Annual Energy Outlook

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Annual Energy Outlook Independent Statistics & Analysis U.S. Department of Energy www.eia.gov Washington, DC 20585 This report was prepared by the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy. By law, EIA’s data, analyses, and forecasts are independent of approval by any other officer or employee of the U.S. Government. The views in this report should not be construed as representing those of the U.S. Department of Energy or other federal agencies. U.S. Energy Information Administration | AEO2021 Narrative i February 2021 The Annual Energy Outlook explores long-term energy trends in the United States • Projections in the Annual Energy Outlook 2021 (AEO2021) are not predictions of what will happen, but rather, they are modeled projections of what may happen given certain assumptions and methodologies. By varying those assumptions and methodologies, AEO2021 can illustrate important factors in future energy production and use in the United States. • Energy market projections are uncertain because many of the events that shape energy markets—as well as future developments in technologies, demographics, and resources— cannot be foreseen with certainty. To illustrate the importance of key assumptions, AEO2021 includes a Reference case and side cases that systematically vary important underlying assumptions. • The U.S. Energy Information Administration (EIA) develops the AEO by using the National Energy Modeling System (NEMS), an integrated model that captures interactions of economic changes and energy supply, demand, and prices. • The AEO is published to satisfy the Department of Energy Organization Act of 1977, which requires EIA’s Administrator to prepare annual reports on trends and projections for energy use and supply. What is the AEO2021 Reference case? • The AEO2021 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 baseline for exploring long-term trends. • The Reference case serves as a reasonable baseline case that can be compared with the side cases that include alternative assumptions. • EIA based the economic and demographic trends reflected in the Reference case on the current views of leading economic forecasters and demographers. For example, the Reference case projection assumes improvement in known energy production, delivery, and consumption technologies. • The Reference case generally assumes that current laws and regulations that affect the energy sector, including laws that have end dates, remain unchanged throughout the projection period. This assumption enables EIA to use the Reference case as a benchmark to compare with alternative policy-based cases. • The potential effects of proposed legislation, regulations, or standards are not included in the AEO2021 cases. U.S. Energy Information Administration | AEO2021 Narrative 1 February 2021 What are the side cases? • Global market balances, primarily influenced by factors that are not modeled in NEMS, will drive future oil prices. In the AEO2021 High Oil Price case, the price of Brent crude oil, in 2020 dollars, reaches $173 per barrel (b) by 2050, compared with $95/b in the Reference case and $48/b in the Low Oil Price case. • Compared with the Reference case, the High Oil and Gas Supply case reflects lower costs and greater resource availability for oil and natural gas in the United States, which allows for more production at lower prices. The Low Oil and Gas Supply case assumes fewer resources and higher costs. • The High Economic Growth case and Low Economic Growth case address the effects of economic assumptions on the energy consumption modeled in the AEO2021. The two cases assume compound annual growth rates for U.S. gross domestic product of 2.6% and 1.6%, respectively, from 2020 to 2050, compared with 2.1% per year growth in the Reference case. • The High Renewables Cost case and the Low Renewables Cost case examine the sensitivities surrounding capital costs for renewable electric power generating technologies. Capital cost reduction for an electric power generating technology is assumed to occur from learning by doing. The High Renewables Cost case assumes no cost reduction from learning for any renewable technologies. The Low Renewables Cost case assumes higher learning rates for renewable technologies through 2050, resulting in a cost reduction of about 40% from the Reference case by 2050. U.S. Energy Information Administration | AEO2021 Narrative 2 February 2021 Takeaways from the Reference and side cases Returning to 2019 levels of US energy consumption takes years; energy related carbon dioxide emissions fall further before leveling off or rising Energy consumption fell faster than gross domestic product in 2020, and the pace at which both will return to 2019 levels remains uncertain. Petroleum remains the most-consumed fuel in the United States, as energy-related carbon dioxide emissions dip through 2035 before climbing in later years. The energy intensity of the U.S. economy continues to fall as end-use sector intensities decline at varying rates. Renewable energy incentives and falling technology costs support robust competition with natural gas as coal and nuclear power decrease in the electricity mix Electricity demand grows at a modest rate throughout the projection period. As coal and nuclear generating capacity retires, new capacity additions come largely from natural gas and renewable technologies. Renewable electricity generation increases more rapidly than overall electricity demand through 2050. The cost-competiveness of solar photovoltaic and natural gas combined-cycle units leads to capacity additions. Continuing record-high domestic energy production supports natural gas exports but does not necessarily mean growth in the US trade balance in petroleum products Amid uncertainty, the United States continues to be an important global supplier of crude oil and natural gas. Motor gasoline remains predominant despite a growing mix of technologies in passenger vehicles. Natural gas consumption growth between 2020 and 2050 is concentrated in two areas: exports and industrial use. The amount of crude oil processed at U.S. refineries decreased in 2020 because of lower demand for transportation fuels, but it returns to 2019 levels by 2025. Consumption of biofuels as a share of the domestic fuel mix increases in AEO2021. U.S. Energy Information Administration | AEO2021 Narrative 3 February 2021 Energy consumption fell faster than gross domestic product in 2020, and the pace at which both will return to 2019 levels remains uncertain Delivered energy consumption and gross domestic product decreased in 2020 Figure 1. The 2020 downturn in the U.S. economy stems from a series of demand shocks, both direct and indirect, that have resulted in large part from responses to the COVID-19 pandemic. Demand for energy delivered to the four U.S. end-use sectors (residential, commercial, transportation, and industrial) decreased to 90% of its 2019 level in 2020; a steeper decline than seen in real GDP. Compared with the financial crisis of 2008, the COVID-19-related decline in the total demand for delivered energy is about 70% larger. In the AEO2021 Reference case, EIA projects that U.S. energy demand takes until 2029 to return to 2019 levels. Projections in AEO2021 focus on key factors driving longer-term demand for energy: growing economy and population; increasing use of renewables; increasing consumption of natural gas and electricity; and changing technology, behavior, and policy that affects energy efficiency in vehicles, end-use equipment, and lighting. These factors extend beyond the uncertainty resulting from the COVID-19 pandemic. The AEO2021 economic growth side cases provide alternative assumptions that reflect the uncertainties in the future growth of the U.S. economy. The economic growth cases also show the fastest and slowest rates of return to the 2019 level of total U.S. energy demand: in 2024 in the High Economic Growth case and in 2050 in the Low Economic Growth case, compared with 2029 in the Reference case. U.S. Energy Information Administration | AEO2021 Narrative 4 February 2021 Figure 2. Responses to the pandemic decreased energy consumption in the transportation sector more than in the other end-use sectors In the Reference case, energy consumption in the transportation sector remains lower than its 2019 level for the entire projection period because travel greatly decreased in 2020 as a result of lockdowns, and assumed improvements in fuel economy offset projected resumed travel growth. Responses to the COVID-19 pandemic including mobility restrictions, limitations on nonessential travel, and increased working from home greatly reduced long- and short-distance U.S. travel demands in 2020 compared with 2019. In the Reference case, U.S. passenger air travel demand decreases by nearly two-thirds in 2020 and returns in 2025 to 2019 levels; bus passenger travel demand decreases by nearly half in 2020 and returns in 2031 to 2019 levels; and light-duty vehicle (LDV) travel returns to 2019 levels by 2024. As rising economic activity results in increased travel demands that surpass 2019 levels, energy consumption in aviation (excluding military use) to move passengers and goods across the world returns to its 2019 levels by 2030. However, energy consumption by light-duty and heavy-duty vehicles remains lower than 2019 levels for the entire projection period. Although
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