[Senate Hearing 110-59]
[From the U.S. Government Printing Office]
S. Hrg. 110-59
2007 ANNUAL ENERGY OUTLOOK
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
EXAMINE ENERGY INFORMATION ADMINISTRATION'S NEW ANNUAL ENERGY OUTLOOK
MARCH 1, 2007
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Committee on Energy and Natural Resources
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota LARRY E. CRAIG, Idaho
RON WYDEN, Oregon CRAIG THOMAS, Wyoming
TIM JOHNSON, South Dakota LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana RICHARD BURR, North Carolina
MARIA CANTWELL, Washington JIM DeMINT, South Carolina
KEN SALAZAR, Colorado BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
JON TESTER, Montana MEL MARTINEZ, Florida
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
Frank Macchiarola, Republican Staff Director
Judith K. Pensabene, Republican Chief Counsel
Tara Billingsley, Professional Staff Member
C O N T E N T S
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 1
Caruso, Guy, Administrator, Energy Information Administration,
Department of Energy........................................... 4
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 2
Sanders, Hon. Bernard, U.S. Senator from Vermont................. 3
2007 ANNUAL ENERGY OUTLOOK
THURSDAY, MARCH 1, 2007
Committee on Energy and Natural Resources,
The committee met, pursuant to notice, at 9:32 a.m., in
room SD-364, Dirksen Senate Office Building, Hon. Jeff
Bingaman, chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
The Chairman. All right. Why don't we go ahead and get
Thank you very much for joining us, Mr. Caruso. We
appreciate your being here, and look forward to discussing the
recently released Annual Energy Outlook.
I'd start the discussion by noting that the Energy Outlook
is a forecast of U.S. energy prices and supply and demand
through 2030, assuming current policies and current technology.
As I understand it--and you can correct any of this that I
misstate--but we can think of this forecast as a prediction of
where we are going to wind up in 2030 if we do not change
current energy policies.
The forecast predicts that energy-related carbon emissions
will continue to increase by an average of 1.2 percent per
year. This increase is higher than the average increase in
total energy consumption due to an increased share of coal
production. Carbon neutral energy consumption does not increase
from 2005 levels in your forecast, as I read it. So without
legislative action, according to the Energy Information
Administration, the Energy Information Administration does not
predict any use of carbon sequestration technology.
The forecast also predicts very slow growth in the use of
bio-fuels. Only trace amounts of cellulosic ethanol are
predicted by 2030. I think the figure is 240 million gallons
per year by 2030. That's obviously far less than the 20 billion
gallons of cellulosic ethanol that the President called for in
his State of the Union Address. I think he was calling for that
by 2017, instead of 2030.
I note that the forecast does not take into account the
loan guarantee program that we authorized as part of EPAct. I
hope the Department of Energy is moving as quickly as possible
to make that guarantee program a useful tool for development of
new technologies, and I trust that the realization of the
program will reflect positively on EIA's outlook for cellulosic
In the near term, I understand that EIA sees the potential
for capacity of ethanol produced from corn to exceed demand.
I'm not sure. I'll get back to that in the question rounds. I'm
concerned that idle ethanol capacity in the near-term could do
serious long-term harm to that industry.
Obviously, today's discussion is an opportunity for us to
consider what changes in policy are appropriate as we move
toward 2030, and we very much appreciate your being here.
Let me call on Senator Domenici for his comments.
STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW
Senator Domenici. Thank you, Senator Bingaman.
Mr. Caruso, your appearance has become somewhat of an
event. And we think that you and your Department are continuing
to do a better and better job of what you were charged to do.
And I personally want to compliment you for the quality of what
you're doing. It's very important that we have your Department,
and somebody like you willing to stay at the helm and keep it
The Energy Outlook is the first that could fully consider
the impacts of our 2005 Act. There are some success stories:
for example, projected increases in the use of bio-fuels,
increases in the appliance efficiencies, and breakthroughs in
enhanced oil recovery.
However, the new Energy Outlook reminds us that passing a
law isn't enough. We have to follow-up to make sure it's
actually funded and implemented. The 2005 Energy Bill contained
a number of requirements that will help us achieve energy
security, but they aren't taken into account in the EIA's
analysis. Part of the reason is justified, and part of it we
could change by doing some things.
In some cases the EIA just decided that the impacts of R&D
efforts are too speculative. A good example is cellulosic
ethanol. While EIA finds the EPAct incentives will result in
the first cellulosic production facilities being brought
online, they also conclude that its use will not be widespread
unless there are sufficient technological breakthroughs for
ethanol, cellulosic ethanol, and other technologies, too
numerous to list. EPAct provides for R&D programs that make
those essential advances that we hope will bring new
technologies to market.
While I understand the EIA's reluctance to try to predict
the outcome of the cutting edge R&D programs, we must recognize
the limitations of the forecast in this respect. Another more
taunting aspect of the EPAct program that was not considered in
the forecast because of lack of implementation, it will come as
no surprise to those who attended the DOE budget hearing, that
I am deeply disturbed by the lack of progress in EPAct's loan
guarantee program. Senator Bingaman alluded to that.
In the 2007 Outlook, EIA finds that loan guarantees could
substantially affect the economies of new power plants,
lowering the costs of new, more efficient nuclear and wind
plants by around 25 percent. A very big number--this is huge.
But because of a lack of implementation by DOE, the impact of
the loan guarantee program is not taken into account. As a
result, while the EIA predicts the EPAct provisions will result
in 12 gigawatts of new nuclear power capacity by 2030, the
market share of nuclear will decline, as 90 percent of new
power plants will burn coal and natural gas. I think that that
forecast on nuclear is off the mark, even without the loan
guarantee program. But, it is clear that the loan guarantee
program could make a huge difference in our country's energy
security, as well as the air we breathe.
For example, there is a company currently planning to build
the world's first commercial cellulosic ethanol plant in Idaho.
It needs a title XVII loan guarantee to make the financing
work. These folks are business men; they can't wait forever. If
the Department of Energy does not get on with implementing the
title XVII loan guarantee, passed by Congress almost 19 months
ago, this potential capital investment in cellulosic ethanol
will almost certainly be deployed elsewhere. DOE's failure to
expeditiously implement title XVII could mean the difference
between creating a whole new cellulosic industry here in the
U.S., and sending it all off to Europe.
Having said that, I believe that we don't need to sit here,
and look at this outlook, and wring our hands. We know what to
do, and in most cases we're ready to set up the necessary legal
authorities in EPAct. Now all we have to do is to make it
Thank you, Senator Bingaman, and I look forward to the
The Chairman. Thank you very much.
Let me just see if Senator Salazar had any opening
statement, since he's the only other Senator here; we'll make a
special opportunity for him if he had any statement before we
hear from the witness.
Senator Salazar. I'll just include it at the time I ask
The Chairman. Okay.
Senator Salazar. Thank you very much.
The Chairman. Okay, well we will proceed then.
And thank you very much for being here, Mr. Caruso. We look
forward to hearing your testimony.
[The prepared statement of Senator Sanders follows:]
Prepared Statement of Hon. Bernard Sanders, U.S. Senator From Vermont
Chairman Dorgan, Ranking Member Murkowski, thank you for convening
this very vital hearing on one of the best ways to address the problems
of global warming: energy efficiency.
Energy efficiency is so important. In fact, it is one of those win-
win things: you reduce consumers' bills and you reduce the amount of
global warming pollutants released to our atmosphere. So, why is it
that we aren't funding the excellent energy efficiency programs that
are already on the books, including weatherization? Additionally, when
it comes to energy efficiency, we need to make sure that the federal
government leads by example. One simple way to do this is to utilize
energy performance contracts, which do not require any up-front capital
from the agency. We also need to authorize additional energy efficiency
programs, including some mentioned by the witnesses at today's hearing.
I am particularly intrigued by the notion of allowing utilities to make
a profit, perhaps even a greater profit than they would otherwise, by
promoting energy efficiency over generation. I look forward to
exploring this issue more.
I look forward to working with my colleagues and member of the
community to determine the best ways to move forward because I know
that we all share the desire to ensure a better energy future for our
country so that good jobs and a good economy will peacefully co-exist
with a healthy environment.
STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION
ADMINISTRATION, DEPARTMENT OF ENERGY
Mr. Caruso. Thank you very much, Chairman Bingaman,
Senators Domenici and Salazar, for giving us the opportunity to
present the Energy Information Administration's latest long-
term energy outlook, our Annual Energy Outlook 2007.
The reference case is from the outlook that we released on
our website in December, and just last week we released the
full report, which has more than two dozen alternative cases
that address some of the issues that both Senators Bingaman and
Domenici have mentioned in their opening statements.
I think it's accurate to think of the reference case in
this outlook as the path we're on if we keep doing what we're
doing--in terms of policy, in terms of the pace of
technological change, the R&D that feeds into that, as well as
the economic relationships in our economy between the use of
energy and the production of energy.
I think, as Senator Bingaman had mentioned, one of the key
assumptions here is that the policies in place as of October
2006, both at Federal, State, and local levels are projected to
remain in place. Of course, we all recognize, and I can't
emphasize enough, that future changes in energy and,
particularly, environmental policies could have a significant
impact on these projections. Some of the work we've done for
Senator Salazar, Senator Bingaman, and others has shown impacts
of changes in policies.
Let me start with one of the key assumptions, which is
energy prices. All the prices I'll be referring to in this
statement are adjusted for the effects of inflation, so they're
in real terms at 2005 dollars. For oil, in the reference case,
we're expecting oil prices to trend downward from their current
levels. Just this week they're running about $61, $62 per
barrel. We see that trending down to about $50 over the next 5
to 7 years, as new supplies come online, but then, in the
middle part of the next decade, starting to increase again as a
result of more difficulties in finding new oil and the higher
costs to do so. In the long-run, our oil price assumption in
real terms ranges between $50 and $60 per barrel for light
sweet crude oil.
We recognize there's enormous uncertainty in that
assumption, and therefore in the side cases we do--a range of a
low-price case, which goes as low as $36 in real terms, to a
high case of $100. Even that probably does not really encompass
the full range at any given month or week. Prices could go
above or below that over this 25-year time frame. So we do look
at that in these side cases.
We also expect the average natural gas wellhead price to
trend downward from current levels of a bit over $7 per
thousand cubic feet, to just under $5 by the middle of next
decade, as new import sources and increased domestic production
do come on-stream. After 2015, we expect natural gas prices to
increase to about $6 per thousand cubic feet in real terms.
For coal prices, we do not expect huge changes--although we
do have a slightly higher expectation for coal prices than we
did last year. The average price of coal over this 25-year
timeframe ranges between about $1.10 per million Btus, to about
$1.15. Again, meaning quite attractive with respect to base-
load electric power use in this reference case.
Electricity prices follow the prices of natural gas and
coal, initially falling but then slowly rising so that they're
averaging about 8 cents per kilowatt hour over this timeframe.
Eight-point-three cents in 2006, then dipping to 7.7 cents and
back to 8.1 cents, are the actual numbers for electricity.
The key driver to this outlook is economic growth. We
expect the U.S. economy to grow at just under 3 percent per
year during this 25-year timeframe. That's slightly less than
the 20-year track record for our economy between 1985 and 2005.
The impact on consumption with that kind of economic growth,
and the prices that I've mentioned, means that we're looking at
about a 30 percent increase in total energy consumption in this
country, between now and 2030. Going from 100 quadrillion Btu
to about 130 quadrillion Btu.
The most rapid growth in energy demand will be in the
commercial sector, and the second-most rapid growing sector
will be transportation. As lower demand results from higher
prices, we do have some increase in efficiency in all of the
sectors as the use of more energy-efficient appliances
continues to penetrate, partly as a result of the
implementation of the provisions in EPAct 2005.
