The EIA will release its complete Annual Energy Outlook: 2011-2035 on April 26, 2011. That federal agency is part of the U.S. Department of Energy (DOE) but operates independently in energy data collection and publishing.
Shale Gas Production Is a Projected Winner
Over the next 25 years, the report expects dramatic increases in the production of shale gas, making that resource the big winner. Shale gas refers to natural gas that is trapped within shale formations, according to geology.com. These shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas. By the year 2035, the EIA predicts shale gas will accelerate from 14 percent of U.S. dry gas production to 45 percent.
On the negative side, the report suggests that energy-caused carbon dioxide (CO2) emissions will jump 6 percent over the 2005 level by the year 2035. These emissions contribute to greenhouse gases, the planet’s global-warming problem.
Will Wrenching Earthquake in Japan Cause Revisions in Projections?
However, first a caveat is in order. It is appropriate to inject that as of this writing, it seems likely the horrific earth-shifting, 8.9 earthquake of March 11, 2011 and ensuing tsunami in Japan will have material repercussions on world business and social trends in the future, perhaps even beyond the year 2035 and, therefore, will affect projections and events in the purview of the EIA extrapolations.
Japan is the third largest economy in the world, after China and the U.S. Its trading partners might find that the country’s needs and funds to pay for them will change drastically in the quake’s aftermath, for it is a country totally devastated. When watching action videos of the catastrophe, imaginative onlookers might recall Godzilla, the rampaging monster of Japanese films that wrought destruction to the countryside. The earthquake was the world’s fifth most powerful earthquake in recorded history.
Full-Blown Report Will Express Alternatives in Projections
Underlying EIA’s long-term projections are assumptions that current U.S. laws and regulations impacting energy supply and demand will remain in place, which might be a caveat for readers that the trend directions in the study are more important than the precise numbers. Uncertainty over renewal of relevant sunset laws pertaining to the energy sector as well as new legislation inspired the EIA’s hedge clause.
In the full-blown report, several alternative cases are included that will enlighten the reader as to possible scenarios that could alter future events and, therefore, the bottom line of the study.
Economic Activity Is the Engine of Growth for Energy
As is the case for most industrial sectors, economic growth is the engine that will determine levels of energy supply and demand in the future. In its upcoming outlook, EIA grows real gross domestic product (GDP) by an average of 2.7 percent annually from 2009 to 2035. Economic activity within US national boundaries constitute its GDP, while worldwide output by U.S. nationals aggregate into its Gross National Product (GNP).
Under EIA assumptions, the U.S. population, labor force and productivity per worker increase by 0.9 percent, 0.7 percent, and 2.0 percent, respectively, from 2009 to 2035.
In contemplating the EIA’s scenario of economic growth and prices, the reader should be aware that referencing growth rates to a depressed base - as the 2007-2011 span certainly is so far - can produce hyper increments many years later. But that is the reason alternative cases are considered in the complete edition. A reader can choose acceptable conditions. Along that line, energy prices are expressed in constant dollars, linked to the base years.
EIA Expects Crude Oil Price to Rise to $125 Per Barrel in 2009 Dollars
After declining sharply in the second half of 2008 from a peak in the middle of that year, real prices began to rise, adding credence to the EIA report’s expectations for them to escalate to $125 per barrel in 2035, expressed in 2009 dollars, or $200 per barrel in current dollars. Analysts see non-OPEC countries like Brazil, Russia, Kazakhstan and Canada as comers in accelerating oil production through 2035.
Motor gasoline and diesel products are expected to increase from $2.35 and $2.44 per gallon in 2009 to $3.69 and $3.89 per gallon, respectively, in 2035. Keep in mind those prices are represented in 2009 dollars. Because of stronger demand for diesel, its prices will average higher than gasoline through the period.
Technological Advances in Shale Gas Exploitation Will Hold Down Natural Gas Prices
As mentioned, improving technologies and expanding reserves of shale gas will hold natural gas prices in check. They will stay under $5 per thousand cubic feet through 2022. But afterward, rapidly rising shale gas exploitation costs will jack-up prices to $6.53 per thousand cubic feet in 2035.
Coal remains the best buy in energy value, but it’s dirty, unsightly and dangerous to produce in mines. From 2009 to 2035, the price at the mine mouth should rise from $33.44 per short ton to $34.11 per short ton, in 2009 dollars. That is barely a 2 percent real price gain.
Prices of electricity are linked to fuel prices. Natural gas plays a key role in prices because it represents a big share of fuel costs and because gas-fired plants often furnish marginal gas not used constantly in competitive areas. Prices for electricity in 2035 are projected to be 9.2 cents per kilowatt hour, adjusted for inflation, compared with 9.8 cents in 2009.
EIA Likely to Rethink Nuclear Projections in Light of Japanese Catastrophe
Returning in conclusion to the earthquake in Japan, the EIA forecast of U.S. consumption of nuclear power in electric generation seems most vulnerable to revision. The study now shows nuclear usage at generating plants decreasing to 17 percent of the total fuel mix in electric generation in 2035, from 20 percent in 2009. In the face of the threats of meltdowns in nuclear plants in Japan, the expectation for U.S. consumption of nuclear energy could be whittled down even more.
Howard Bryan Bonham - Howard Bryan Bonham is a former daily newspaper editor and award-winning financial writer.
