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EIA AEO 2015 Heavily Influenced By Falling Oil Prices

This past week, the U.S. Energy Information Administration (EIA) released the 2015 Annual Energy Outlook with projections and forecast to 2040.  As expected, this year’s forecast reflects a much different outlook than the AEO 2014, largely due to the significant change in oil prices that occurred late last year.  For 2015, EIA is now forecasting an average price of $57.58 per barrel oil (Brent) compared to last year’s forecast, which projected an average 2015 price of $101.95 per barrel.  Similarly, this year’s projection for 2020 is $89.75 a barrel, compared to last year’s 2020 projection of $109.37.

The 2015 AEO continues to project an increase in natural gas vehicle growth, particularly in heavy-duty trucks, rail and marine transportation but at levels that have been revised downward from last year.  EIA now projects natural gas will account for about 7 percent of freight truck consumption in 2040, down from 8.5 percent forecasted last years.  Natural gas’ share of consumption in freight rail energy consumption in 2040 remains extremely bullish at 34.3 percent.  According to our analysis, natural gas prices in transportation will continue to sell at a healthy discount to diesel fuel.  Between now and 2020, natural gas compared to diesel is expected to sell at a discount of $0.40–$0.80 per diesel gallon equivalent. If petroleum prices increased because of higher than expected economic growth or political turmoil, sales projections could turn around quite rapidly.  Overall, NGVAmerica thinks that EIA has tended to take an overly conservative approach regarding natural gas demand in transportation, at least in the short-term, and that has not changed in this forecast.

Some of the other major takeaways from the AEO 2015 include the EIA once again forecasting increased energy demand in the heavy-duty freight sector, which contrasts with flat or declining demand in light-duty transportation.  The increased projection in heavy-duty energy consumption (700,000 barrels a day in new demand) by 2040 is attributed to increased industrial output and increased truck miles.  EIA also reveals that it now expects that after 2028, the U.S. will no longer be a net importer of energy as increased domestic production and exports of natural gas and finished petroleum products offset imports.  Natural gas exports will surpass imports as early as 2017 according to EIA, and by 2040 could approach 3.0 trillion cubic feet.  The U.S. is expected to remain a net importer of petroleum throughout the Reference Case forecast.  Net imports of petroleum, however, are expected to decline from the 33 percent level in 2013 to 17 percent in 2040.  While this is positive, it still points to the fact that petroleum imports will continue to contribute significantly to trade imbalances, with the cost of these imports in the hundreds of billions of dollars a year (e.g., $167 billion in 2020, $259 billion in 2030, and $405 billion in 2040).

NGVAmerica has downloaded the key transportation figures in the AEO 2014 and AEO 2015 and has prepared side-by-side comparisons of the information that is available to members.