The U.S. economy also continues to become more energy
efficient. Energy intensity measured as energy use per dollar
of GDP--Gross Domestic Product--declines at an average rate of
1.8 percent per year through 2030, as shown in the written
testimony in Figure 7. This is due to improved efficiency and
shifts continuing in the economy to less energy-intensive goods
Liquid fuels, mostly derived from petroleum but including
bio-fuels, are expected to remain the primary fuels in the
U.S., keeping a market share of just under 40 percent. The
growth in liquid fuels is, of course, led by the transportation
sector which uses 73 percent of all liquid fuels in 2030.
Although improved efficiency moves ahead steadily, this can not
offset the growth in travel that we expect in our economy over
the next 20 to 25 years.
In 2030, the average fuel economy of new light-duty
vehicles is projected to be 29.2 miles per gallon. That's 4
miles per gallon higher than 2005. Part of the improvement is
due to recent standards for light trucks, and we expect steady
increases in the sales of vehicles using unconventional
technology, such as hybrids and turbo-charged diesels, as well
as steady growth in flexible-fueled vehicles to be able to make
use of alternatives fuels and the renewable bio-fuels.
Total demand for natural gas grows through 2020 then
remains relatively flat. Between 2020 and 2030, rising natural
gas prices cause it to lose market share to coal for
electricity generation, but gas consumption in other sectors
continues to increase. Under the no-change-in-policy
assumption, coal remains the primary fuel for electricity
generation, and its share of generation increases from 50
percent in 2005 to 57 percent in 2030. Total coal use is
projected to increase from over 1,100 to nearly 1,800 million
short-tons in 2030, with about 1,570 million short-tons being
used for power generation and over 110 million short-tons in
Total renewable energy is expected to increase from a 6
percent share of total energy consumption to nearly 8 percent
in 2030, with the most rapid growth in non-hydro renewables.
Turning to fossil fuel supply, U.S. liquid fuels demand
grows from about 21 million barrels a day to 27 million barrels
per day, in 2030. At the same time, U.S. crude oil production
increases from 5.7 million barrels per day in 2005 to 5.9
million barrels per day in 2015, as a result of deep-water off-
shore production. But then the steady decline resumes, and
domestic production falls to 5.4 million barrel per day by
The share of liquid fuels demand net-by-net imports
decreases from 60.5 percent in 2005 to 54 percent in 2009, then
increases to 61 percent in 2030.
In the alternative prices cases, U.S. crude production
ranges from 5.3 to 6.0 million barrels per day, and the net
import share of consumption ranges from 49 percent in the high
price case to 67 percent in the low price case.
The total petroleum supply includes a significant amount of
coal-to-liquids in this scenario--in the reference case, over
400,000 barrels a day, and in the high- price case, it includes
1.7 million barrels per day of liquids from coal.
U.S. natural gas production is projected to increase to
20.8 trillion cubic feet in 2020, before declining slightly in
2030. The production of unconventional natural gas is expected
to be a significant source of domestic supply, increasing to
about a 50 percent share of total production in 2030.
The pipeline to bring the gas from Alaska's North Slope to
the Lower 48, is projected to commence operation before 2020,
allowing Alaskan production to increase from 0.5 trillion cubic
feet in 2005, to 2.2 trillion cubic feet in 2021. Net pipeline
imports are expected to decline from 3 trillion cubic feet in
2005, to less than 1 trillion cubic feet by 2030--due to both
accelerating decline rates in older fields in Canada, and
growing domestic demand in Canada. Therefore, to meet growing
demand, LNG imports are expected to increase from 0.6 trillion
cubic feet in 2005, to 4.5 trillion cubic feet in 2030.
Of the fossil fuels, coal has the most rapid growth
production, as shown in Figure 12 in the written testimony.
Turning to ethanol and other bio-fuels, we project a
significant steady rise in the production of ethanol to reach
14.6 billion gallons of ethanol consumption in 2030, about 20
percent higher than we were projecting last year. Most of this
is expected to be from corn-based sources, based on current
technology, and current economics and current policy. These
projections do not reflect the effect of new policy proposals,
such as the President's plan to displace 20 percent of gasoline
consumption of the next 10 years through a combination of
higher CAFE standards and increased use of renewable and
Electricity consumption, including onsite generation, is
expected to increase from 3,800 to 5,500 billion kilowatt hours
during the 25-year timeframe. This is a slightly lower rate of
growth than we expected last year, in last year's outlook, due
to the use of more efficient appliances. To meet growing
demand, total electricity generation increases by 44 percent
between 2005 and 2030, with coal supplying about 75 percent of
About 292 gigawatts of new generation capacity is expected,
and coal is expected to account for about 54 percent. In the
latter part of the projection, natural gas will lose market
share to coal due to rising prices, declining from 19 percent
to 16 percent of the generation market.
Renewable generation will increase, in part, due to EPAct
2005 and various State programs, but will remain at about 9
percent of total generation. While hydro-power continues to
dominate renewable generation, significant increases are
expected for both bio-mass and wind.
Nuclear capacity is expected to increase from 100 to 113
gigawatts by 2030. This includes 12.5 gigawatts of capacity of
new plants, and 3 gigawatts of upgrades of existing plants,
offset somewhat by 2.6 gigawatts of retiring capacity.
Energy-related carbon dioxide emissions account for about
80 percent of total U.S. greenhouse gas emissions.
CO2 emissions from the use of energy are expected to
increase by about one-third between 2005 and 2030. This is
slightly faster than the rate of increase of energy
consumption, due to the increasing reliance on coal in this
To wrap up, Mr. Chairman, our projections include
significant improvements in technology cost and performance
over time. However, the pace of these improvements may be
understated or overstated, since the rate at which the
characteristics of energy-using and -producing technologies
will change is highly uncertain. Therefore, we do include a
number of sensitivity cases, as I mentioned, in the latest
outlook, including a high-technology case which assumes earlier
availability, lower costs, and high efficiencies for end-use
technologies in all of the sectors.
A slow-technology case assumes these characteristics are
frozen at the 2006 level, and that side case is also in there.
Generally, the difference between our high-and low-
technology cases grows over the forecast horizon, reflecting
the greater opportunity for advanced technologies to enter the
market as the Nation's capital stock is replaced and expanded
Mr. Chairman, this concludes the summary of our latest
long-term outlook and I would be pleased to attempt to answer
questions you and other members of the committee may have at
[The prepared statement of Mr. Caruso follows:]
Prepared Statement of Guy Caruso, Administrator, Energy Information
Administration, Department of Energy
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to appear before you today to discuss the long-term outlook
for energy markets in the United States.
The Energy Information Administration (EIA) is an independent
statistical and analytical agency within the Department of Energy. We
are charged with providing objective, timely, and relevant data,
analyses, and projections for the use of the Congress, the
Administration, and the public. We do not take positions on policy
issues, but we do produce data, analyses, and projections that are
meant to assist policymakers in their energy policy deliberations.
EIA's baseline projections on energy trends are widely used by
government agencies, the private sector, and academia for their own
energy analyses. Because we have an element of statutory independence
with respect to the analyses, our views are strictly those of EIA and
should not be construed as representing those of the Department of
Energy or the Administration.
The Annual Energy Outlook (AEO) provides projections and analysis
of domestic energy consumption, supply, prices, and energy-related
carbon dioxide emissions through 2030. The Annual Energy Outlook 2007
(AEO2007) is generally based on Federal and State laws and regulations
in effect on or before October 31, 2006. (An exception to this approach
is that the ethanol tax credit is assumed to continue beyond its
scheduled expiration in 2010 in the AEO2007 reference case.) The
potential impacts of pending or proposed legislation, regulations, and
standards--or of sections of legislation that have been enacted but
that require funds or implementing regulations that have not been
provided or specified--are not reflected in the projections.
The AEO2007 includes consideration of the impact of the Energy
Policy Act of 2005 (EPAct 2005), signed into law August 8, 2005.
Consistent with the general approach adopted in the AEO, the reference
case does not consider those sections of EPAct 2005 that require
appropriations for implementation or sections with highly uncertain
impacts on energy markets. For example, EIA does not try to anticipate
the policy response to the many studies required by EPAct 2005 or the
impacts of the research and development funding authorizations included
in the law. The AEO2007 reference case only includes those sections of
EPAct 2005 that establish specific tax credits, incentives, or
standards--about 30 of the roughly 500 sections in the legislation.
The AEO2007 is not meant to be an exact prediction of the future
but represents a likely energy future, given technological and
demographic trends, current laws and regulations, and consumer behavior
as derived from known data. EIA recognizes that projections of energy
markets are highly uncertain and subject to many random events that
cannot be foreseen such as weather, political disruptions, and
technological breakthroughs. In addition to these phenomena, long-term
trends in technology development, demographics, economic growth, and
energy resources may evolve along a different path than expected in the
projections. The complete AEO2007, which EIA released last week,
includes a large number of alternative cases intended to examine these
uncertainties. The following discussion summarizes the highlights from
the AEO2007 reference case for the major categories of U.S. energy
prices, demand, and supply and also includes the results of some
the u.s. energy outlook
The long-term outlook on energy prices in the AEO2007 reference
case (Figure 1)* is similar to that in last year's AEO. World crude oil
prices, expressed in terms of the average price of imported low-sulfur,
light crude oil to U.S. refiners, are projected to fall from 2006
levels to about $50 per barrel in (2005 dollars) in 2014, then rise to
$59 per barrel in 2030. In nominal dollars, the projected price is
about $95 in 2030.
* Figures 1 through 14 have been retained in committee files.
Geopolitical trends, the adequacy of investment and the
availability of crude oil resources and the degree of access to them,
are all inherently uncertain. To evaluate the implications of
uncertainty about world crude oil prices, the AEO2007 includes two
other price cases, a high price case and a low price case, based on
alternative paths of investment in production capacity in key resource
rich regions, access restrictions, and an assessment of the
Organization of Petroleum Exporting Countries' (OPEC) ability to
influence prices during period of volatility (Figure 2). The cases are
designed to address the uncertainty about the market behavior of OPEC.
Although the price cases reflect alternative long-term trends, they are
not designed to reflect short-term, year-to-year volatility in world
oil markets, nor are they intended to span the full range of possible
outcomes. In the low price case, world crude oil prices are projected
to gradually decline from 2006 levels to $34 per barrel (2005 dollars)
in 2016 and remain relatively stable in real dollar terms thereafter,
rising only slightly to $36 per barrel in 2030. In the high price case,
oil prices dips somewhat from 2006 levels, then increase steadily to
$100 per barrel (2005 dollars) in 2030.
In the AEO2007 reference case, average wellhead prices for natural
gas in the United States decline gradually from current levels, as
increased drilling brings on new supplies and new import sources become
available. The average price falls to just under $5 per thousand cubic
feet in 2015 (2005 dollars), then rises gradually to about $6 per
thousand cubic feet in 2030 (equivalent to $9.63 per thousand cubic
feet in nominal dollars). Growth in liquefied natural gas (LNG)
imports, Alaskan production, and lower-48 production from
unconventional sources are not expected to increase sufficiently to
offset the impacts of resource depletion and increased demand in the
lower-48 States. Projections of wellhead prices in the low and high
price cases reflect alternative assumptions about the cost and
availability of natural gas, including imports of LNG.
