price for natural gas in the AEO2007 reference case declines gradually from the current level, as increased drilling brings on new supplies and new import sources become available. The average price falls to just under $5 per thousand cubic feet in 2015 (2005 dollars), then rises gradually to about $6 per thousand cubic feet in 2030 (equivalent to $9.63 per thousand cubic feet in nominal dollars).

Imports of liquefied natural gas (LNG), new natural gas production in Alaska, and production from unconventional sources in the lower 48 States are not expected to increase sufficiently to offset the impacts of resource decline and increased demand. The trend in projected wellhead natural gas prices in the AEO2007reference case is similar to that in the AEO2006 reference case.

Electricity prices follow the prices of fuels to power plants in the reference case, falling initially as fuel prices retreat after the rapid increases of recent years and then rising slowly. From a peak of 8.3 cents per kilowatthour (2005 dollars) in 2006, average delivered electricity prices decline to a low of 7.7 cents per kilowatthour in 2015 and then increase to 8.1 cents per kilowatthour in 2030. Without adjustment for inflation, average delivered electricity prices in the AEO2007 reference case are projected to reach 13 cents per kilowatthour in 2030.

Energy Consumption

Total primary energy consumption in the AEO2007 reference case is projected to increase at an average rate of 1.1 percent per year, from 100.2 quadrillion Btu in 2005 to 131.2 quadrillion Btu in 2030—3.4 quadrillion Btu less than in the AEO2006 reference case. In 2030, the projected consumption levels for liquid fuels, natural gas, and coal all are lower in the AEO2007 reference case than in the AEO2006 reference case. Among the most important factors accounting for the differences are higher energy prices, particularly for coal, but also for natural gas and petroleum in the earlier part of the projection, slightly lower economic growth and greater use of more efficient appliances that reduces energy consumption in the residential and commercial sectors and slows the growth of electricity demand.

Consistent with projected growth in commercial floorspace in the AEO2007 reference case, delivered commercial energy consumption is projected to grow from 8.5 quadrillion Btu in 2005 to 12.4 quadrillion Btu in 2030, about the same as the AEO2006 reference case projection.

Total electricity consumption, including both purchases from electric power producers and on-site generation, is projected to grow from 3,821 billion kilowatthours in 2005 to 5,478 billion kilowatthours in 2030, increasing at an average annual rate of 1.5 percent in the AEO2007 reference case.

Total consumption of natural gas in the AEO2007 reference case is projected to increase from 22.0 trillion cubic feet in 2005 to 26.1 trillion cubic feet in 2030 (Figure 3), with virtually no growth over the last decade of the projection. Compared with AEO2006, industrial natural gas use is lower (8.6 trillion cubic feet in 2030 in the AEO2007 reference case, versus 8.8 trillion cubic feet in the AEO2006 reference case) as a result of better efforts to account for natural gas demand in the metal durables and balance of manufacturing sectors than in previous AEOs.

Total coal consumption is projected to increase from 22.9 quadrillion Btu in 2005 to 34.1 quadrillion Btu in 2030 in the AEO2007 reference case, or from 1,128 million short tons in 2005 to 1,772 million short tons in 2030. In the AEO2007 reference case, coal consumption in the electric power sector is projected to increase from 25.1 quadrillion Btu in 2020 to 31.1 quadrillion Btu in 2030, and coal use at CTL plants is projected to increase from 0.4 quadrillion Btu in 2020 to 1.8 quadrillion Btu in 2030.

Total consumption of marketed renewable fuels in the AEO2007 reference case (including ethanol for gasoline blending, of which 1.2 quadrillion Btu in 2030 is included with liquid fuels consumption) is projected to grow from 6.5 quadrillion Btu in 2005 to 10.2 quadrillion Btu in 2030 (Figure 3).

The robust growth is a result of State renewable portfolio standard (RPS) programs, mandates, and goals for renewable electricity generation; technological advances; high petroleum and natural gas prices; and Federal tax credits, including those in EPACT2005.

The AEO2007 reference case projects 21 percent more ethanol consumption in 2030 than was projected in the AEO2006 reference case—14.6 billion gallons, compared with 12.1 billion gallons. As corn and biofeedstock supplies increase, and with price advantages over other motor gasoline blending components, ethanol consumption grows from 4.0 billion gallons in 2005 to 11.2 billion gallons in 2012 in the AEO2007 reference case. This far exceeds the required 7.5 billion gallons in the Renewable Fuel Standard that was enacted as part of EPACT2005. Ethanol supply in AEO2007 is dominated by cornbased production, as a result of its cost advantages and eligibility for tax credits. Production of cellulosic ethanol is projected to total only 0.3 billion gallons in 2030, and ethanol imports are projected to total 0.8 billion gallons—a level consistent with the AEO2006 reference case projection.

