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Blog: Energy Prices 2013

By Brooke C. Stoddard

The projections for energy prices by the U. S. Energy Information Administration (EIA) released in the spring are generally heartening. The EIA’s Annual Energy Outlook 2013 (AEO2013) takes note of increased oil and gas production as well as low electricity demand growth and increasingly fuel-efficient cars to make American energy observers feel better than they have in years.

Some of the developments the AEO2013 notes are: strong domestic crude oil production that should last a decade; a growing market for natural gas in both electric power generation and transportation; a decline in gasoline consumption; and low electricity demand as well as increasing amounts of electricity created by renewable sources.

The EIA report makes its projections using a Reference Case, which assumes current law and known technology as well as current demographic and economic trends, a scenario it calls a “business-as-usual trend estimate.” Besides the Reference Case, the EIA report also makes projections assuming alternate developments both optimistic and pessimistic but these are more speculative. The AEO2013 is available online at the EIA website www.eia.gov.

A bright star among the forecasts is that natural gas production in the United States is going to be so robust that the nation will be on its way to being a net exporter of natural gas. Although exports are not projected to exceed imports for another six years, the increased production is expected to hold gas prices down. Most exports will go to Mexico, and imports from Canada will decline.

AEO2013 predicts natural gas production to outstrip domestic demand by 1.3% per year through its projection period of 25years; in this case, production will eventually lead to net exports. Natural gas prices will remain modest and its use by industry will grow 16 percent by 2025. The natural gas market share for electric power generation may reach 30 percent by 2040; moreover, generation plant efficiencies will increase. Coal as fuel for electricity generation, now just above the market share of natural gas, will likely decline as a portion of electric generation fuel, but much depends on respective prices and on Congressional policies meant to reduce greenhouse gas emissions.

AEO2013 predicts the nation’s gasoline usage will decline slightly year after year owing to increased vehicle fuel efficiencies, not forecasting increases until the 2030s. Diesel fuel increases slightly owing to the needs of industrial production shippers, but over the coming ten years an increasing amount of diesel is replaced by natural gas as compressed and liquefied technologies gain traction in heavy duty trucks.

AEO2013 is also encouraging about renewable energy, saying its usage will grow from 13 percent today to 16 percent in 25 years. It sees a greater participation by solar than by wind energy. Much depends, however, on the price of natural gas; lower gas prices means slower inroads by renewables.  Another factor, of course, is Congress; if legislators toughen emissions limits, renewables will capture a higher share of the energy market.

For AEO2013 projected petroleum prices, see our May story “Petroleum Prices under Control.” The World Bank Development Prospects Group generally agrees with the AEO2013. It has petroleum rising less than inflation over the next decade.

Brooke C. Stoddard is an Alexandria, Virginia-based writer covering business, manufacturing, energy, and technology.

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