EIA Sees Boost in Coal, Nuclear, and Renewables

In the years out to 2025, U.S. demand for petroleum and natural gas is projected to skyrocket, but coal, nuclear, and renewables will gain market share.

The way it looks to the U.S. Energy Information Administration, the U.S. will be importing still larger amounts of oil and gas in the future, but gains by coal, nuclear, and renewable energy will hold down the increases somewhat. The EIA's figure 6 shows energy production by fuel now and as projected in 2025.

In its Annual Energy Outlook for 2004, previewed last week, the EIA projects energy supply and demand growth through 2025. It estimates consumption will grow 1.5 percent per year on average. Total energy production and consumption is projected to increase from 97.7 quadrillion British thermal units (Btu) in 2002 to 136.5 quadrillion Btu in 2025 (average 1.5 percent) as shown in the EIA's figure 5.

These Outlook projections for total petroleum and natural gas consumption in 2025 are lower than last year, and the projections for coal, nuclear, and renewable energy consumption are higher. Higher natural gas prices and higher corporate average fuel economy (CAFE) standards for light trucks in the transportation sector are among the most important factors accounting for the decline from last year's forecasts.

Demand Factors
Other demand factors cited in the Outlook are residential energy demand totaling 14.2 quadrillion Btu in 2025, commercial energy consumption at 12.2 quadrillion Btu, and industrial energy consumption of 33.4 quadrillion Btu. However, those effects will be offset in part by more rapid growth in the energy-intensive industries. Residential energy demand growth comes from electricity used to power computers, electronic equipment, and appliances, and a more rapid increase in the number of U.S. households.

Energy used for transportation is projected at 41.2 quadrillion Btu in 2025 (2.5 quadrillion Btu lower than the last year). A major factor is the adoption of new Federal CAFE standards for light trucks--including sport utility vehicles--now under review by the NHTSA. The new CAFE standards require that the light trucks and SUVs sold by a manufacturer have a minimum average fuel economy of 21.0 miles per gallon for model year 2005, 21.6 miles per gallon for model year 2006, and 22.2 miles per gallon for model years 2007 and beyond. (The old standard was 20.7 miles per gallon in all years.) As a result, the average fuel economy for all new light-duty vehicles is projected to increase to 26.9 miles per gallon in 2025.

Total electricity consumption, including purchases from electric power producers and onsite generation, is projected to grow from 3,675 billion kilowatt-hours in 2002 to 5,485 billion kilowatt-hours in 2025, increasing at an average rate of 1.8 percent per year. Rapid growth in electricity use for computers, office equipment, and a variety of electrical appliances in the residential and commercial sectors is partially offset in the forecast because they are more efficient than prior models, by the effects of demand-side management programs, and by slower growth in electricity demand for some applications, such as air conditioning, which have reached near-maximum penetration levels.

Average delivered electricity prices are projected to decline from 7.2 cents per kilowatt-hour in 2002 to a low of 6.6 cents (2002 dollars) in 2007 as a result of cost reductions in an increasingly competitive market--where excess generating capacity has resulted from the recent boom in construction--and continued declines in coal prices. In markets where electricity industry restructuring is still ongoing, projected prices decline through reductions in operating and maintenance costs, administrative costs, and miscellaneous costs. After 2007, average real electricity prices are projected to increase, reaching 6.9 cents per kilowatt-hour in 2025 (equivalent to 13.2 cents per kilowatt-hour in nominal dollars).

Total demand for natural gas is projected to increase at an average annual rate of 1.4 percent from 2002 to 2025. From 22.8 trillion cubic feet in 2002, natural gas consumption increases to 31.4 trillion cubic feet in 2025, primarily as a result of increasing use for electricity generation and industrial applications, which together account for almost 70 percent of the total projected growth in natural gas demand from 2002 to 2025. However, the annual rate of increase in natural gas demand varies over the projection period. In particular, the growth in demand for natural gas slows in the later years of the forecast (growing by 1.6 percent per year from 2002 to 2020, as compared with 0.6 percent per year from 2020 to 2025), as rising prices for natural gas make it less competitive for electricity generation. The total consumption of natural gas in 2025 is 3.5 trillion cubic feet lower than projected last year.

Coal Grows
A big boost in coal consumption is projected--from 1,066 million short tons (22.2 quadrillion Btu) in 2002 to 1,567 million short tons (31.7 quadrillion Btu) in 2025. On a Btu basis, total coal use is projected to grow by 1.6 percent per year. Coal consumption for electricity generation is projected to increase by an average of 1.7 percent per year on a Btu basis, from 976 million short tons in 2002 to 1,477 million short tons in 2025.

The average price of coal at the mine mouth is projected to decline from $17.90 (2002 dollars) in 2002 to $16.19 per short ton in 2016. Forecast prices decline because of increased productivity, a shift to western production, declines in rail transportation costs, and competitive pressures on labor costs. After 2016, however, average coal prices are projected to rise as productivity improvements slow and the industry faces increasing costs to open new mining areas to meet rising demand. In 2025, the average price is projected to be $16.57 per short ton, still lower than the real price in 2002. In nominal dollars, projected coal prices in 2004 are equivalent to $32 per short ton in 2025.

