Annual Energy Outlook 2006 with Projections to 2030 - Usinfo.org

OverviewEnergy Trends to 2030The Energy Information Administration (EIA), inpreparing projections for the Annual Energy Outlook2006 (AEO2006), evaluated a wide range of trendsand issues that could have major implications for U.S.energy markets between today and 2030. AEO2006 isthe first edition of the Annual Energy Outlook (AEO)to provide projections through 2030. This overviewfocuses on one case, the reference case, which is presentedand compared with the Annual Energy Outlook2005 (AEO2005) reference case.Trends in energy supply and demand are affected by alarge number of factors that are difficult to predict,such as energy prices, U.S. economic growth,advances in technologies, changes in weather patterns,and future public policy decisions. In preparingAEO2006, EIA reevaluated its prior expectationsabout world oil prices in light of the current circumstancesin oil markets. Since 2000, world oil priceshave risen sharply as supply has tightened, first as aresult of strong demand growth in developing economiessuch as China and later as a result of supply constraintsresulting from disruptions and inadequateinvestment to meet demand growth. As a result ofthis review, the AEO2006 reference case includesmuch higher world oil prices than were projected inAEO2005. In the AEO2006 reference case, worldcrude oil prices, which are now expressed in terms ofthe average price of imported low-sulfur crude oil toU.S. refiners, are projected to increase from $40.49per barrel (2004 dollars) in 2004 to $54.08 per barrelin 2025 (about $21 per barrel higher than the projected2025 price in AEO2005) and to $56.97 per barrelin 2030.The higher world oil prices in the AEO2006 referencecase have important implications for energy markets.The most significant impact is on the outlook for U.S.petroleum imports. Net imports of petroleum are projectedto meet a growing share of total petroleumdemand in both AEO2006 and AEO2005; however,the higher world oil prices in the AEO2006 referencecase lead to more domestic crude oil production, lowerdemand for petroleum products, and consequentlylower levels of petroleum imports. Net petroleumimports are expected to account for 60 percent ofdemand (on the basis of barrels per day) in 2025 in theAEO2006 reference case, up from 58 percent in 2004.In the AEO2005 reference case, net petroleumimports were projected to account for 68 percent ofU.S. petroleum demand in 2025.Higher world oil prices are also projected to affectfuel choice and vehicle efficiency decisions in thetransportation sector. Higher oil prices increase thedemand for unconventional sources of transportationfuel, such as ethanol and biodiesel, and are projectedto stimulate coal-to-liquids (CTL) production in thereference case. In some of the alternative AEO2006cases, with even higher oil prices, domestic productionof liquid fuels from natural gas—“gas-to-liquids”(GTL)—is also stimulated. The production of alternativeliquid fuels is highly sensitive to oil price levels.The projected fuel economy of new light-duty vehiclesin the AEO2006 reference case in 2025 is higher thanwas projected in the AEO2005 reference case, primarilybecause of higher petroleum prices. The AEO2006reference case does not include implementation of theproposed, but not yet final, increase in fuel economystandards based on vehicle footprint for lighttrucks—including pickups, sport utility vehicles, andminivans—for model years 2008 through 2011.Much of the increase in new light-duty vehicle fueleconomy in the AEO2006 reference case reflectsgreater penetration by hybrid and diesel vehicles.Sales of “full hybrid” vehicles in 2025 are 31 percent(340,000 vehicles) higher in the AEO2006 referencecase, and diesel vehicle sales are 29 percent (290,000vehicles) higher, than projected in the AEO2005 referencecase. In spite of the higher projected sales ofhybrid (1.5 million) and diesel (1.3 million) vehicles in2025, each is expected to account for only 7 percent ofnew vehicle sales in the AEO2006 reference case,even though the projected hybrid sales are higherthan current industry expectations. The projectedWorld Oil Price Concept Used inAEO2006In previous AEOs, the world crude oil price wasdefined on the basis of the average importedrefiner acquisition cost of crude oil to the UnitedStates (IRAC), which represented the weightedaverage of all imported crude oil. Historically, theIRAC price has tended to be a few dollars less thanthe widely cited prices of premium crudes, such asWest Texas Intermediate (WTI) and Brent, whichrefiners generally prefer for their low viscosity andsulfur content. In the past 2 years, the price differencebetween premium crudes and IRAC has widened—inparticular, the price spread betweenpremium crudes and heavier, high-sulfur crudes.In an effort to provide a crude oil price that is moreconsistent with those generally reported in themedia, AEO2006 uses the average price ofimported low-sulfur crude oil to U.S. refiners.2 Energy Information Administration / Annual Energy Outlook 2006