In the AEO2007 reference case, average real minemouth coal prices
(in 2005 dollars) are expected to fall from $1.15 per million Btu
($23.34 per short ton) in 2005 to $1.08 per million Btu ($21.51 per
short ton) in 2019, as prices moderate following a rapid run-up over
the past few years. After 2019, new coal-fired power plants are
expected to increase total coal demand, and prices are projected to
rise to $1.15 per million Btu ($22.60 per short ton) in 2030. Without
adjustment for inflation, the average minemouth price of coal in the
AEO2007 reference case rises to $1.85 per million Btu ($36.38 per ton)
Electricity prices follow the prices of fuels to power plants in
the reference case, falling initially as fuel prices retreat after the
rapid increases of recent years and then rising slowly. From a peak of
8.3 cents per kilowatthour (2005 dollars) in 2006, average delivered
electricity prices decline to a low of 7.7 cents per kilowatthour in
2015 and then increase to 8.1 cents per kilowatthour in 2030.
Total energy consumption is projected to grow by about 31 percent
between 2005 and 2030, at a rate of 1.1 percent per year or less than
one-half the rate of growth in gross domestic product (GDP) (2.9
percent per year), as energy use per dollar of GDP continues to
improve. Fossil fuels account for about 85 percent of the total growth.
The increase in coal use occurs mostly in the electric power sector,
where strong growth in electricity demand and favorable economics under
current environmental policies prompt coal-fired capacity additions.
About 61 percent of the projected increase in coal consumption occurs
after 2020, when higher natural gas prices make coal the fuel of choice
for most new power plants. Transportation accounts for 94 percent of
the projected increase in liquids consumption, dominated by growth in
fuel use for light-duty vehicles. The remainder of the liquids growth
in the AEO2007 reference cases occurs in the industrial sector,
primarily in refineries. Industry and buildings account for about 90
percent of the increase in natural gas consumption from 2005 to 2030.
Transportation energy demand is expected to increase from 28.1
quadrillion British thermal units (Btu) in 2005 to 39.3 quadrillion Btu
in 2030, an average growth rate of 1.4 percent per year (Figure 3).
Most of the growth in demand between 2005 and 2030 occurs in light-duty
vehicles (56 percent of total growth), followed by heavy truck travel
(23 percent of growth) and air travel (11 percent of growth). Delivered
industrial energy consumption reaches 30.5 quadrillion Btu in the
AEO2007 reference case in 2030, growing at an average rate of 0.8
percent per year between 2005 and 2030, as efficiency improvements in
the use of energy only partially offset the impact of growth in
manufacturing output. Delivered commercial sector energy consumption is
projected to grow at a more rapid average annual rate of 1.6 percent
between 2005 and 2030, reaching 12.4 quadrillion Btu in 2030,
consistent with growth in commercial floorspace. The most rapid
increase in commercial energy demand is projected for electricity used
for office equipment, computers, telecommunications, and miscellaneous
small appliances. Delivered residential energy consumption is projected
to grow from 11.6 quadrillion Btu in 2005 to 13.8 quadrillion Btu in
2030, an average rate of 0.7 percent per year. This growth is
consistent with population growth and household formation. The most
rapid growth in residential energy demand is projected to be in the
demand for electricity used to power computers, electronic equipment,
and small appliances.
While the EIA reference case incorporates significant improvements
in technology cost and performance over time, it may either overstate
or understate the actual future pace of improvement since the rate at
which the characteristics of energy-using and producing technologies
will change is highly uncertain. EIA does not attempt to estimate how
increased government spending might specifically impact technology
development. However, to illustrate the importance of future technology
characteristics, EIA does develop sensitivity cases with alternative
technology assumptions. Relative to the reference case, EIA' s high
technology cases generally assume earlier availability, lower costs,
and higher efficiencies for end-use technologies and new fossil-fired,
nuclear, and nonhydroelectric renewable generating technologies. Using
high technology assumptions in place of the reference case technology
assumptions results in lower projected levels of energy use and energy-
related carbon dioxide emissions through 2030 (Figure 4) . Generally,
the difference between the projections for the two cases grows over the
projection horizon, reflecting the greater opportunity for advanced
technologies to enter the market as the Nation's energy-producing and -
consuming capital stock is replaced and expanded over time.
The reference case includes the effects of several policies aimed
at increasing energy efficiency in both end-use technologies and supply
technologies, including minimum efficiency standards and voluntary
energy savings programs. However, the impact of efficiency improvement
on energy consumption could differ from what is shown in the reference
case, as illustrated in Figure 5 which compares energy consumption in
three cases. The 2006 technology case assumes no improvement in the
efficiency of available equipment beyond that available in 2005. By
2030, 6.5 percent more energy (8.6 quadrillion Btu) is required than in
the reference case. The high technology case assumes that the most
energy-efficient technologies are available earlier with lower costs
and higher efficiencies. By 2030, total energy consumption is 8.8
quadrillion Btu, or 6.7 percent, lower in the high technology case when
compared with the reference case.
Total consumption of liquid fuels and other petroleum products is
projected to grow at an average annual rate of 1.1 percent in the
AEO2007 reference case, from 20.7 million barrels per day in 2005 to
26.9 million barrels per day in 2030 (Figure 6) led by growth in
transportation uses, which account for 67 percent of total liquid fuels
demand in 2005, increasing to 73 percent in 2030. Improvements in the
efficiency of vehicles, planes, and ships are more than offset by
growth in travel. In the low and high price cases, petroleum demand in
2030 ranges from 28.8 to 24.6 million barrels per day, respectively.
The AEO2007 reference case reflects the new fuel economy standards
for light trucks finalized by the National Highway Transportation
Safety Administration in March 2006 that are based on vehicle footprint
and the product mix offered by manufacturers. The new Corporate Average
Fuel Economy (CAFE) standard, coupled with technological advances, is
expected to have a positive impact on the fuel economy of new light-
duty vehicles. Market-driven increases in the sales of alternative
vehicle technologies, such as flex-fuel, hybrid, and diesel vehicles,
will also have an impact. In the reference case, average fuel economy
for new light-duty vehicles is projected to increase to 29.2 miles per
gallon in 2030, or 4 miles per gallon higher then the current average.
Additional improvement is projected in the high technology and high
price cases, as a result of consumer demand for more fuel-efficient
cars and improved economics that make producing them more profitable.
In the 2006 technology and low oil price cases, the projections for
light-duty vehicle fuel economy in 2030 are lower than those in the
reference case, but they still are higher than the 2005 CAFE standard
for cars and the 2011 CAFE standard for light trucks. In the low price
case, fuel economy for new light-duty vehicles in 2030 is 3.3 percent
lower than projected in the reference case--due to consumer preference
for more powerful vehicles over fuel economy--and in the 2006
technology case it is 7 percent lower than in the reference case.
Total consumption of natural gas is projected to increase from 22.0
trillion cubic feet in 2005 to 26.1 trillion cubic feet in 2030, but
there is virtually no growth over the last decade. Growth in natural
gas consumption between 2020 and 2030 in the residential, commercial,
and industrial sectors is offset by a decline in natural gas
consumption for electric power generation. Natural gas is expected to
lose market share to coal in the electric power sector as result of
continued increases in natural gas prices in the latter half of the
projection. Natural gas use in the power sector is projected to decline
by 18 percent between 2020 and 2030.
Total coal consumption is projected to increase from 22.9
quadrillion Btu (1,128 million short tons) in 2005 to 34.1 quadrillion
Btu (1,772 million short tons) in 2030, growing by 1.6 percent per
year. About 92 percent of the coal is currently used for electricity
generation. Coal remains the primary fuel for electricity generation
and its share of generation (including end-use sector generation) is
expected to increase from about 50 percent in 2005 to 57 percent in
2030. Total coal consumption in the electric power sector is projected
to increase by an average of 1.6 percent per year, from 20.7
quadrillion Btu in 2005 to 31.1 quadrillion Btu in 2030. Another fast
growing market for coal is expected in coal-to-liquids (CTL) plants.
These plants convert coal to synthetic gas and create clean diesel
fuel, while producing surplus electricity as a by-product. In the
reference case, coal use in CTL plants is projected to reach 1.8
quadrillion Btu by 2030, or 5 percent of the total coal use. In the
high price case, coal used in CTL plants is projected to reach 6.9
quadrillion Btu. In the low price case, however, the plants are not
expected to be economical within the 2030 time frame.
Total electricity consumption, including both purchases from
electric power producers and on-site generation, is projected to grow
from 3,821 billion kilowatt hours in 2005 to 5,478 billion kilowatt
hours in 2030, increasing at an average rate of 1.5 percent per year.
The most rapid growth (2.0 percent per year) occurs in the commercial
sector, as building floorspace is expanded to accommodate growing
service industries. Growing use of electricity for computers, office
equipment, and small electrical appliances is partially offset in the
AEO2007 reference case by improved efficiency.
Total marketed renewable fuel consumption (including ethanol for
gasoline blending, of which 1.2 quadrillion Btu in 2030 is included
with liquid fuels consumption) is projected to grow by 1.9 percent per
year in the reference case, from 6.2 quadrillion Btu in 2005 to 9.9
quadrillion Btu in 2030, largely as a result of State mandates for
renewable electricity generation and the effect of production tax
credits. About 52 percent of the projected demand for renewables in
2030 is for grid-related electricity generation (including combined
heat and power), and the rest is for dispersed heating and cooling,
industrial uses, and fuel blending.
Ethanol use grows in the AEO2007 reference case from 4 billion
gallons in 2005 to 14.6 billion gallons in 2030 (about 8 percent of
total gasoline consumption by volume). Ethanol use for gasoline
blending grows to 14.4 billion gallons and E85 consumption to 0.2
billion gallons in 2030. The ethanol supply is expected to be produced
from both corn and cellulose feedstocks, both of which are supported by
ethanol tax credits included in EPAct 2005, but domestically-grown corn
is expected to be the primary source, accounting for 13.6 billion
gallons of ethanol production in 2030.
Energy intensity, as measured by primary energy use per dollar of
GDP (2000 dollars), is projected to decline at an average annual rate
of 1.8 percent from 2005 to 2030. Although energy use generally
increases as the economy grows, continuing improvement in the energy
efficiency of the U.S. economy and a shift to less energy-intensive
activities are projected to keep the rate of energy consumption growth
lower than the GDP growth rate (Figure 7). The projected rate of energy
intensity decline in the AEO2007 approximately matches the decline rate
between 1992 and 2005 (1.9 percent per year). Energy-intensive
industries' share of overall industrial shipments is projected to fall
at an average rate of 0.6 percent per year, a slower decline rate than
the 1.2 percent per year experienced from 1992 to 2005.
Historically, energy use per person has varied over time with the
level of economic growth, weather conditions, and energy prices, among
many other factors. During the late 1970s and early 1980s, energy
consumption per capita fell in response to high energy prices and weak
economic growth. Starting in the late 1980s and lasting through the
mid-1990s, energy consumption per capita increased with declining
energy prices and strong economic growth. Per capita energy use is
projected to increase by an average of 0.3 percent per year between
2005 and 2030 in the AEO2007 reference case, with relatively high
energy prices moderating the demand for energy services and promoting
interest in efficiency improvements in buildings, transportation, and
Energy Production and Imports
Total energy consumption is expected to increase more rapidly than
domestic energy supply through 2030. As a result, net imports of energy
on a Btu basis are projected to meet a growing share of energy demand.
