EIA Annual Energy Outlook 2020 Highlights
Monday, March 9, 2020
The U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2020 (AEO2020) at the end of January. It provides modeled projections of domestic energy markets through 2050, and it includes cases with different assumptions about macroeconomic growth, world oil prices, future costs of renewable power generation technologies, and technological progress.
The AEO2020 Reference case represents EIA’s best assessment of how U.S. and world energy markets will operate through 2050, based on key assumptions intended to provide a base for exploring long-term trends. For example, the Reference case projection assumes improvement in known energy production, delivery, and consumption technologies, and that current laws and regulations that affect the energy sector, including laws that have end dates, are unchanged throughout the projection period.
Side cases in the AEO2020 show oil prices in the future will be driven by global market balances that are primarily influenced by factors that are not modeled in the National Energy Modeling System (NEMS) – an integrated model that captures interactions of economic changes and energy supply, demand, and prices. Compared with the Reference case, the High Oil and Gas Supply case reflects lower costs and greater U.S. oil and natural gas resource availability, which allows more production at lower prices. The Low Oil and Gas Supply case assumes fewer resources and higher costs.
Petroleum and Other Liquids
Growth in production of U.S. crude oil and natural gas plant liquids (NPGLs) generally continues through 2025, mainly as a result of the continued development of tight oil resources. During the same period, domestic consumption falls, making the United States a net exporter of liquid fuels in the Reference case and in many of the side cases.
Tight oil development drives U.S. crude oil production during the AEO2020 projection period, which is consistent across all AEO2020 side cases. NGPL production in the Reference case increases during the next 10 years in the East (Marcellus and Utica plays) and Southwest (Permian plays) regions because the development of crude oil and natural gas resources is driven in part by the increased economic favorability of co-producing these products. By 2050, the Southwest and East regions account for nearly 60% of total U.S. NGPL production.
Utilization of U.S. refineries remains near recent levels throughout the projection period in the Reference case as U.S. refineries remain competitive in the global market—and U.S. exports of low-sulphur diesel and residual fuel oil increase in 2020 as a result of international sulphur emissions regulations on the marine sector.
Imports of unfinished oils peak in 2020 as U.S. refineries take advantage of the increased discount of the heavy, high-sulfur residual fuel oil available on the global market. Exports of diesel and residual fuel (especially low-sulphur residual fuel) increase to 2.5 million barrels per day in 2020 because U.S. refineries are well-positioned to supply some of the increase in global demand for low-sulphur fuels.
In the Reference case, the U.S. exports more petroleum on a volume basis than it imports from 2020 to 2050. Side case results vary significantly as shifts in U.S. domestic petroleum consumption and crude oil production drive changes to net importers. Prices for gasoline and diesel fuel rise throughout the Reference case projection period and primarily follow the price of crude oil in the High Oil Price and Low Oil Price cases.
Natural gas production increases in most cases, supporting higher levels of domestic consumption and natural gas exports. However, AEO2020 projections are sensitive to resource and technology assumptions.
U.S. dry natural gas production and consumption increase in most AEO2020 cases, and natural gas production growth outpaces consumption in most cases. Production increases as a result of continued development of tight and shale resources, which account for more than 90% of dry natural gas production in 2050 in the Reference case.
Natural gas production from shale gas and tight oil plays continues to grow, both as a share of total U.S. natural gas production and in absolute volume, in the Reference case. Eastern U.S. production of natural gas from shale resources leads growth in the Reference case, followed by growth in Gulf Coast onshore production.
Total U.S. natural gas production across most AEO2020 cases is driven by the continued development of the Marcellus and Utica shale plays in the East. Natural gas from the Eagle Ford (coproduced with oil) and the Haynesville plays in the Gulf Coast region also materially contributes to domestic dry natural gas production. Natural gas production associated with tight oil in the Permian Basin greatly increases until 2022 but remains relatively flat afterwards to 2050.
The United States continues to produce large volumes of natural gas from oil formations, even though relatively low oil prices put downward pressure on natural gas prices. The percentage of dry natural gas production from oil formations in the United States increased from 8% in 2013 to 15% in 2018 and remains near this percentage through 2050 in the Reference case.
Increased drilling in the Southwest, particularly in the Wolfcamp formation in the Permian Basin, is the main driver of growth in natural gas production from tight oil formations. The Low Oil Price case (which reflects a U.S. crude oil benchmark West Texas Intermediate price at $56 per barrel or lower) is the only case in which U.S. natural gas production from oil formations is lower in 2050 than current levels.
