[Senate Hearing 110-59]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 110-59
 
                       2007 ANNUAL ENERGY OUTLOOK

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   TO

 EXAMINE ENERGY INFORMATION ADMINISTRATION'S NEW ANNUAL ENERGY OUTLOOK

                               __________

                             MARCH 1, 2007


                       Printed for the use of the
               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

                              ----------                              

                               STATEMENTS

                                                                   Page

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

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    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 
                             MEXICO

    The Chairman. All right. Why don't we go ahead and get 
started?
    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 
ethanol.
    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 
                             MEXICO

    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 
going.
    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 
happen.
    Thank you, Senator Bingaman, and I look forward to the 
testimony.
    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 
questions.
    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 
and services.
    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 
coal-to-liquids plants.
    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 
2030.
    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 
alternative fuels.
    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 
the increase.
    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 
reference case.
    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 
over time.
    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 
this time.
    Thank you.
    [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 
alternative cases.
                        the u.s. energy outlook
Energy Prices
    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.
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    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) 
in 2030.
    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.
Energy Consumption
    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
    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 
electricity generation.
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 
petroleum-using equipment.
    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 
case.
    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 
natural gas.
    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 
cubic feet.
    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).
Electricity Generation
    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 
2005.
    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 
transportation sector.
                               conclusion
    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 
rounds.
    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 
2017.
    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 
35?
    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 
EPAct.
    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 
our----
    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.
    Senator Domenici. Mr. Chairman, you could go on as long as 
you'd like.
    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 
created.
    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 
trades.
    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 
construction.

    The Chairman. Thank you.
    Senator Tester.
    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 
projection.
    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 
that.
    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 
per ton.

    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 
technological----
    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 
plants?
    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 
reference case.
    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 
Cycle.
    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 
techniques.
    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 
the NRC.
    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 
place----
    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 
record.
    [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.
    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 
look at.
    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 
plants.
    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 
Louisiana.
    Senator Landrieu. For the record, are we having difficulty 
permitting these facilities in other places outside of the 
Gulf?
    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 
2030.
    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 
expires.
    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 
18 gigawatts.
    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 
reference case.

    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 
understanding?
    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.
    Senator Tester. Yeah, thank you, Mr. Chairman.
    Guy, thanks for being here today. I mean, this has been 
very interesting.
    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 
Eastern oil?
    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.
    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 
geothermal?
    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 
the road?
    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 
well?
    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 
energy use?
    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 
regard?
    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 
years.
    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.
    Thank you.
    Mr. Caruso. Thank you.
    [Whereupon, at 11:04 a.m., the hearing was adjourned.]

                                    

      
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