New AEO shows promise of smart policy, need for further action
Posted April 29, 2009 at 10:55 am 
Filed in: If you haven’t already, spend some time reviewing the Energy Information Administration’s recently updated Annual Energy Outlook 2009. The revised modeling runs incorporate the effects of the current recession as well as the energy provisions in the American Recovery and Reinvestment Act (more commonly known as the stimulus bill). All the reference case and supplemental tables were updated. For comparison, EIA also produced a “no stimulus” case that only incorporates the economic downturn.
There are a few things worth noting at first glance:
The new reference case shows U.S. liquid fuels consumption essentially flat-lining out to 2030. This is a slight improvement compared to the original AEO 2009 and the “no stimulus” case. However, compared to the 2008 AEO edition—which had liquid fuels use increasing by more than 10 percent—this is a substantial change in projected liquids consumption.
And if you unpack the components of these numbers, there are some additional encouraging signs. For example, gasoline demand falls 13 percent by 2030 in the new simulation, with high level ethanol blends (E85) largely making up the difference. By way of comparison, the 2008 AEO showed gasoline demand declining by just 5 percent over the same period, while E85 reached only 900,000 barrels per day.
All this is just to point out that government policy is having an impact on our energy portfolio. Since 2007, tighter fuel-economy standards, tax incentives for efficient vehicles in Emergency Economic Stabilization Act of 2008, and now the stimulus bill have combined to reduce EIA’s projected U.S. oil consumption by a whopping 6.0 million barrels per day (mbd) by 2030. Projected gasoline demand is down by 4.3 mbd.
Second, policies to promote electric vehicles are starting to register in the models. By 2030, EIA projects that 3.5 million EVs and PHEVs will be on the road, with annual sales reaching 65,000 in 2030. That might not sound like a lot, but the trajectory is the most critical thing to focus on. As better recharging infrastructure is deployed and producers achieve better cost curves, sales rapidly accelerate. Between 2010 and 2020, EV and PHEV sales are generally constant around 20,000 annually. Between 2021 and 2030, annual sales numbers increase three-fold.
Of course, it’s not all good news.
In spite of slightly increased domestic crude oil production, EIA shows the U.S. still importing 9.5 million barrels of oil every day in 2020—nearly 50 percent of our petroleum supply. Keep in mind that the latest figures from the Office of Foreign Trade Statistics show the U.S. deficit in petroleum trade hit a record $383 billion in 2008. Also keep in mind that it’s a fair bet that oil prices will be volatile for the next decade or so. As a nation, do we really want to be spending hundreds of billions of dollars on oil imports in 10 years?
This seems like a preventable disaster. With all of the advances in technology the offshore oil industry has made over the last two decades, it’s time for national leadership to put together a plan to responsibly access oil and resources on the areas of the Outer Continental Shelf that have been historically closed to development—the Pacific and Atlantic coasts and the Eastern Gulf of Mexico. Development offshore Alaska—which is regarded by most experts as a “world class resource”—also needs to be expedited and unburdened by frivolous law suits.
These four areas combined hold more than 40 billion barrels of technically recoverable oil, according to MMS. And much of that figure is based on seismic data collected in the 1970s and 1980s. New technology would likely discover greater resources and allow them to be developed with greater accuracy.
To increase environmental security, the leasing process could be restructured to focus on environmental performance. Moreover, Congress could require that “no surface presence” and “temporary surface presence” provisions be included in leases within certain distances of the shore line.
What are we waiting for?
Other interesting things going on:
It’s not a good time to be an international oil company. With crude prices now at half of the 2008 average, BP, Shell, and others are reporting sharply reduced earnings. At some point, this has to translate into reduced capital investment, even if most of the majors insist they will maintain 2009 capex budgets.
Lessons from across the Atlantic. The Financial Times reports on Vestas, which is cutting 600 UK jobs at a time when leaders are trumpeting the benefits of wind power. Why? “‘There are two sets of politicians, Whitehall politicians and local politicians,‘ [Vestas CEO Ditlev] Engel said. While the former group encourages renewables, which bring new jobs, local politicians tend to oppose wind farms, meaning few are built.”
Sound familiar? Good luck to U.S. national political leaders as they promote wind farms off the coasts of Massachusetts and California.
And here, from yesterday, is an excellent article on the increasingly rocky relationship between France’s Areva and Siemens of Germany. Siemens has signaled its intent to sell its share of Areva NP, a joint venture in which the German company holds a 34 percent stake. Aside from being a good read loaded with great political intrigue, the article hits on a point that is developing into a consistent theme these days. While it seeks take advantage of a burgeoning global nuclear industry—nuclear is the only proven, scalable form of emissions free baseload power—Siemens, a German company, is prohibited from making sales in its home country. In 2001, Germany instituted a moratorium on new nuclear facilities. I think the term is “NIMBY.”
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