Figure 3. Energy consumption by fuel, 1980-2030 (quadrillion Btu)

Electricity Generation

US electricity consumption--including both purchases from electric power producers and on-site generation-- is projected to increase steadily in the AEO2007 reference case, at an average rate of 1.5 percent per year.

In the AEO2007 reference case, electricity generation from natural-gas-fired power plants is projected to increase from 2005 to 2020, as recently built plants are used more intensively to meet growing demand. Coal-fired generation is projected to increase less rapidly than was projected in the AEO2006 reference case. After 2020, however, generation from new coal and nuclear plants is expected to displace some natural-gas-fired generation (Figure 5). In the AEO2007 reference case, 937 billion kilowatthours of electricity is projected to be generated from natural gas in 2030, 6 percent less than the AEO2006 reference case projection of 993 billion kilowatthours in 2030.

Figure 4. Energy use per capita and per dollar of gross domestic product, 1980-2030 (index, 1980 = 1)

Figure 5. Electricity generation by fuel, 1980-2030 (billion kilowatthours)

In the AEO2007 reference case, the natural gas share of electricity generation (including generation in the end-use sectors) is projected to increase from 19 percent in 2005 to 22 percent around 2016, before falling to 16 percent in 2030. The coal share is projected to decline slightly, from 50 percent in 2005 to 49 percent in 2020, before increasing to 57 percent in 2030. Additions to coal-fired generating capacity in the AEO-2007 reference case are projected to total 156 gigawatts from 2005 to 2030 (as compared with 174 gigawatts in the AEO2006 reference case), including 11 gigawatts at CTL plants and 67 gigawatts at integrated gasification combined-cycle plants.

Nuclear generating capacity in the AEO2007 reference case is projected to increase from 100 gigawatts in 2005 to 112.6 gigawatts in 2030. The increase includes 12.5 gigawatts of capacity at newly built nuclear power plants (more than double the 6 gigawatts of new additions projected in the AEO2006 reference case) and 3 gigawatts expected from uprates of existing plants, offset by 2.6 gigawatts of retirements.

The use of renewable technologies for electricity generation is projected to grow, stimulated by improved technology, higher fossil fuel prices, and extended tax credits in EPACT2005. Total renewable generation in the AEO2007 reference case, including CHP and end-use generation, is projected to grow by 1.5 percent per year, from 357 billion kilowatthours in 2005 to 519 billion kilowatthours in 2030.

Energy Production and Imports

Net imports of energy on a Btu basis are projected to meet a growing share of total US energy demand (Figure 6). In the AEO2007 reference case, net imports are expected to constitute 32 percent of total US energy consumption in 2030 (about the same as in the AEO2006 reference case), up from 30 percent in 2005. Rising fuel prices over the projection period are expected to spur increases in domestic energy production (Figure 7) and to moderate the growth in demand, thus tempering the projected growth in imports.

Figure 6. Total energy production and consumption, 1980-2030 (quadrillion Btu)

The US crude oil production in the AEO2007 reference case is projected to increase from 5.2 million barrels per day in 2005 to a peak of 5.9 million barrels per day in 2017 as a result of increased production offshore, predominantly from the deep waters of the Gulf of Mexico. Production is subsequently projected to fall to 5.4 million barrels per day in 2030. The AEO2006 reference case projected a much steeper decline in production from 2017 to 2030, with crude oil production falling from a slightly lower level of 5.8 million barrels per day in 2017 to 4.6 million barrels per day in 2030.

Total domestic liquids production, including crude oil, natural gas plant liquids, refinery processing gains, and other refinery inputs, is projected to increase steadily throughout the projection in the AEO2007 reference case, as growth in refinery processing gains and other refinery inputs offsets the projected decline in crude oil production after 2017. Total supply is projected to grow from 8.3 million barrels per day in 2005 to 10.5 million barrels per day in 2030. The higher crude oil production in the AEO2007 reference case, when compared with the AEO2006 reference case, is partially offset by lower production of natural gas liquids and lower refinery processing gains.