Industrial and electric power demand drives U.S. natural gas consumption growth, but consumption in the residential and commercial sectors remain relatively flat across the projection period in the Reference case. This is because efficiency gains and population shifts to warmer regions counterbalance population growth. Although natural gas consumption rises in transportation sector, particularly for freight trucks, rail, and marine shipping, it remains a small share of both transportation fuel demand and total natural gas consumption.
The U. S. continues to export more natural gas than it imports in the AEO2020 Reference case because near-term growth in LNG export capacity delivers domestic production to global markets. In the Reference case, pipeline exports to Mexico and LNG exports to world markets increase moderately until 2025, after which pipeline export growth to Mexico slows. LNG exports continue to rise through 2030 before remaining relatively flat for the remainder of the projection period.
Increasing natural gas exports to Mexico are a result of more pipeline infrastructure to and within Mexico, allowing for increased natural gasfired power generation. By 2030, Mexico’s domestic natural gas production begins to displace U.S. exports.
Three more LNG-export facilities became operational in the Lower 48 states in 2019, bringing the total number to six. Two new LNG projects reached final investment decisions and started construction in 2019. All LNG-export facilities and expansions currently under construction are expected to be completed by 2025. U.S. LNG-export capacity will continue to serve growing global LNG demand, particularly in emerging Asian markets as long as U.S. natural gas prices remain competitive. As U.S.-sourced LNG becomes less competitive in world markets after 2030, export volumes level off.
U.S. imports of natural gas from Canada, primarily from its prolific western region, continue to generally decline from historical levels. U.S. exports of natural gas to eastern Canada continue to increase because of eastern Canada’s proximity to U.S. natural gas resources in the Marcellus and Utica plays and new pipeline infrastructure. However, this export growth slows in the mid-2020s as Canada’s demand for natural gas begins to decline, particularly in the electric power sector, as Canada begins transitioning to more renewables in its generation mix.
LNG exports are sensitive to both oil and natural gas prices, resulting in a wide range of U.S. LNG-export levels across cases. Historically, most LNG was traded under long-term contracts linked to crude oil prices. As more natural gas is traded via short-term contracts or traded on the spot market, the link between LNG and oil prices weakens over time, making U.S. LNG exports less sensitive to the crude oil-to-natural gas price ratio and more responsive to the global LNG supply-natural gas demand dynamics. This shift causes growth in U.S. LNG exports to slow in all cases. In the High Oil and Gas Supply case, low U.S. natural gas prices make U.S. LNG exports competitive relative to other suppliers. Conversely, higher U.S. natural gas prices in the Low Oil and Gas Supply case result in lower U.S. LNG exports.
Transportation energy consumption peaks in 2020 in the AEO2020 Reference case because rising fuel efficiency more than offsets the effects of increases in total travel and freight movements, but this trend reverses toward the end of the projection period.
Transportation energy consumption declines through the 2030s in the Reference case because increases in fuel economy more than offset growth in vehicle miles traveled. Passenger travel increases across all transportation modes in the Reference case through 2050, and freight movement increases across all modes except domestic marine.
Truck vehicle miles traveled, the dominant mode of freight movement in the United States, grow by 38%, from 300 billion miles in 2019 to 415 billion miles in 2050, as a result of increased economic activity. Freight rail ton-miles decline significantly in the early part of the projection period as a result of reduced U.S. coal shipments, but overall, freight rail ton-miles grow by 6% during the projection period, led primarily by rising industrial output.
Domestic marine shipments decline modestly during the projection period, continuing a historical trend related to logistical and economic competition with other freight modes.
Energy intensity decreases across most transportation modes in the AEO2020 Reference case because of policy, economic, and technological factors. Energy use per ton-mile of travel by freight modes decreases, led by increases in the fuel economy of heavy-duty trucks across all weight classes as the second phase of heavy-duty vehicle efficiency and greenhouse gas standards take full effect in 2027. Heavy-duty vehicle fuel economy continues to improve as older vehicles are replaced with newer, more efficient vehicles.
Consumption of transportation fuels grows considerably in the AEO2020 Reference case through the projection period because of increased use of electricity and natural gas Natural gas consumption increases through 2050 because natural gas is increasingly used as a fuel for heavy-duty vehicles and freight rail.
In the later years of the projection period, LNG is used in the maritime industry as an alternative to burning high-sulphur residual fuel oil to meet the new standards set for marine fuels under the International Convention for the Prevention of Pollution from Ships (MARPOL convention).
To read the full report with its in-depth analysis, visit www.eia.gov/outlooks/aeo/.