Liquids and Other Petroleum Products.--AEO2007 includes a
reorganized breakdown of fuel categories that reflects the increasing
importance of conversion technologies that can produce liquid fuels
from natural gas, coal, and biomass. In the past, petroleum production,
net imports of petroleum, and refinery gain could be balanced against
the supply of liquid fuels and other petroleum products. Now, with
other primary energy sources being used to produce significant amounts
of liquid fuels, those inputs must be added in order to balance
production and supply. Conversely, the use of coal, biomass, and
natural gas for liquid fuels production must be accounted for in order
to balance net supply against net consumption for each primary fuel. In
AEO2007, the conversion of nonpetroleum primary fuels to liquid fuels
is explicitly modeled, along with petroleum refining, as part of a
broadly-defined refining activity that is included in the industrial
sector. AEO2007 specifically accounts for conversion losses and co-
product outputs in the broadly defined refining activity.
Projected U.S. crude oil production increases from 5.2 million
barrels per day in 2005 to a peak of 5.9 million barrels per day in
2017 as a result of increased production offshore, predominantly in the
deep waters of the Gulf of Mexico. Production is subsequently projected
to fall to 5.4 million barrels per day in 2030. Total domestic liquids
production (crude oil, natural gas plant liquids, refinery processing
gains, coal-to-liquids, gas-to-liquids, ethanol, blending components,
and biodiesel), increases from 8.3 million barrels per day in 2005 to a
peak of 10.5 million barrels per day in 2022 and then remains at about
that level through 2030.
Net liquids imports, including both crude oil and refined products,
drops from 60 percent of total liquids supply in 2005 to 54 percent in
2009, before increasing to 61 percent in 2030 (Figure 8). Under
alternative oil price projections, the 2030 import fraction ranges from
67 in the low price case to 49 percent in the high price case. Figure 9
compares the impact of the AEO2007 reference, high price, and low price
cases on U.S. liquids production, consumption, and imports.
In the U.S. energy markets, the transportation sector consumes
about two-thirds of all liquid petroleum products and the industrial
sector about one-quarter. The remaining 10 percent is divided among the
residential, commercial, and electric power sectors. With limited
opportunities for fuel switching in the transportation and industrial
sectors, large price-induced changes in U.S. liquid petroleum
consumption are unlikely, unless changes in petroleum prices are very
large or there are significant changes in the efficiencies of liquid
Higher crude oil prices spur greater exploration and development of
domestic oil supplies, reduce demand for petroleum, and slow the growth
of oil imports in the high price case compared to the reference case.
Total domestic liquid petroleum supply in 2030 is projected to be 2.0
million barrels per day (19 percent) higher in the high price case than
in the reference case. Production in the high case includes 1.7 million
barrels per day in 2030 of synthetic petroleum fuel produced from coal
and natural gas, compared to 0.4 million barrels per day in the
reference case (Figure 10). Total net imports in 2030, including crude
oil and refined products, are reduced from 16.4 million barrels per day
in the reference case to 12.0 million barrels per day in the high price
Natural Gas.--Total domestic natural gas production, including
supplemental natural gas supplies, increases from 18.3 trillion cubic
feet in 2005 to 21.1 trillion cubic feet in 2022, before declining to
20.6 trillion cubic feet in 2030 in the AEO2007 reference case (Figure
11). Lower-48 offshore production is projected to grow from 3.4
trillion cubic feet in 2005 to a peak of 4.6 trillion cubic feet in
2015 as new resources come online in the Gulf of Mexico. After 2015,
lower-48 offshore production declines to 3.3 trillion cubic feet in
2030, as investment is inadequate to maintain production levels.
Lower-48 production of unconventional natural gas is expected to be
a major contributor to growth in U.S. natural gas supplies. In the
AEO2007 reference case, unconventional natural gas production is
projected to account for 50 percent of domestic U.S. natural gas
production in 2030. Unconventional natural gas production is projected
to grow from 8.0 trillion cubic feet in 2005 to 10.2 trillion cubic
feet in 2030. With completion of an Alaskan natural gas pipeline in
2018, total Alaskan production is projected to increase from 0.5
trillion cubic feet in 2005 to 2.2 trillion cubic feet in 2021 and to
remain at about that level through 2030.
Overall reliance on domestic natural gas supply to meet demand is
projected to fall from 83 percent in 2005 to 79 percent in 2030. The
growing dependence on imports in the United States occurs despite
efficiency improvements in both the consumption and the production of
Net pipeline imports are expected to decline from 2005 levels of
about 3.0 trillion cubic feet to about 0.9 trillion cubic feet by 2030
due to resource depletion in Alberta, growing domestic demand in
Canada, and a downward reassessment of the potential for unconventional
natural gas production from coal seams and tight formations in Canada.
To meet a projected U.S. demand increase of 4.1 trillion cubic feet
from 2005 to 2030 and to offset an estimated 2.1 trillion cubic feet
reduction in pipeline imports, the United States is expected to depend
increasingly on imports of LNG. LNG imports in the AEO2007 reference
case are projected to increase from 0.6 trillion cubic feet in 2005 to
4.5 trillion cubic feet in 2030.
One area of uncertainty examined through sensitivity cases
considers the rate of technological progress and its affect on future
natural gas supply and prices. Technological progress affects natural
gas production by reducing production costs and expanding the
economically recoverable natural gas resource base. In the slow oil and
gas technology case, advances in exploration and production
technologies are assumed to be 50 percent slower than those assumed in
the reference case, which are based on historical rates. As a result,
domestic natural gas development costs are higher, production is lower,
wellhead prices are higher at $6.32 per thousand cubic feet in 2030
(compared to $5.98 in the reference case) (2005 dollars), natural gas
consumption is reduced, and LNG imports are higher than in the
reference case. In 2030, natural gas production is 18.7 trillion cubic
feet (9 percent lower than in the reference case), net natural gas
imports are 6.4 trillion cubic feet (18 percent higher), and domestic
natural gas consumption is 25.1 trillion cubic feet (3 percent lower).
Conversely, the rapid technology case assumes 50 percent faster
improvement in technology. In that case, natural gas production in 2030
is 23.5 trillion cubic feet (14 percent higher than in the reference
case), net natural gas imports are 4.3 trillion cubic feet (21 percent
lower), domestic natural gas consumption is 27.9 trillion cubic feet (7
percent higher), and the average wellhead price is $5.21 per thousand
Coal.--As domestic coal demand grows in the AEO2007 reference case,
U.S. coal production is projected to increase at an average rate of 1.6
percent per year, from 1,131 million short tons (23.2 quadrillion Btu)
in 2005 to 1,691 million short tons (33.5 quadrillion Btu) in 2030.
Production from mines west of the Mississippi River is expected to
provide the largest share of the incremental coal production and grows
at an average rate of 2.4 percent per year, versus 0.4 percent per year
for mines east of the Mississippi River. In 2030, almost 68 of domestic
coal production is projected to originate from States west of the
Mississippi (Figure 12).
In the AEO2007 reference case, total electricity generation,
including generation by electricity producers and on-site, increases by
44 percent between 2005 and 2030, growing at an average rate of 1.5
percent per year. Coal is projected to supply about 75 percent of the
increase in electricity generation from 2005 to 2030. Generation from
coal is projected to grow from about 2,015 billion kilowatthours in
2005 to 3,330 billion kilowatt hours in 2030 in the reference case. In
2030, coal is projected to meet 57 percent of generation, up from 50
percent in 2005 (Figure 13). Between 2005 and 2030, AEO2007 projects
that 156 gigawatts of new coal-fired generating capacity will be
constructed, including 11 gigawatts at coal-to-liquids plants and 67
gigawatts of integrated gasification combined-cycle plants. Given the
assumed continuation of current energy and environmental policies in
the reference case, carbon capture and sequestration technology is not
projected to come into use during the projection period.
Generation from natural gas is projected to increase from 752
billion killowatt hours in 2005 to 1,061 billion killowatt hours in
2020, as recently-built plants are used more intensively to meet
growing demand. After 2020, however, generation from new coal and
nuclear plants is expected to displace some natural-gas-fired
generation. Total natural-gas-fired generation declines by 12 percent
after 2020 to 937 billion kilowatt hours in 2030 and the natural gas
share of electricity generation is projected to decline from 19 percent
in 2005 to 16 percent in 2030.
Nuclear generating capacity in the AEO2007 reference case is
projected to increase from 100 gigawatts in 2005 to 112.6 gigawatts in
2030. The increase includes 12.5 gigawatts of capacity at newly built
nuclear power plants and 3 gigawatts expected from uprates of existing
plants, offset by 2.6 gigawatts of retirements. The 12.5 gigawatts of
newly built capacity includes 9 gigawatts of new nuclear capacity built
in response to the EPAct 2005 production tax credits (reflecting a
prorated share of the credits as outlined in the 2006 Internal Revenue
Service ruling) and 3.5 additional gigawatts of capacity built without
credits. AEO2007 also reflects the change in the Production Tax Credit
(PTC) for new nuclear power plants that was included in the Gulf
Opportunity Zone Act of 2005 (P.L. 109-135), eliminating the indexing
provision in the value of the credit that had been provided in EPAct
Total electricity generation from nuclear power plants is projected
to grow from 780 billion kilowatthours in 2005, 19 percent of total
generation, to 896 billion kilowatt hours in 2030 in the AEO2007
reference case, accounting for about 15 percent of total generation in
2030. Additional nuclear capacity is projected in some of the
alternative AEO2007 cases, particularly those that project higher
demand for electricity or even higher fossil fuel prices.
The use of renewable technologies for electricity generation is
projected to grow, stimulated by improved technology, higher fossil
fuel prices, and extended tax credits in EPAct 2005 and in State
renewable energy programs (renewable portfolio standards, mandates, and
goals). The expected impacts of State renewable portfolio standards,
which specify a minimum share of generation or sales from renewable
sources, are included in the projections. The AEO2007 reference case
includes the extension and expansion of the PTC for renewable
generation through December 31, 2007, as enacted in EPAct 2005, but not
the subsequent extension through the end of 2008 that was enacted in
December 2006. Total renewable generation in the AEO2007 reference
case, including hydroelectric power and renewables-fueled combined heat
and power generation, is projected to grow by 1.5 percent per year,
from 357 billion kilowatt hours in 2005 to 519 billion kilowatt hours
in 2030. The renewable share of electricity generation is projected to
remain at about 9 percent of total generation from 2005 to 2030.
Energy-Related Carbon Dioxide Emissions
Absent the application of carbon capture and sequestration
technology, which is not expected to come into widespread use without a
decrease in the cost of capture and changes in current policies that
are not included in the reference case, carbon dioxide emissions from
the combustion of fossil fuels are proportional to fuel consumption and
carbon content, with coal having the highest carbon content, natural
gas the lowest, and petroleum in between.
Carbon dioxide emissions from energy use are projected to increase
from 5,945 million metric tons in 2005 to 7,950 million metric tons in
2030 in the AEO2007, an average annual increase of 1.2 percent (Figure
14). The energy-related carbon dioxide emissions intensity of the U.S.
economy is projected to fall from 538 metric tons per million dollars
of GDP in 2005 to 353 metric tons per million dollars of GDP in 2030,
an average decline of 1.7 percent per year. Projected increases in
carbon dioxide emissions primarily result from a continued reliance on
coal for electricity generation and on petroleum fuels in the
As I noted at the outset, EIA does not take positions on policy
issues, but we do produce data, analyses, and projections that are
meant to assist policymakers in their energy policy deliberations. The
AEO2007 results that I have discussed this morning are intended to
serve that broad purpose. EIA has also completed several analyses of
the energy and economic impacts of alternative proposals to limit
greenhouse gas emissions over the past several years.
We look forward to providing whatever further analytical support
that you may require on topics ranging from greenhouse gas limitation
to energy security challenges facing the Nation to the impacts of
policies to promote greater use of renewable energy sources. We believe
that such analyses can help to identify both potential synergies and
potential conflicts among different energy-related objectives that are
currently under discussion in this Committee and elsewhere.
