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

Overviewsales figures for hybrids do not include sales of “mildhybrids,” which like full hybrids incorporate an integratedstarter generator, that allows for improvedefficiency by shutting the engine off when the vehicleis idling, but do not incorporate an electric motor thatprovides tractive power to the vehicle when it ismoving.The AEO2006 reference case includes minimalmarket penetration by hydrogen fuel cell vehicles,as a result of State mandates. Although significantresearch and development (R&D) is being conductedthrough the FreedomCAR Program, a co-funded partnershipbetween the Federal Government and privateindustry, those efforts are not expected to have a significantimpact on the market for fuel cell vehiclesbefore 2030.The AEO2006 reference case projection for U.S.imports of liquefied natural gas (LNG) is lower thanwas projected in the AEO2005 reference case. LNGimports are projected to grow from 0.6 trillion cubicfeet in 2004 to 4.1 trillion cubic feet in 2025, as comparedwith 6.4 trillion cubic feet in the AEO2005 referencecase. More rapid growth in worldwide demandfor natural gas in the AEO2006 reference casereduces the availability of LNG supplies to the UnitedStates and raises worldwide natural gas prices, makingLNG less economical in U.S. markets.AEO2006 includes consideration of the impacts of theEnergy Policy Act of 2005 (EPACT2005), signed intolaw on August 8, 2005. Consistent with the generalapproach adopted in the AEO, the reference case doesnot consider those sections of EPACT2005 thatrequire funding appropriations for implementationor sections with highly uncertain impacts on energymarkets. For example, EIA does not try to anticipatethe policy response to the many studies required byEPACT2005 or the impacts of the R&D fundingauthorizations included in the bill. The AEO2006 referencecase includes only those sections of EPACT-2005 that establish specific tax credits, incentives, orstandards—about 30 of the roughly 500 sections inthe legislation.Of the EPACT2005 provisions analyzed, incentivesintended to stimulate the development of advancednuclear and renewable plants have particularly noteworthyimpacts. A total of 6 gigawatts of newly constructednuclear capacity is projected to be added by2030 in the AEO2006 reference case as a result of theincentives in EPACT2005.EPACT2005 also has important implications forenergy consumption in the residential and commercialsectors. In the residential sector, EPACT2005sets efficiency standards for torchiere lamps, dehumidifiers,and ceiling fans and creates tax credits forenergy-efficient furnaces, water heaters, and air conditioners.It also allows home builders to claim taxcredits for energy-efficient new construction. In thecommercial sector, the legislation creates efficiencystandards that affect energy use in a number of commercialapplications. It also includes investment taxcredits for solar technologies, fuel cells, and microturbines.These policies are expected to help reduceenergy use for space conditioning and lighting in bothsectors.Economic GrowthThe projections for key interest rates—the Federalfunds rate, the nominal yield on the 10-year Treasurynote, and the AA utility bond rate—in the AEO2006reference case are slightly lower than those in theAEO2005 reference case. Also, the projected value ofindustrial shipments has been revised downward, inpart in response to the higher projected energy pricesin the AEO2006 reference case.Despite the higher forecast for energy prices, grossdomestic product (GDP) is projected to grow at anaverage annual rate of 3.0 percent from 2004 to 2030in AEO2006, identical to the projected growth ratefrom 2004 through 2025 in AEO2005. The ratio offinal energy expenditures to GDP has generally fallenover time and was only about 0.07 in 2004, down froma high of 0.14 during the 1970s. It is projected to fallto about 0.05 in 2030 as a result of continued declinesin energy use per unit of output and growth in otherareas of the economy. The main factors influencinglong-term economic growth are growth in the laborforce and sustained growth in labor productivity, notenergy prices.Energy PricesIn the reference case—one of several cases included inAEO2006—the average world crude oil price continuesto rise through 2006 and then declines to $46.90per barrel in 2014 (2004 dollars) as new supplies enterthe market. It then rises slowly to $54.08 per barrel in2025 (Figure 1), about $21 per barrel higher than theprice in AEO2005 ($32.95 per barrel). AlternativeAEO2006 cases address higher and lower world oilprices.The prices in the AEO2006 reference case reflect ashift in EIA’s thinking about long-term trends in oilmarkets. World oil markets have been extremely volatilefor the past several years, and EIA now believesthat the price path in AEO2005 did not fully reflectthe causes of that volatility and the implications forEnergy Information Administration / Annual Energy Outlook 2006 3