THE ADMINISTRATOR OF THE U.S. ENERGY INFORMATION ADMINISTRATION (EIA)


by Davide Canevari

Development of shale gas resources is widely debated. Can that development really be a turning point for your country’s energy sector? What are the risks and opportunities it brings?
**Yes, development of shale gas in the United States is having a huge impact. EIA projects that U.S. shale gas production - made economical by the combination of horizontal drilling, hydraulic fracturing, and other technological developments - will continue steady growth, increasing by over 50% between 2012 and 2040.
Along with the increased production, competitive natural gas prices in the United States are expected to boost natural gas-intensive industries.
Projected U.S. natural gas prices also make it a very attractive fuel for new electric generating capacity. Natural gas is projected to eventually overtake coal and provide the largest share of U.S. electric power generation. Another result of the development of shale gas resources is that EIA projects that the United States will become a net exporter of LNG in 2016, and become an overall net exporter of natural gas by 2018.
As significant as the development of shale gas has been, it is only part of a wider story. U.S. crude oil production has also seen very rapid growth in recent years, as the shale gas technology has been applied to oil resources. U.S. crude oil production increased by 50% between 2008 and 2013. EIA is projecting continued strong growth in production through 2016 when production is expected to level off and then slowly decline after 2020 in its baseline scenario.
The growth in domestic oil production has contributed to a significant decline in petroleum imports. The share of total U.S. liquid fuels consumption met by net imports peaked at more than 60% in 2005 and fell to an average of 33% in 2013. EIA expects the net import share to decline to 24% in 2015, which would be the lowest level since 1970.
The expanded use of hydraulic fracturing has led to environmental concerns. For this reason, the previous Energy Secretary Steven Chu convened a panel of experts to review issues associated with this technology and found that, while there are potential problems, they are manageable, particularly with widespread adoption of industry best practices.
The current Energy Secretary Ernest Moniz has also said that the development of shale resources is not incompatible with our environmental goals. Although there is more to learn about the extent of the world's shale gas, tight gas, and coalbed methane resource base, we are projecting a substantial increase in those supplies - especially in the United States, but also in Canada and China. We project that by 2040, shale gas, tight gas, and coalbed methane resources in Canada and China could account for more than 80% of their total natural gas production.


I would like you to focus on few energy issues. Could you please, for each of them, provide a brief overview of the latest and most significant outlook in the world scenario? Let’s start with renewables.
**Renewable energy and nuclear power are the world's fastest-growing energy sources in EIA’s long-term projections, although fossil fuels are still expected to continue to supply almost 80% of world energy use through 2040. For electricity generation, non-hydropower renewable resources show the strongest growth in EIA’s long-term outlook, with much of the growth coming from wind generation.
Production of nonpetroleum liquids, which include renewable biofuels as well as coal-to liquids and gas-to-liquids fuels, is spurred by sustained high oil prices in our long-term outlook. However, biofuels development also relies heavily on country-specific government programs or mandates. World production of nonpetroleum liquids, which in 2010 totaled less than 2% of total world liquids production is projected to account for about 4% of total world liquids production by 2040.


And what about nuclear energy?
** Electricity generation from nuclear power worldwide is projected to more than double between 2010 and 2040 as concerns about energy security and greenhouse gas emissions support the development of new nuclear generating capacity. Factors underlying EIA’s nuclear power projections include the consequences of the March 2011 disaster at Fukushima Daiichi in Japan, the planned retirements of nuclear capacity in OECD Europe under current policies, and the continued strong growth of nuclear power in non-OECD Asia, particularly in China.


Oil, gas and coal are still playing a major role...first, what about oil?
**Fossil fuels are expected to continue supplying much of the energy used worldwide. Although liquid fuels - mostly petroleum-based - are projected to remain the largest source of energy, the liquids share of world energy consumption falls from 34% in 2010 to 28% in 2040, as high world oil prices lead many energy users to switch away from liquid fuels when feasible.
In the transportation sector, in particular, liquid fuels continue to provide most of the energy consumed. Although advances in non-liquids-based transportation technologies are anticipated, they are not enough to offset the rising demand for transportation services worldwide.
Despite rising fuel prices, use of liquids for transportation is projected to increase by over one-third between 2010 and 2040 and is expected to account for over 60% of the total increase in liquid fuel use from 2010 to 2040. The remaining increase in consumption is by the industrial sector, where the chemicals industry continues to consume large quantities of petroleum.
To satisfy the increase in world liquids demand, liquids production is projected to increase by one-third between 2010 and 2040. That includes production of both petroleum and other liquid fuels such as coal-to-liquids, gas-to-liquids, biofuels, and kerogen. Our projections assume that OPEC countries will invest in incremental production capacity in order to maintain a 39-43% share of total world liquids production through 2040 which is consistent with their share over the past 15 years.
Advances in technology make liquids production in previously inaccessible regions increasingly feasible, while higher oil prices make production in those regions economically viable. An important example of the potential impact of technological advances is the rapid growth of U.S. shale oil production in recent years, a development that has the potential to change the structure of oil markets worldwide.
Although the extent of the world's shale oil resources is not yet fully understood, there is potential for shale oil production to increase non-OPEC supplies of liquid fuels substantially over the course of the next several decades, potentially limiting OPEC’s market power.