This concludes my testimony, Mr. Chairman and members of the
Committee. I would be happy to answer any questions you may have.
The Chairman. Thank you very much. I think, obviously,
there's a lot to ask about.
Let me ask a few questions. We'll just have 5-minute
You have various scenarios set out in you Annual Energy
Outlook. With regard to bio-fuels though, my layman's view of
what you're saying on bio-fuels is that there's no way we can
achieve the kinds of targets that the President has set for
2017, in terms of bio-fuel production--35 billion gallons of
bio-fuels by 2017.
Is there any scenario that you could envision that that
could be achieved?
Mr. Caruso. To clarify, what I'm saying is that under these
assumptions, which are the economics that we have in this
model, the technology as best we know it for converting
cellulose into ethanol, as well as the existing policies,
gets--in this reference case--around 12 billion gallons in
The Chairman. Twelve, does that include corn?
Mr. Caruso. Almost all of that is corn-based because of
the--as I mentioned, the economic assumptions and the
technology, the capital cost of producing ethanol. So, is it
possible to get there? This is a very ambitious goal that
you've mentioned. We need a lot more information to be able to
answer that question. There are a number of factors that we
still don't know about in the proposed mandate. I think
Administrator Johnson, at a hearing yesterday, mentioned that
there would be forthcoming legislation laying out the
President's proposed mandate in detail.
Until I were to see what those proposals actually
included--there's a safety valve included in that, and other
renewables and alternative fuels in addition to ethanol--I
would say I'd be reluctant to say there's no scenario that
would get you there. The scenario that I've outlined gets you
to about 12 billion.
The Chairman. Gets you to 12 billion gallons, instead of
Mr. Caruso. Yes, sir.
The Chairman. On nuclear production of electricity from
nuclear power--as I recall it in the outlook that you gave us
last year--I remember having a discussion with you last year
about what your projection was there. You anticipated that
there would be some increase in production of electricity from
nuclear power for some period of time through, I think, 2017 or
2018 at which point, the increase in production of power from
nuclear would flatten--would go away, and we would just stay
where we were because of the tax provisions that we wrote into
Is that still your view, that there's going to be some
improvement between now and 2017 or 2018, and then at that
point we're just where we are?
Mr. Caruso. Well, I think in this reference case, we're
assuming there'll be nine new nuclear plants built at existing
sites by 2019, I believe it is. I'll get further clarification
of that. So we would have a steady increase in the production
of electricity from nuclear as those new plants came on stream.
In this scenario, that would tend to flatten out. However, as I
mentioned, there are a number of side cases depending on----
Okay, I'm told we do build some additional plants beyond
2020 in this outlook, but those are the nine new plants, giving
you about 12 gigawatts of new capacity in this outlook.
The Chairman. So, what percent of our electricity do you
anticipate in 2030 would come from nuclear power?
Mr. Caruso. About 15 percent.
The Chairman. Fifteen.
Mr. Caruso. It's around 19 now.
The Chairman. It's 19, so it will be down to 15 by 2030,
given current expectations with regard to plant construction.
Mr. Caruso. That's correct. I mentioned 54 percent of new
generation capacity would be coal-based in this outlook.
The Chairman. So coal gets a bigger and bigger portion of
Mr. Caruso. Its share grows from 50 to 57 percent, and the
share of nuclear goes down. The share of natural gas goes down,
and the share of renewables goes up slightly.
The Chairman. Okay, that's it, my time's up.
Senator Domenici. Mr. Chairman, you could go on as long as
The Chairman. No, go ahead.
Senator Domenici. Thank you. I--I imagine somewhat like
you--am looking at nuclear, and it looks like the more we do,
the less we get. We seem to be going nowhere.
Add to it, Mr. Chairman and fellow Senators, and I'd say
this to you Mr. Caruso, the scenario that I'm getting out of
Tennessee, where they're building a new plant as part of the
Tennessee Valley Authority. Not a new plant, but they had one
that was stopped at about half, and it stayed at half until
recently, and they made a policy decision to do it. Mr. Caruso,
I understand--and it might be worthwhile so that I'm not just
talking on the record here for nothing and may be wrong--but I
understand they are having a terrifically difficult time
getting the kind of personnel to build this plant. I want to
make sure that I'm stating it right, but Mr. Chairman, I
understand they can't find enough welders. It takes some simple
little proposition. Very highly paid, ready to hire as many
welders as there are available for jobs as welders in the
United States, in the whole United States.
They've run ads in big papers saying, ``If you're in L.A.,
if you're in Chicago wherever you are--if you're a welder and
you want a job for''--I don't know, 18 months or something--
``would you move to so-and-so, we've got a job for you.'' And
they haven't even filled them with that.
Now just think of that. If it's the case, if it's a matter
of fact, that we're going to license--let's just gamble and say
we license four before Christmas. And if it's the same, they're
going to apply for permanent licenses. I don't know how long it
is before they look for steel, before they look for steel
workers, Mr. Chairman, and all the others things that go into
building a plant. But I have the sneaking hunch that we're
going to have somebody up here telling us and Senator
Bingaman's going to say, ``Why are they so delayed?'' They're
going to tell us, ``We don't have any steel workers.''
Or, I heard a good one recently. You know those big pots
that go in the middle of nuclear power plant, into which they
put the steam. There's only on place in America building them
today. I was talking to my friend who has a genuine interest,
Senator Craig, and we were saying, ``Isn't it incredible?'' We
don't have a capacity to build those. We can build a small one,
but not the big one. And even the French can't, with all their
prowess in nuclear power. The only country that can build one
is South Korea. And do you know what? The countries are gutsy
enough right now to order them in advance, and get their name
on saying such-and-such utilities is putting a down payment,
and I'm buying whatever this thing is called, even though I
don't know when I'm going to build my plant. But I know I'll be
ready before you have one built, so I'd like to buy one.
I'm just amazed that this kind of thing enters your
configuration, as to why we won't move with more dispatch. It's
a simple one, a fundamental one, but I think it's harsh.
Because I don't know how many young men and women are going to
want these jobs. They're going to pay $25 an hour, and I wrote
down your State, Senator where they're building this power
plant. It's big pay, isn't it? And they can't find enough
workers. I'd just like to lie that before you.
Senator Corker. Yes, sir.
Senator Domenici. I have two more quick questions.
Mr. Caruso. It does get reflected in the assumptions we
use--that these types of human resource scarcities as well as
commodity scarcity, precious metals, steel, concrete--all have
increased the cost of doing business in every sector, from
petroleum through electric power. We try to keep up with them,
but it's moving so fast that--for example--in the exploration
and production of oil and gas, the cost index has gone up 50
percent in just 2 years. That's pretty extreme; that's not
sustainable. Even when you look at the 10-year track record,
it's been increasing in double digits per year. The cost of
finding, developing, and producing oil and gas--it's one of the
reasons why we think we're not going back to $25 or $30 oil.
Senator Domenici. Well, I just want to close with one last
observation and question.
It seems to this Senator that the coal people--that is,
those who own coal that can be used for future utility coal-
burning purposes--ought not be terribly worried about whether
they're going to stay in business with all these alternatives.
Because every one, every authentic study--including yours--
would show that in spite of everything we're doing, there will
be more coal, not less. You are going to do nuclear, but you're
going to have more coal, not less. We've got Japan adding
nuclear, but they're just adding coal like running water. Turn
on your water faucet, and there comes one every day. What is
it, every 3 days, or an average of every 10 days or something?
Senator Craig. China.
Senator Domenici. So I don't know why the coal companies
are worried about a policy that might intend to take their
business, jobs, and capital and knock it down. It's going to be
out there, in front and center, for the alternatives aren't
going to make it budge very much.
But I think we haven't done a very good job implementing
our bill, in terms of making capital available for some
alternatives. Not to brush coal aside, but to just offer some
competition. And that's why, you even mentioned a lack of parts
of the bill being implemented for loan guarantees, that you
even saw that, Mr. Craig, on the horizon, right?
Senator Craig. Yes, sir.
Senator Domenici. And we are trying our best, we want you
to know, to see to it that the U.S. Government does something
about the policy commitments in the law to get on with some of
these things that we know we intended to spend money on.
I'll have some written questions. I'll get them to you. One
will be this, and you can answer with your staff. I'd like a
little historical summary about how we might mobilize to get
workers ready for the kind of jobs that nuclear might be
presenting to them. Starting with the proposition: are there
any out there, anyone trained? If not, how are we going to
train them? How have we done it in the past? I think it's
probably a winner for somebody that wants to go into the
business of training. The U.S. Government for one, but I stop
at that. Thank you.
Mr. Caruso. Thank you.
[The information follows:]
With the lack nuclear plant orders in the United States since 1978,
there has been a consolidation in the nuclear industry and many nuclear
plant component manufacturers, suppliers and construction companies are
no longer in that business. In addition, the nuclear work force has
aged and retired without the influx of new and younger people to take
their place. As such there is a serious shortage of qualified
construction craft, operations and maintenance technicians, and
engineers to work in the nuclear resurgence.
A 2004 Bechtel study found that if 50 gigawatts of new nuclear
capacity were built before 2025, over 100,000 manufacturing,
construction, and operating jobs would be created in the United States.
Announcements by more than a dozen power companies of their intentions
to submit applications to the Nuclear Regulatory Commission for
combined Construction and Operating Licenses (COLs) for as many as 33
new nuclear reactors (representing at least 40 gigawatts) are a
marketplace indication that new jobs may be created as COLs are
approved and new orders are placed. Similar motivation in the mid-1960s
when reactor orders were pouring in at rates exceeding 20 per year led
workers to acquire the skills necessary and fill the jobs being
As part of the NP 2010 program, the Office of Nuclear Energy funded
an independent review of the nuclear power plant construction
infrastructure. That report, which is available in its entirety on the
NP2010 website (http://nuclear.energy.gov/np2010/reports/
mpr2776Rev0102105.pdf), concluded that more generic construction trades
are sufficient to build the first wave of about eight new reactors. The
more specialized trades, including boilermakers, pipe fitters,
electricians and iron workers are in short supply, and these workers
will need to be brought in from all regions of the country to build the
first plants. The reactor vendors and the engineering, procurement and
construction contractors are aware of the potential shortages in
specialized skills. National programs, sponsored by industry and the
U.S. government, as well as unions, community colleges and career
training centers, are all providing training opportunities for the
construction trades. The challenge has been to recruit U.S. citizens
into the more technically demanding, albeit highly paid, construction
While it appears that there are a number of programs ongoing to
close the gap on workforce requirements for nuclear power plants,
additional review is warranted. The Nuclear Energy Institute (NEI) is
conducting a FY 2007 workforce study that is a follow-on to their 2003
and 2005 staffing studies looking at nuclear staffing needs for the
existing fleet. The new study should be completed by the end of May.
NEI has also worked with the Southeast Manpower Tripartite Alliance to
examine skilled craft supply and demand in the southeast with a view
toward new nuclear plant construction. These studies will provide
additional insight into the availability of workers for new plant
The Chairman. Thank you.
Senator Tester. Thank you, Mr. Chairman.
In your projections and studies, did climate change have
any impact on your projections?
Mr. Caruso. We do estimate the CO2 emissions
from energy sources in our outlook. To the extent that there
are any policies in place, in terms of renewables, fuel
standards, or portfolio standards, we incorporate all of
those--whether they be at the State or local level. As you
know, we don't have a Federal renewables portfolio standard. We
incorporate any policies that are in place as of the end of
last--or toward the end of last--year in this outlook. To that
extent they're included in there, but that's it.