Renewables and Nuclear
Total renewable fuel consumption, including ethanol for gasoline blending, is projected to grow at an average rate of 1.9 percent per year, from 5.8 quadrillion Btu in 2002 to 9.0 quadrillion Btu in 2025, primarily as a result of state mandates for renewable electricity generation. About 60 percent of the projected demand for renewables in 2025 is for grid-related electricity generation (including combined heat and power), and the rest is for dispersed heating and cooling, industrial uses, and fuel blending.

Growth in industrial biomass, ethanol for gasoline blending, and most sources of renewable electricity generation (including conventional hydroelectric, geothermal, biomass, and wind) is higher than was projected last year as a result of higher projections for electricity generation from geothermal and wind energy.

Renewable technologies are projected to grow slowly in power generation because of the relatively low costs of fossil-fired generation and because competitive electricity markets favor less capital-intensive technologies in the competition for new capacity. State renewable portfolio standards, which specify a minimum share of generation or sales from renewable sources, are included in the Outlook. The production tax credit for wind and biomass is assumed to end on December 31, 2003, its statutory expiration date at the time the Outlook was prepared.

Renewable generation, including combined heat and power generation, is projected to increase from 339 billion kilowatt-hours in 2002 to 518 billion kilowatt-hours in 2025, at an average annual growth rate of 1.9 percent.

Nuclear generating capacity in the Outlook is projected to increase from 98.7 gigawatts in 2002 to 102.6 gigawatts in 2025, including uprates of existing plants equivalent to 3.9 gigawatts of new capacity between 2002 and 2025. Last year, total nuclear capacity was expected to reach a peak of 100.4 gigawatts in 2006 before declining to 99.6 gigawatts in 2025. No existing U.S. nuclear units are retired in the current projection. It assumes that the Browns Ferry nuclear plant will begin operation in 2007 but projects that no new nuclear facilities will be built before 2025, based on the relative economics of competing technologies.

Import Growth
Increasing imports are projected to meet the growing energy demand. They are expected to constitute 36 percent of total U.S. energy consumption in 2025, up from 26 percent in 2002.

World oil demand is projected to increase from 78 million barrels per day in 2002 to 118 million barrels per day in 2025, less than last year's projection of 123 million barrels per day. Lower demand for petroleum in the U.S. and Western Europe and, particularly, in China, India, and other developing nations in the Middle East, Africa, and South and Central America is projected. Growth in oil production in both OPEC and non-OPEC nations leads to relatively slow growth in prices through 2025. OPEC oil production is expected to reach 54 million barrels per day in 2025, almost 80 percent higher than the 30 million barrels per day produced in 2002.

Non-OPEC oil production is expected to increase from 44.7 to 63.9 million barrels per day between 2002 and 2025. The largest share of this increase is expected in Russia, the Caspian Basin, non-OPEC Africa, and South and Central America (in particular, Brazil). Russian oil production is expected to continue to recover from the lows of the 1990s and to reach 10.9 million barrels per day in 2025, 43 percent above 2002 levels. Production from the Caspian Basin is expected to exceed 6.0 million barrels per day by 2025, compared with 1.7 million barrels per day in 2002. Projected production from South and Central America reaches 7.8 million barrels per day. A large portion of the increase in South and Central American production, 0.9 million barrels per day, is expected to come from nonconventional oil production in Venezuela. Non-OPEC African production is projected to grow from 3.1 million barrels per day in 2002 to 6.7 million barrels per day in 2025.

The projection for conventional onshore production of natural gas is lower in the Outlook than it was last year, because slower reserve growth, fewer new discoveries, and higher exploration and development costs.

Canadian imports are also projected to be sharply lower than last year's projections.

Growth in U.S. natural gas supplies will be dependent on unconventional domestic production, natural gas from Alaska, and imports of LNG. Total nonassociated unconventional natural gas production is projected to grow from 5.9 trillion cubic feet in 2002 to 9.2 trillion cubic feet in 2025. With completion of an Alaskan natural gas pipeline in 2018, total Alaskan production is projected to increase from 0.4 trillion cubic feet in 2002 to 2.7 trillion cubic feet in 2025. The four existing U.S. LNG terminals (Everett, Massachusetts; Cove Point, Maryland; Elba Island, Georgia; and Lake Charles, Louisiana) all are expected to expand by 2007, and additional facilities are expected to be built in the lower 48 states, serving the Gulf, Mid-Atlantic, and South Atlantic states, with a new small facility in New England and a new facility in the Bahamas serving Florida via a pipeline. Another facility is projected to be built in Baja California, Mexico, serving the California market. Total net LNG imports are projected to increase from 0.2 trillion cubic feet in 2002 to 4.8 trillion cubic feet in 2025, more than double the prior projection of 2.1 trillion cubic feet.

Projections are just that--projections. And they could change next year just as they have this year. But the general trend they indicate has not changed from last year to this: The U.S. will continue to consume lots of energy and import most of it.