And natural gas?
**EIA projects that natural gas will continue to be favored as an environmentally attractive fuel compared with other hydrocarbon fuels. It is the fuel of choice for the electric power and industrial sectors in many of the world's regions, in part because of its lower carbon intensity compared with coal and oil, which makes it an attractive fuel source in countries where governments are implementing policies to reduce greenhouse gas emissions.
In addition, it is an attractive alternative fuel for new power generation plants because of relatively low capital costs and the favorable heat rates for natural gas generation. EIA projects world gas production to increase by over 60% between 2010 and 2040, with the United States and Russia together accounting for nearly one-third of the total increase. Russia's production growth is supported primarily by increasing exploitation of resources in the country's Arctic and eastern regions. U.S. production growth mainly comes from shale resources.


What do you see happening with coal?
**In EIA’s long-term projection, which does not include prospective greenhouse gas reduction policies, coal remains the second largest energy source worldwide, with consumption growing by almost 50% between 2010 and 2040.
Projected growth is stronger in the near-term because of significant increases in coal consumption by China, India, and other non-OECD countries. In the longer term, growth of coal consumption decelerates as policies and regulations encourage the use of cleaner energy sources, natural gas becomes more economically competitive as a result of shale gas development, and growth of industrial use of coal slows largely as a result of changes to China's industrial activities.


Last but not least, the energy efficiency.
**Changes in energy efficiency can be driven by a number of factors. For example, high sustained oil prices can affect consumer demand for liquid fuels, encouraging the use of less energy or alternative forms of energy, but also encouraging more efficient use of energy.
In EIA’s projections, energy efficiency improvements in petroleum use are anticipated in every end-use sector, with projected global liquids intensity - liquid fuels consumed per dollar of GDP - improving by 2.6% per year from 2010 to 2040. Some of the greatest potential for altering the growth path of energy use is in the transportation sector.
More stringent U.S. vehicle fuel economy standards are projected to offset growth in transportation activity, resulting in a decline in the country's use of petroleum and other liquids. Improving vehicle fuel economy standards will likely be adopted throughout most of the world, helping to moderate future growth in liquids consumption.


What do you see happening with global energy-related greenhouse gas emissions?
**Energy-related carbon dioxide emissions - those emissions produced through the combustion of liquid fuels, natural gas, and coal - account for much of the world’s anthropogenic greenhouse gas emissions. In our international outlook, which does not assume new policies to limit greenhouse gas emissions, world energy-related carbon dioxide emissions are projected to increase 46% between 2010 and 2040. Much of the growth in emissions is attributed to the developing non-OECD nations that continue to rely heavily on fossil fuels to meet fast-paced growth in energy demand.
Coal, the most carbon-intensive fossil fuel, became the leading source of world energy-related carbon dioxide emissions in 2004 and is projected to remain the leading source through 2040. Projections for carbon dioxide emissions could change significantly if new laws and policies aimed at reducing greenhouse gas emissions were implemented in the future.


Despite a system of incentives, electric cars are not taking off in the world. Why is it so and what are prospects for the future?
**Some of the factors behind current and projected low sales of electric vehicles are high vehicle costs despite government subsidies, inadequate charging infrastructure, limited driving range in comparison with conventional vehicles, supply constraints and fragmentation in the nascent industry, lack of standards for vehicle charging connectors, consumer education and acceptance of the new technology, and vehicle safety issues, among others. Keep in mind that EIA does not project technological breakthroughs. A breakthrough in battery technology, for instance, could have a transformative impact on the adoption of electric cars.


What are some of the areas of uncertainty in projecting the path of energy markets in the future?
**Lincoln Moses, the first Administrator of EIA, said that “there are no facts about the future.” Projections or forecasts are inherently uncertain. In fact, the only certainty is that forecasters will be wrong in some way or to some degree.
There are many potential issues that increase uncertainty as we look to the future. Some of the first that come to mind are the unresolved long-term effects of economic issues in the United States, Europe, and China.
Another issue to keep in mind is the timing of Japan’s full recovery from the impacts of the 2011 nuclear disaster at Fukushima. More recently, and ongoing, is social unrest in the Middle East and North Africa, and the potential for unrest elsewhere.
The timing and circumstances around shale gas and shale oil production in the United States and the potential for increased development in other areas could help reshape the current energy landscape. OPEC decisions on production and production capacity in the short-run and in the long-run will continue to play a key role in oil markets. And finally, how climate policies evolve could have a profound impact on future energy markets.