Senator Tester. So potential carbon sequestration costs are
not part of the equation?
Mr. Caruso. We looked at carbon capture and sequestration
technology and the current economics and, at the present time--
or when we did these runs--the cost and the technology are not
to the place where they are implemented in this outlook.
Senator Tester. Okay. All right.
Then you talked about the ethanol from corn reaching about
12 billion, if I heard you correctly.
Mr. Caruso. In 2017.
Senator Tester. Yeah, and you said that that was from
both--was mainly from corn, but was also from cellulose.
Mr. Caruso. A small amount.
Senator Tester. Did you break that down?
Mr. Caruso. Yes.
Senator Tester. How much was it from cellulose?
Mr. Caruso. The cellulosic ethanol component, in 2017 is
around 240, 250 million gallons. That's based on the
requirement in the Energy Policy Act of 2005. That's mandated
by the EPAct 2005.
Senator Tester. Okay. So it's based more on mandates than
it is on potential?
Mr. Caruso. That's correct. The current economics and
current technology strongly favor corn-based ethanol in this
country, and sugar-based ethanol from foreign sources.
Senator Tester. All right, okay.
Was there, I mean--and excuse me if you went over this--but
the coal-to-gas projections: were there any projections on that
for electricity and gas, and potentially even fertilizer,
things like that?
Mr. Caruso. Yes. Part of the strong growth in coal
production in this outlook, going from a little over 1,100
million short-tons to 1,800, is the use of coal for conversion
to liquids. In the reference case, it's a couple hundred
million short-tons, and that adds up to about 400,000 barrels a
day of liquid fuels in the reference case. That's at roughly
$55 per barrel of oil equivalent. But if you get a high-price
case, that number can go much higher. Our high-price case gets
up to 1.7 million barrels a day of liquids from coal, and
that's at almost $100 a barrel in real terms in 2030.
Senator Tester. So, what you're saying is, then, with
today's technology--if you extrapolate that out, $55 a gallon
is where it's profitable. Is that what you're saying?
Mr. Caruso. I'm saying even lower than that--probably
closer to $45-per-barrel oil equivalent. It is a sufficient
economic incentive to convert coal to liquid.
Senator Tester. Does the quality of the coal have any
bearing on that $45 figure that you talked about? For example,
there's different quality of coal in Montana than there is in
West Virginia than there is in North Dakota. What are the
impacts of that?
Mr. Caruso. I'd have to answer that for the record. I don't
know the exact differences between the yield of liquids based
on different qualities of coal, but I'm sure there's a
difference. We're basing the economics on the Fischer-Tropsch
method that's been used by Sasol in South Africa.
Senator Tester. Okay, so the kind of coal that's used in
that Fischer-Tropsch method: was that looked at, at all? Was it
a lignite, a bituminous? Was that looked at, at all?
Mr. Caruso. I'm sure it was, but I don't have, off the top
of my head, the specific type of coal we used in this
Senator Tester. Something that I'd be curious about, if you
have it in your wherewithal, is what kind of coal yields the
highest percentage of product? Now I would assume that it's,
like we taught in school----
Mr. Caruso. Uh-huh.
Senator Tester [continuing]. You know, the three levels are
the best, but I don't know that, and it would be good to know
Mr. Caruso. I'd be happy to provide that for you.
Senator Tester. Thank you.
[The information follows:]
The major available coal types in the United States (bituminous,
subbituminous, and lignite) can be converted into liquid transportation
products. For Fischer-Tropsch technology, an indirect route to liquids
through gasification of the coal, the amount of liquids produced is
directly related to the coal rank (the heating value of the coal). For
a bituminous coal, the yield of transportation liquids is about 2
barrels per ton; for sub-bituminous, about 1.6 barrels per ton; and for
lignite, about 1.1 barrels per ton. These estimates are for self-
sustaining plants, where the energy for operation of the plant is
derived from coal or coal products. While the respective yields by coal
rank would seem to favor the use of bituminous coal, the lower
production costs for U.S. subbituminous and lignite coals can actually
make them the more cost-effective fuels and feedstocks for CTL plants.
In 2005, the average minemouth price of subbituminous coal produced in
the Powder River Basin (WY, MT) was less than $8 per ton, and the price
of North Dakota lignite was about $10 per ton. By comparison, the
average minemouth price for bituminous coal produced in the Eastern
Interior (IL, IN, KY west) in 2005 was about $27 per ton, and
Appalachian bituminous coal sold for an average price of more than $40
The Chairman. Senator Craig.
Senator Craig. Thank you, Mr. Chairman.
Mr. Caruso, thank you for being with us this morning.
EIA's work has been extremely valuable to us over the
years, and your presentation here this morning ought to be--at
least--somewhat alarming to all of us, as it relates to our
growing dependency on foreign sources, and the hurdles that we
have to overcome.
Even with the Energy Policy Act of 2005 and the beginning
of what is happening out there in the energy field, in all
types of energy, obviously when you begin to do what you all do
well--and that's extrapolate and measure and put it into
context--it changes the picture somewhat.
If by 2012, 8 billion barrels of ethanol production is
where we will be, and as of close of business this year we were
at a certain level that consumed 20 percent of the corn market,
obviously to arrive at where we need to get, with what the
President's talking about, or even what you're projecting,
would suggest that in the American food chain, corn and its
dynamics have to change a great deal. Do they not?
Mr. Caruso. That's correct. Even getting to the numbers, in
our reference case, which are 12 billion gallons in 2017, it's
more than 30 percent of, I don't have the specific----
Senator Craig. Right.
Mr. Caruso [continuing]. I can't provide the specific
number, but it's more than 30 percent of the corn crop.
Senator Craig. Have you factored in--I assume you're
looking at static, I should say--current production levels
based on yields per acre and acreage available. How do you
arrive at those numbers?
Mr. Caruso. We have looked at that, and we do work with the
Department of Agriculture in----
Senator Craig. Yeah.
Mr. Caruso [continuing]. Their crop forecasts and with
their chief economist, Keith Collins, in comparing that data.
So we do work with them, and that's included in our model.
Senator Craig. You factored in--I think Senator Tester
mentioned or you came with the figures--as it relates to
cellulosic, a relatively low number.
Mr. Caruso. Yes.
Senator Craig. Senator Domenici had mentioned a company,
and a grant, and an anticipated loan guarantee to get some
commercial activity going in the cellulosic area. There are
many of us who've paid a good deal of attention to that,
thinking that it is a valuable source, and to get to where the
President is talking, you have to factor that in to a more
significant number. Would you agree with that?
Mr. Caruso. I would absolutely agree. As I mentioned
earlier, these are the assumptions on current economics, the
current state of knowledge and technology, and we certainly
hope that these grants that were announced yesterday, and a
number of other programs that are on the way, will change that
Senator Craig. Sure.
Mr. Caruso [continuing]. Picture.
Senator Craig. So when we go from 19 percent nuclear to 15
percent, and coal picks up the margins and grows--and yet I
watch now where there's an attempt to site current technology
coal plants, a very strong resistance on the part of the region
or the area in which the siting is attempted. What are you
factoring into this phenomenal coal growth as a part of
electrical production, as it relates to technology in those
Mr. Caruso. Well we----
Senator Craig. And, i.e., climate change, and all that
we're looking at now.
Mr. Caruso. As I mentioned to Senator Tester, we did look
at the current economics and technology of carbon capture and
sequestration, and at these prices, we don't have that in this
Senator Craig. Okay.
Mr. Caruso. In the coal sector as a whole, we see continued
steady improvement in efficiency, both the combination of
pulverized coal at the use of the highest technological
availability, as well as a significant new amount of IGCC
plants. I think almost half of the new coal-fired plants in
this outlook are IGCC, Integrated Coal Gas Fired Combined
Senator Craig. Oh, all right.
Mr. Caruso. I may have the numbers slightly off, but I
think for about a 41 percent growth in electricity generation,
you'd do it with about a 33 or 34 percent increase in energy.
So, you're getting more electricity by using less energy per
unit of measurement in the coal sector----
Senator Craig. Right.
Mr. Caruso [continuing]. In both pulverized and the IGCC
Senator Craig. Yeah. Yeah.
Mr. Chairman, my time is about up.
Let me ask: Senator Domenici asked that I change the record
based on a statement he had made. Currently it's Japanese Steel
Works that can forge the reactor vessel containers that he had
mentioned. It appears that a Korean company is gearing up to
supply those. So, I wanted to do that for the correction of the
record in relation to what Senator Domenici had said.
Senator Domenici also talked about, obviously a sense of
concern as it relates to crafts and skills and the capability
of the American work force. As we debated EPAct a couple years
ago that became quite apparent to us, especially in the nuclear
field--that this really was a gearing-up, again, of an industry
that we had lost a large part of or had put in an idle mode for
a long, long while. And in your analysis of 7, 8, 10-plus
reactors, do you look at that gearing up? Not only the nuclear
physicists, the young student at the college and the
university, but the skilled technician, if you will. The
skilled welder, the quality of work, and the type of work, that
will be required to meet that licensing responsibility under
Mr. Caruso. We don't go into a great level of detail, but
it does reflect itself in the higher costs, the higher capital
and construction costs of building these new plants.
Senator Craig. Okay.
Mr. Caruso. It's been rising steadily along with, as I
mentioned, the costs of doing business in oil, gas, and in the
electric utility industry in general.
Senator Craig. Sure.
Mr. Chairman, my time is up, but let me say to you, and to
the committee, and for the record: I grow increasingly alarmed
at reality when I see these figures. I know where we can go. I
know what we've done, and how long it took us to get to where
we are today, from a policy standpoint. Yet, I see agencies not
performing at levels, and a sense of urgency that I would hope
we could have. I really do believe whether it's the executive
branch or the Legislative Branch, we need to declare war, in a
sense of a deployment of resource and talent in a way that
we've not done before, to focus on our energy needs.
It just makes not only good sense for our country to do
that, but we will grab a leadership role once again in new
applied technologies that we're so very good at doing if we
martial those kinds of resources. I'm always frustrated about
gas pipelines coming out of Alaska and what it's going to take
to get it. Whether it's resource deployment, or talent
deployment, or the frustration of a lack of quality public
policy that gets us to where we need to get in a timely
fashion. America becomes the loser if that urgency doesn't
exist. While we've moved, while we've nudged the noodle a bit,
I think we--your leadership, our leadership--needs to nudge it
a good deal more in a most urgent way. Thank you.
The Chairman. Thank you.
Senator Murkowski, go right ahead.
Senator Murkowski. Thank you, Mr. Chairman.
Good morning, Mr. Caruso. I always look forward to the
Annual Outlook. I wish our outlook looked better. I want to
talk just a little bit this morning about natural gas.
As you know we're waiting anxiously, from the State's
perspective--the new Governor is rolling out her new
legislation of inducements to get participants so we can get
this gas line moving forward. But, you know, when we passed the
natural gas pipeline out of the Congress, we anticipated that
Alaska's gas would be online in about 2012. A couple years ago
the projection was it was going to be here in 2014. Last year
when you came to speak to us the assessment was going to be
2016. This year you bumped back to 2018. So it seems like every
year you'd come to talk to us we lose a couple years with
getting Alaska's gas to market, which is a huge concern to me
as an Alaskan, a huge concern to me as an American, knowing
that we've got to meet this demand. I'm particularly troubled
as you look at your report and the increase that we're seeing
in the out years for imported LNG.
Now I don't know--you've indicated that our reliance on
foreign sources of oil is about 60 percent. What is it,
currently, for LNG now and what do you project our imported LNG
to be in 2030? Do you have those numbers?
