SweetnamUnderstandin gEffects21Apr2006

Understanding and Modeling the Effects of High Oil Prices: 

Understanding and Modeling the Effects of High Oil Prices April 21, 2006 Glen Sweetnam Energy Information Administration Modeling the Oil Transition Washington, DC

EIA Has Raised its Oil Price Outlook: 

EIA Has Raised its Oil Price Outlook OPEC appears less willing to increase production rates Investment impediments in all areas more persistent than expected, even after two years of high oil prices Exploration and development costs have increased Not a depletion issue, although we continue to follow the “Peak Oil” issue closely

AEO2006 vs. IEO2005: World Oil Prices: 

AEO2006 vs. IEO2005: World Oil Prices AEO2006 History Projections IEO2005 Source: EIA, IEO2005 and AEO2006

High Oil Prices Prompt Key Questions: 

High Oil Prices Prompt Key Questions How will global economic growth be affected ? How much fuel switching will occur ? What gains in efficiency can be anticipated ? What will be the impact on non-OPEC liquid supplies - both conventional and unconventional ? How much will the demand for OPEC conventional oil be reduced ?

The Effects of High Oil Prices in the U.S.: 

GDP is relatively insensitive to high oil prices On the demand side, transportation sector is key On the supply side, unconventional liquids are more responsive than conventional production Natural gas consumption drops; coal consumption rises Oil imports decline Carbon emissions relatively insensitive The Effects of High Oil Prices in the U.S.

Slide6: 

World Oil Prices in Three AEO2006 Cases, 1980-2030 Reference High Price Low Price Projections History

Slide7: 

U.S. Real GDP in High and Low Price Cases (percent difference from reference case) Real GDP High Price Low Price High Price Low Price Oil Price 1 0 -1 80 0 -40 -44 80 -.25 .29 80 0 -40 Source: EIA, AEO2006

Slide8: 

U.S. Oil Consumption by Sector, 2004-2030 2010 2025 20.8 23.0 22.2 27.9 27.6 Transportation Residential and Commercial Industrial Electric Power 2030 26.1 Source: EIA, AEO2006

Improved Energy Efficiency in Transportation - 2025: 

Improved Energy Efficiency in Transportation - 2025 Source: EIA, AEO2006 AEO2006

Ethanol Consumption - 2025: 

Ethanol Consumption - 2025 Source: EIA, AEO2006 AEO2006

U.S. Oil Production - 2025: 

U.S. Oil Production - 2025 Source: EIA, AEO2006 AEO2006 7.3 8.8 10.7 8.2 8.8 Crude Oil Natural Gas Liquids Other Note: totals exclude biofuels

U.S. Unconventional Liquid Production - 2025: 

U.S. Unconventional Liquid Production - 2025 Source: EIA, AEO2006 AEO2006 1.2 0.6 Coal to Liquids Gas to Liquids Oil Shale 0.0 0.0 0.6 Note: totals exclude biofuels

U.S. Net Crude Oil Imports - 2025: 

U.S. Net Crude Oil Imports - 2025 Source: EIA, AEO2006 AEO2006

U.S. Net Petroleum Imports - 2025: 

U.S. Net Petroleum Imports - 2025 Source: EIA, AEO2006 AEO2006

Slide15: 

U.S. Natural Gas Consumption 2010 2025 22.4 25.4 23.4 30.7 26.9 Transportation Residential Commercial Industrial Electric Power 2030 27.0 Source: EIA, AEO2006

Slide16: 

U.S. Coal Consumption 2010 2025 1,104 1,229 1,233 1,508 1,592 Coal to Liquids Other Electric Power 2030 1,784 Source: EIA, AEO2006

Slide17: 

U.S. Carbon Dioxide Emissions, in Three Price Cases, 2003 and 2030 8,114 7,975 8,159 Source: EIA, AEO2006 5,795 Coal Natural Gas Oil

Effects of High Oil Prices Outside the U.S.?: 

How will regional economic growth be affected ? How much fuel switching will occur ? How much gain in efficiency can be anticipated ? What impact on non-OPEC liquid supplies - both conventional and unconventional ? What will happen to the demand for OPEC oil ? Effects of High Oil Prices Outside the U.S.?

System for the Analysis of Global Energy Markets (SAGE): 

Integrated set of regional MARKAL models provide a technology-rich basis for estimating energy consumption Provided forecasts published in International Energy Outlook since 2003 42 end-use energy service demands in 16 regions; 5-year time steps to 2030 Residential, commercial, industrial, and transportation service demands driven by macroeconomic and demographic factors Linear program minimizes cost of meeting energy service demands System for the Analysis of Global Energy Markets (SAGE)

Planned Near-Term Enhancements: 

Implement market share algorithm in two sectors electricity personal vehicles Enhance the Reference Energy System eliminate unnecessary complexity (e.g., blast furnace gas) correct co-generation representation Improve Refining Representation Update ethanol supply curves Calibrate to a “normalized”, rather than historical year Planned Near-Term Enhancements

Market Share Algorithm: 

Market Share Algorithm User input Market identifiers (g), and the list of technologies in each market group “close-enough” criteria, percent of market to reallocated, degree of optimization (γ) for each market group Technology preference factor given equal prices (defaults to 1) Determine the market size of each market segment (group) that should be reallocated to marginally uncompetitive technologies Solve SAGE for the “reduced costs” and generate indices based on them Use “reduced costs” and “close enough” parameter to determine technologies within each market group that deserve a piece of the market

Market Share Algorithm (Cont.): 

Market Share Algorithm (Cont.) Use “reduced costs” and “close enough” parameter to determine technologies within each market group that likely acquire some market share Recalculate market shares for technologies that were “close enough,” based on relative economics in the specific market If necessary, handle reallocation conflict (where some “close enough” technology would gain a share above the smallest competitive technology) Re-solve for the current period with the “close enough” technologies receiving non-zero market share

Planned Near-Term Enhancements: 

Implement market share algorithm in two sectors electricity personal vehicles Enhance the Reference Energy System eliminate unnecessary complexity (e.g., blast furnace gas) correct co-generation representation Improve Refining Representation Update ethanol supply curves Calibrate to a “normalized”, rather than historical year Planned Near-Term Enhancements