Figure 7. Energy production by fuel, 1980-2030 (quadrillion Btu)

Typically, trends in US coal production are linked to its use for electricity generation, which currently accounts for more than 90 percent of total coal consumption. Projected coal consumption in the electric power sector in the AEO2007 reference case is slightly higher than was projected in the AEO2006 reference case (1,570 million short tons versus 1,502 million short tons in 2030), because coal captures a larger share of total electricity generation in the AEO2007 reference case. Another fast-growing market for coal is CTL. Coal use in CTL plants is projected to grow from 26 million short tons in 2020 to 112 million short tons in 2030. By 2025, coal use for CTL production becomes the second largest use of coal in the AEO2007 reference case, after electric power generation.

Energy-Related Carbon Dioxide Emissions

Projected growth in the absolute level of primary energy consumption and a shift toward a fuel mix with slightly higher average carbon content cause projected energy-related emissions of carbon dioxide to grow by an average of 1.2 percent per year from 2005 to 2030 (Figure 8) --slightly higher than the average annual increase in total energy use. At the same time, the economy becomes less carbon intensive: the percentage increase in carbon dioxide emissions is about one-third of the projected increase in GDP, and emissions per capita increase by only 9 percent over the 25-year projection period. Projections of energy-related carbon dioxide emissions in the AEO2007 reference case are slightly lower than those in the AEO2006 reference case, consistent with the comparable difference in projections for overall energy use.

New Record in Wind Power
EP Desk

Wind energy continued its dynamic growth worldwide in the year 2006. 14.900 MW were added in the past year summing up to a global installed capacity of 73.904 MW by the end of December 2006. The added capacity equals a growth rate of 25 %, after 24 % in 2005. The currently installed wind power capacity generates more than 1 % of the global electricity consumption. Based on the accelerated development, WWEA has increased its prediction for 2010 and expects now 160.000 MW to be installed by the end of 2010.

Five countries added more than 1000 MW: the United States of America (2.454 MW), Germany (2.194 MW), India (1.840 MW) and Spain (1.587 MW) were able to secure their leading market positions and China (1.145 MW) joint the group of the now top five markets and is now number five in terms of added capacity, showing a market growth of 91 %. Five countries added more than 500 MW and showed excellent growth rates: France (810 MW, 107 % growth), Canada (768 MW, 112 %), Portugal (628 MW, 61 %) and the United Kingdom (610 MW, 45 %). The most dynamic market in 2006, Brazil, faced its long expected take off and added 208 MW which equals a sevenfold increase of installed capacity within one year.

Dr Anil Kane, President of the World Wind Energy Association: The wind industry worldwide has achieved another great success in 2006. Between 1997 and 2006, within only ten years, we have seen a tenfold
increase in installed capacity worldwide. Wind energy technology continues to be the most dynamic energy source and wind is clearly emerging as the currently most promising solution to replace the most
undesirable fossil fuel based electrical energy. However, next to still existing political and administrative constraints, one major limiting factor is today the need for additional wind turbine manufacturing capacities. Governments as well as international organisations have to provide the reliable long-term frameworks so that investment in this key sector can continue to grow.

The Hon Peter Rae AO, WWEA Senior Vice President and Chairman of the International Renewable Energy Alliance: The year 2006 demonstrated once again that wind does contribute substantially and increasingly to the global energy supply. Having in mind the promising growth rates of the other renewable technologies, political and business decision makers have to focus now on the synergies of the symphony of all the renewables. The Stern review which was published last year as well as the forthcoming IPCC report emphasize the urgency of rapid action to increase manufacture and deployment of all the renewable technologies.

Prof. Erico Spinadel, WWEA Vice President and President of the Argentine Wind Energy Association: â€œFor the benefit of the future generations, it is now time to take care of those countries, especially in the developing world, where wind energy does not yet play a major role in the energy supply. Wind technologies need to be made available to harvest the great potentials â€“ the encouraging news from Brazil indicate that the change has already started. The World Wind Energy Conference 2007 in Argentina will take this up and send out a strong signal especially to the Latin American region.

Hermann Oelsner, WWEA Vice President and President of the African Wind Energy Association: The worldwide wind boom is a ray of hope also for many African countries which suffer from a tremendous lack of accessible and affordable energy. Governments and especially international finance institutions need now to make sure that also the people in Africa can participate in this overall successful global development. We are confident that several major wind farms will be installed in the near future, especially in Southern Africa, where the current shortage of electricity can only be covered by renewable energies “which in most of these countries are the only domestic energy sources.