Mr. Caruso. Last year we imported about 6 trillion cubic
feet in the form of LNG and our total consumption was 22. So
about 3 percent----
Senator Murkowski. Yeah.
Mr. Caruso [continuing]. Roughly 3. We see that going up to
perhaps, in this base case--4.5 trillion cubic feet out of 26.
So, getting close to 20 percent.
Senator Murkowski. Close to 20 percent.
Mr. Caruso. Yes.
Senator Murkowski. Tell me what happens to your projections
should we encounter more problems in getting Alaska's gas to
market. Where do we go?
Mr. Caruso. I think if you were to say to me, I now think
we can't, we're not likely to have----
Senator Murkowski. I'm not saying that, and I will not say
that. I'm not going to give up on it.
Mr. Caruso. If someone else said that, I would say almost
on a Btu-by-Btu basis, it would probably be replaced by LNG.
There'd be a slight increase in the price----
Senator Murkowski. Right.
Mr. Caruso [continuing]. If we didn't get the Alaskan gas.
So that would affect demand a little bit. The total would come
down a bit. But the incremental supply of gas, and we've got a
case in here which shows that very clearly, how LNG----
Senator Murkowski. LNG comes in.
Mr. Caruso. It swings enormously based on----
Senator Murkowski. Right.
Mr. Caruso [continuing]. The alternatives of supply, which
include certainly, Alaska----
Senator Murkowski. So, in other words----
Mr. Caruso [continuing]. And price.
Senator Murkowski [continuing]. We continue down that path,
as a Nation, of increased dependency on foreign sources, not
necessarily of oil this time, but natural gas, which is a
Mr. Caruso. Exactly.
Senator Murkowski [continuing]. That is absolutely
unacceptable in my opinion.
Mr. Caruso. That would be what our model says.
Senator Murkowski. You mentioned the enormous increases
that we're seeing in our costs for oil and gas production, some
72 percent over the past 4 years attributable to the steel
costs. I was looking through press clips this morning. This is
an article about Conoco, Conoco's earnings, and they indicate
that on a per-barrel basis, oil production in Alaska became
considerably more expensive last year, averaging $6.38 per
barrel compared with $3.91 the prior year. What we're seeing in
terms of production costs is just going through the roof. What
does this mean to us, as we try to build a gas pipeline,
recognizing how production costs are going up? And this is
probably a little bit of a rhetorical question, but give me
your answer here.
Mr. Caruso. What it means is that when companies look at
projects, particularly in the upstream--exploration,
production, and delivery--they're looking to meet a certain
rate of return. They will be looking at the need for higher and
higher prices to be able to achieve that rate of return.
Senator Murkowski. Because of the costs.
Mr. Caruso. Clearly, costs it will affect investment. I
think that if you're looking for what's the indicator to
reflect these increases in costs, I would look at companies'
investment budgets, particularly in the upstream.
Senator Murkowski. Let me ask you about oil.
In looking at the report, you're predicting that oil
production from Alaska will decline from roughly 860,000
barrels of today, to just about 270,000 barrels in 2013--if we
fail to open up ANWR. In other words, if there's no new fields
coming online in that area.
This is particularly worrisome as we hear the reports and
understand the prediction of many, that it may be very, very
difficult to keep the pipeline operating at such greatly
reduced flows. Several different reasons for this, but does
your forecast take into account in any way that with a
decreased level of production--as you're predicting--what
happens to Alaska oil production if, in fact, all these
forecasts prove true?
Mr. Caruso. Well, the numbers you cited are right on. I
mean, we do see a steady decline given the current policies,
and the price assumptions, and technology assumptions. There is
a point which the Trans-Alaska Pipeline System cannot go below,
in terms of volume, that would be needed to keep the economics
of that pipeline favorable for running.
So, I'm assuming, I'm sure we've taken that into account,
that's getting pretty close to my recollection of what the
minimum flow would be required to be.
Senator Murkowski. Yeah, and one last very quick question.
This is regarding OCS, and recognizing that you're factoring in
additional oil production--future production from OCS waters.
How much do you account coming from Alaska?
Mr. Caruso. The specific OCS component of Alaska?
Senator Murkowski. Yes.
Mr. Caruso. I don't have that off----
Senator Murkowski. Okay, you can let us know.
Mr. Caruso [continuing]. I'd be happy to provide it for the
[The information follows:]
EIA oil production projections off the Alaskan coast are not
identified specifically as originating in state versus Federal waters.
It is likely that an increasing portion of the total offshore oil
production will occur in the OCS. EIA's projections for total offshore
oil production in Alaska are as follows:
CRUDE OIL PRODUCTION (THOUSAND BARRELS PER DAY)
2005 2010 2015 2020 2025 2030
Offshore Alaska..................................... 119 54 169 282 143 64
Senator Murkowski. Great.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Landrieu. Thank you, Mr. Chairman.
I want to follow-up from my colleague from Alaska, because
I share many of her concerns, particular as it relates to the
supply of natural gas and our necessity of increasing domestic
production and in a safe and environmentally-friendly way.
The natural gas production from the Gulf is--according to
your study--likely to decline after 2015 because in your
testimony, ``investment is inadequate to maintain production
levels''. Could you describe or comment on that statement?
Mr. Caruso. Yes. Given the cost of developing the
conventional sources of gas in the OCS in the Gulf of Mexico,
we see the cost of doing that increasing, and the ability to
keep that production level from declining increasingly
difficult. We see more and more of the total share of gas
moving into what we label as unconventional, unsure sources of
the Rocky Mountains or the tight sands, coal-bed methane, and
the shale gas play. Fifty percent of the gas supply in this
outlook by 2030 moves--if you will--from traditional sources
such as offshore, particularly the shallower waters of the OCS
to unconventional sources.
Senator Landrieu. Now, I want to be very clear about this,
because I think this is very important. Are you testifying
that, because there are significant expenses associated with
retrieving gas offshore--particularly in deep water--that
production will move back onshore to non-conventional ways of
extracting gas in places that might have difficulty with
permitting? My reading of that process might lead one to
believe there are fairly significant environmental consequences
of this non-conventional gas.
Mr. Caruso. I'm just saying the economics of developing gas
becomes more and more unfavorable as they go after more
difficult and smaller deposits and they're unable to take
advantage of the economies of scale. That's basically what's
going on. It's a traditional long-term decline.
Senator Landrieu. Because this is very concerning that, Mr.
Chairman, this committee has an--I think, an obligation, an
important duty to face this country in the right direction. If
there are substantial deep water reserves that, with the right
incentives, can be tapped, as opposed to driving the production
to places where it's more marginal, and more difficult, and
potentially it could have more environmental negative and
environmental consequences. I think that's something we need to
My next question is, do you think it's wise for this
Congress to be cutting back on some of these incentives based
on what you have testified this morning?
Mr. Caruso. We don't really comment on policy, but that
certainly is the implication of this outlook. Given the
policies currently in place, and the economics of offshore
development--we continue to see a steady decline in that
traditional source of gas.
Senator Landrieu. Let me just be clear for those that are
honing in on this argument, that your projections estimating
natural gas prices and oil prices to be about what, between now
and 2030--so what are your estimates?
Mr. Caruso. Our current reference case has the average
wellhead price of gas trending down between now and the middle
of the next decade to about $5 per MMBtu, then increasing back
to about $6 MMBtu by 2030.
Senator Landrieu. The point of this question is that, even
with your estimates of relatively high prices, historically
high prices, the investments still will wane, driving this
change of policy.
I know my time is up, but my second real brief question is:
Have you taken into account--I know you're projecting an
increase of liquefied natural gas--but have you taken into
account the difficulty of permitting these facilities? For the
record, how many are actually up and running, and permitted,
and where are they generally located?
Mr. Caruso. Well, there are the four existing onshore
Senator Landrieu. Where are they?
Mr. Caruso. In Everett, Massachusetts; Cove Point,
Maryland; Elba Island, Georgia; and Lake Charles, in your
State. And now there are four under construction.
Senator Landrieu. Where are they?
Mr. Caruso. They're all in the Gulf region--Texas and
Senator Landrieu. For the record, are we having difficulty
permitting these facilities in other places outside of the
Mr. Caruso. As of now, there are no permits beyond the FERC
and the Coast Guard for outside of the Gulf.
Senator Landrieu. Thank you.
The Chairman. Let me ask about renewable energy generation
from non-hydro renewables. What is the current percentage of
our electricity produced from non-hydro renewables, and what do
you see it going to in 2030?
Mr. Caruso. I think the current number is a little more
that 1 percent of non-hydro renewables--sorry, I'll get a more
accurate number. It's 2.2 percent right now, going to 3.6 in
The Chairman. In projecting that, let me just break it down
a little more. Wind energy, you see increasing somewhat over
the next few years, but then leveling out. Is that what I
understand your projection to be?
Mr. Caruso. I believe that's correct. Wind is the fastest
growing of that non-hydro pertfolio.
The Chairman. Is that because of the fact that the
production tax credits are expiring?
Mr. Caruso. Yes.
The Chairman. You've assumed that they are not renewed?
Mr. Caruso. We assume for renewables, that the tax credit
The Chairman. At the end of 2008?
Mr. Caruso. Under the current law. We know that the history
has been that there have been multiple extensions of this, but
we do not assume that it would happen in the future.
The Chairman. Is it possible to do an estimate of what you
think would be possible to do with renewables, either wind or
solar, if we did extend those production tax credits for 10
years or through 2030?
Mr. Caruso. Yes, we have done a side case.
The Chairman. What is the difference there? Instead of
going to 3.2, what would we go to?
Mr. Caruso. It's fairly significant. I don't know if
someone has it, but I would be happy to provide it for the
record. We did do a model run base on this outlook which does
assume that the production tax credits are extended----
The Chairman. Yeah, that would be----
Mr. Caruso [continuing]. Ten years.
The Chairman [continuing]. Very useful to know how that
would change the prospect for shifting to renewable energy.
Mr. Caruso. Here it is.
For example, for wind, by 2017 we project total in
installed wind capacity of about 33 gigawatts, with the
extension. In the reference case, without the extension, it's
The Chairman. So----
Mr. Caruso. And we've done that.
The Chairman [continuing]. Nearly a doubling----
Mr. Caruso [continuing]. Yes.
The Chairman [continuing]. Of----
Mr. Caruso. It makes a big difference.
The Chairman. Okay. And the same could be assumed with
regard to solar energy--production from solar energy?
Mr. Caruso. I don't have solar here, but, for example,
geothermal would increase by 700 megawatts by 2017 to 3
gigawatts with the extension. I would have to provide the solar
number for you.
The Chairman. Okay.
Mr. Caruso. But, it's much smaller.
The Chairman. Right. But it still would be substantially
larger were we to extend the production tax credit than to just
allow it to expire at the end of 2008?
Mr. Caruso. That's correct.
[The information follows:]
EIA prepared an analysis of a 10-year Production Tax Credit (PTC)
extension at the request of the Congressional Joint Committee on
Taxation. The Committee specified an extension of the technology in-
service deadline for PTC-eligibility, without any further modifications
of current PTC law. However, since solar is currently not eligible for
the PTC, its penetration was not affected by the extended PTC.
Currently, solar technologies are eligible to receive an Investment
Tax Credit (ITC) worth 30 percent of investment costs. For commercial
entities, this credit reverts to its permanent value of 10 percent at
the end of 2008 (the Annual Energy Outlook 2007 reflects the then-
current 2007 expiration of the 30 percent ITC). For residential
installations, the credit expires completely at that time. The
Committee did not request an extension analysis of the 30 percent ITC,
and EIA has not otherwise performed such an analysis. However, an
extension of the ITC would be expected to increase installations of
photovoltaic systems relative to the Annual Energy Outlook 2007
The Chairman. You have something in your forecast about
potential for excess production capacity for ethanol in the
near term, as I understand it. As the capacity increases, it's
expected to outpace the demand in the next few years. Could you
just explain what that is, and what the problem there is?
Mr. Caruso. In our short-term outlook, which we do every
month, we look at demand for gasoline, and what the blending
component of that would be accounted for by, in this case,
ethanol. What we see is the availability of ethanol with the
increasing production announced, the number of plants that have
been announced, increasing faster than what we think will be
required as a blending component in the total gasoline pool. We
have that only going up to--even in the long-run--about 8
percent of the total gasoline pool. We think there'll be more
corn-based ethanol capacity, in the near-term, than there will
be demand for it in the gasoline pool.
The Chairman. So, in order that all of the ethanol that
we're planning to produce actually be needed or used, you're
saying that we need to also increase the requirement for
blending of ethanol from where it is today. Is that what I'm
Mr. Caruso. All I'm saying is that right now, it varies by
refiner, and most are blending at about 10 percent in their use
of ethanol. California is 5.7 percent. It appears that the pace
of production of ethanol is moving quicker than the demand for
the use of that as a blending component. Therefore, last year
when we testified, the price of ethanol had risen dramatically
since it was needed to replace MTBE as an oxygenate component,
and that short-term demand to replace phasing out of MTBE was
met with reasonably efficiently. Now we've gone past that in
terms of the supply of ethanol needed. We're looking at a
relatively softer market for ethanol this driving season than
last driving season.
The Chairman. Okay.
Senator Tester. Yeah, thank you, Mr. Chairman.
Guy, thanks for being here today. I mean, this has been
I want to switch gears a second, and I want to talk about
foreign oil and what impact it had on your Energy Outlook for
America. I mean right now--and I'll get more specific--right
now we import a fair amount of energy. Were you using the same
ratios moving up, or were you making some assumptions that we
were going to wean ourselves of, particularly, the Middle
Mr. Caruso. The outcome of this business-as-usual reference
case is that our net import dependency will go down over the
next 5 to 7 years as we bring on some deep water offshore
production in the Gulf of Mexico. By the end of this projection
period it's back to about where we are now----
Senator Tester. Okay.
Mr. Caruso [continuing]. Which is roughly 60 percent----
Senator Tester [continuing]. Okay.
Mr. Caruso [continuing]. Of import dependency.
Senator Tester. Okay, and then was conservation looked at?
Because what I'm getting at is often times when you anticipate
energy production, a lot of it's market-driven. In fact, it's
probably all market-driven. So, was there any conservation
percentages pumped into the analysis?
Mr. Caruso. We do have embedded within this projection
increasing efficiency in the use of all energy, but, in
particular, liquid fuels, as people buy more efficient
vehicles. We have hybrid sales growing steadily, even
dieselization of the fleet increasing.
Senator Tester. Did you use a flat percentage figure
increase every year? Or what did you use?
Mr. Caruso. No, what we try to do is look at it on a
sector-by-sector basis--for example, in the automobile sector
we have growth in miles per gallon per vehicle going at about 2
percent per year in that case. Then other factors that could be
put into that category of efficiency of conservation include
consumer behavior. We do actually see a slowing down of the
vehicle miles traveled per driver over this time frame. That's
partly demographics, with the aging of the population and the
movement of our population toward the South and Southwest.
Senator Tester. Okay. So it would be fair to say that you
can not project what may come out of this body as far as
measures that may encourage more public transportation or
house, home business, heating, that kind of thing, fertilizer
use, I mean the list goes on and on. It's really very difficult
to project that until you know what the policies are?
Mr. Caruso. That's correct.
The other overriding issue is one of our general economy.
We continue to see a movement away from energy-intensive
consumption particularly in the industrial sector. If you look
at this on a global basis, where is it moving? It's moving to
China and other Asian----
Senator Tester. I've got you.
Mr. Caruso. So.
Senator Tester. Okay, well thank you very much. I
appreciate your time.
Thank you, Mr. Chairman.
Mr. Caruso. Thank you.
The Chairman. Thank you.
Senator Murkowski. Thank you.
Mr. Chairman, your comment that prompted the response about
geothermal encouraged me to stay for another round.
I have really gotten very excited about the potential for
geothermal, not only in Alaska, but around the country. On page
162, we found your projections here as you look at geothermal
through the out-years, and you're predicting a annual growth in
the geothermal area of 1.6 percent.
When you make these assumptions--and this goes to the
Chairman's question--do you factor in policies that we put in
place that would allow for, whether it's tax credits or--how do
you arrive at that particular rate of growth in the area of
Mr. Caruso. Similarly to other renewable sources, we look
at the economics of existing sites for potential--as well as
the policies you mentioned, the production tax credit--and try
to make a best judgment as to where the increase in the supply
of that particular technology would occur, and when it would
come on stream.
Senator Murkowski. So, if we would get more aggressive here
in the Congress or in the administration in support of
geothermal, your outlook would theoretically be changing down
Mr. Caruso. We certainly look, every year, for any changes
in Federal, State, and local laws, and try to incorporate them
in the outlook, particularly with things like renewable
portfolio standards, now adopted in a large number of States.
Senator Murkowski. We'll bring you up to Alaska and show
you what we're doing up there. It's really very, very exciting.
I want to ask one last question about natural gas, and this
relates to the imports that we receive from Canada. As we've
looked at development of Alaska's natural gas, we've been
working with our Canadian neighbors and talking about the
Mackenzie Line. We've never viewed them as competing projects,
but really projects that are very necessary for all.
Your report indicates that you're anticipating that the
Mackenzie Delta Line comes online in 2012. As you know, they
too have experienced some delays, and I don't know whether that
2012 prediction is still accurate. What I'm hearing is that it
probably is not. What does that do to the level of imports here
in this country? I understand that most of that Mackenzie gas
would go into the Alberta area and for domestic consumption.
But, does it have a ripple effect into the lower 48 States as
Mr. Caruso. It definitely would. We've pushed that--as you
noted--pushed that back 1 year, for every year I've been
Administrator. No connection.
But they are somewhat similar issues to what you've been
having in Alaska. We do assume that Mackenzie Delta gas would
be needed to meet domestic demand for Canada, particularly for
processing of the heavy oils, for heavy sands. The longer it's
delayed, it will have some effect on the pipeline gas available
for delivery to the United States.
Senator Murkowski. So, does that then impact the LNG that
we're bringing in to our coastal communities?
Mr. Caruso. Definitely. I think I said, in an answer to a
previous question, to the extent that either Alaskan gas is
delayed or unavailable for whatever reasons, and similarly for
Canadian gas, any pipeline gas that's not available will have
two effects. One, it will certainly raise the price of gas to
all of our consumers, and, second, it would require more LNG,
maybe not on a Btu-for-Btu basis, but close to that.
As a side note, I'm going to be in Calgary on Sunday, and
meeting with Canadian industry and Government officials, so
I'll have the latest estimate of when that Mackenzie Delta line
might be available, probably early next week.
Senator Murkowski. Good, maybe we'll check in with you.
Mr. Caruso. I'd be happy to provide that.
[The information follows:]
The latest annual projections from the Energy Information
Administration and the most recent information from the National Energy
Board of Canada project a start date of 2012. However, recent
statements from Imperial Oil, Ltd., (one of the consortium of producers
involved in the project) indicate that their earliest start date has
been delayed until 2014. The announced change in the schedule
corresponds to significant increases in the project cost estimate and
the belief that Federal support, in the form of royalties and tax
incentives, is necessary for the project to be viable.
Senator Murkowski. Mr. Chairman, I've focused most of my
questions on the natural gas situation. We know in Alaska we've
got a great deal to offer the rest of the country, but I think
it just goes to show that the delays that we experience up
North have profound repercussions, in terms of supply around
this country. So, I look forward to working with you on ways
that we can't speed that along. Thank you.
The Chairman. Thank you very much.
Let me just ask one or two other questions, and then we'll
let you go on about your business here.
There's a lot of discussion around the Congress every time
we discuss energy efficiency about, ``Where is the low hanging
fruit?'' That's the metaphor that everyone likes to trot out.
You know, where are the areas that we could change our behavior
or our policy, and achieve substantial savings or reductions in
The Mackenzie Global Institute came out with their recent
report, you reference that in your report. Where they said that
there are a lot of opportunities to cut the growth in annual
global energy demand--and they project it could be cut from 2.2
percent annual increase to a 2.6 percent annual increase, as I
understand their report--they talk about residential use,
industrial use, power generation, various areas. Have you done
a similar analysis as to where the opportunities are for us to
substantially improve energy efficiency, or reduction in energy
use? Or could you do that kind of analysis? Or could you give
us a reaction to the Mackenzie Report's analysis in that
Mr. Caruso. Yes, we have met with the Mackenzie people and
we're looking in more detail at that report.
But what we do do, on a sectoral basis, is look at best
available technology. In this outlook, which is not static when
it comes to technology or efficiency change, we assume a
continued rate of improvement, of utilization of energy, on a
sector-by-sector basis based on the track record of the last 20
We also look at what our best available technologies are,
and where the gap is largest. Clearly, it's largest in the
residential sector, when you look just at best available
technology and how much is actually being taken up. There's a
substantial amount, percentage-wise, of improvement available
in the residential sector.
It's lesser so--but to some extent true--in the commercial
sector, although, given the incentives of businesses, they try
to utilize the best technologies. An area where there probably
is the closest match between best available technology and
what's actually being taken up is the industrial sector,
because there's so much at stake for these different industries
to maintain competitiveness.
Then, finally, if you're looking for biggest impact--
clearly it's transportation, where there is such a large share
of our total use of energy. So, if you're looking for where the
impact can be the greatest, I think the transportation sector
is the one. We've done work on this and I'd be happy to share
it in more detail with you, but that is the general snapshot.
The Chairman. So, your assessment of current available
technology leads you to conclude that the greatest potential
energy savings are in the transportation sector?
Mr. Caruso. Volumetrically, yes.
The Chairman. Right, okay. That's helpful.
Let me ask about one other subject. I don't know if your
study really tells us much about this or not, but the President
has asked that we increase the strategic petroleum reserve,
double it by 2027. Frankly, I have trouble understanding how
that gives us an advantage to any substantial extent. I'm not
clear when we're going to use the strategic petroleum reserve.
I'm not sure what adding those additional barrels of oil to the
strategic petroleum reserve would do to the pressure on the
price of oil. There are just a lot of questions in my mind.
Does anything in your report, anything that you've done by
way of analysis give us some insight into the advisability of
that, or the benefits to be achieved from that, or the
potential consequences of doing that?
Mr. Caruso. No, there is nothing in this report or anything
that we've done in recent years that's publicly available.
Clearly, with respect to the value of going from, let's
say, 700 million to 1 billion barrels, that relies heavily on
your assessment of the risk. I remember having been involved in
studies looking at the size of the SPR. The probability you
assign to a large disruption with long duration has to get
relatively high, using the models that we use, to give you a
significant benefit relative to the cost. We don't have
anything that's been done very recently on that.
In terms of the impact on the market--it really depends, of
course, on the fill rate and over what time. As I understand it
now, they're talking about relatively low levels of fill over a
relatively long period of time. So I would anticipate that that
would not have any significant impact on the oil market.
The Chairman. Well, thank you very much, it's been very
interesting, and we appreciate your good work, and we'll
continue to have more questions for you.
Mr. Caruso. Thank you.
[Whereupon, at 11:04 a.m., the hearing was adjourned.]