Annual Energy Outlook  The new Annual Energy Outlook is available for free download at: www.eia.gov/forecasts/AEO
The Energy Information Agency — part of the U.S. Department of Energy — recently released its Annual Energy Outlook (AEO). The AEO is a 244 page collection of statistics and forecasts on production and consumption of energy in this country .
The AEO focuses on a “reference case”. The reference case presents the government’s projections to 2040, based on present market conditions, demographics, policy factors and trends. Where appropriate, the AEO also includes deviations from reference case. For example, much of the reference case is built on forecasts for the price of crude oil. Should the price of crude oil vary from the projection, lots of other forecasts will vary accordingly. Forecasting the future is wooly business at best, for the Feds along with everybody else.
The AEO is full of relevant information for manufacturers. This post will discuss only a few areas which may be especially useful.
Natural Gas Liquids (NGLs)
New drilling techniques — directional drilling and hydraulic fracturing — now provide a means for collecting natural gas from shale formations. Consequently, the amount of natural gas now available in this country has increased dramatically over the last few years. This newly found abundance of natural gas has resulted in significantly reduced natural gas prices. And perhaps more significantly, the price of natural gas now depends on its own supply and demand — it is no longer coupled to the global price for crude oil.
Natural gas consists of a mixture of molecules. These molecules consist almost entirely of carbon atoms and hydrogen atoms, in various arrangements. The molecules — collectively called “hydrocarbons” — are classified by the number of carbon atoms a particular molecule contains. Natural gas consist primarily of methane (molecules with one carbon atom, “C1”), along with much smaller numbers of molecules with two to five carbon atoms (C2 – C5). It is common practice to separate the C2 – C5 molecules from the methane. When separated from the C1 molecules, the C2 – C5 molecules are referred to as “natural gas liquids”, or NGLs. The U.S. now produces about 3 million barrels of NGLs every day.
Ethane (C2) accounts for about a million barrels a day — about 1/3 of the total. The ethane can be converted to ethylene, a more chemically reactive form of C2. Ethylene is then reacted further, to produce a host of petrochemical products, especially plastics. The AEO reports that about 10.1 million annual metric tons of additional ethylene capacity is proposed for start-up through 2020 in the U.S. This additional capacity will take advantage of relatively low cost ethane from NGL. Much of this ethylene will be used to produce polyethylene and other plastics, making the U.S. a global low cost producer of volume polymers and plastic products.
Some of the propane (C3) portion of the NGLs is converted to propylene. The propylene is used to produce petrochemicals and plastics, especially polypropylene, much like the C2s. Most of the remaining C3, C4 and C5 mixture is sold as clean, convenient liquid fuels: propane and LPG (liquid petroleum gas). Because of the sharp increase in supply of these fuels, U.S. domestic prices have fallen, creating another global cost advantage for U.S. manufacturers
“Biofuels” are fuels derived from plants, rather than from petroleum. While traditional fuels, including wood, fit this definition, the term “biofuels” is commonly applied to liquid fuels, especially ethanol, diesel fuels and jet airplane fuels. Biofuels offer some advantages:
(1) The cost and availability of biofuels are not linked to the cost and availability of petroleum.
(2) Since plants grow by taking CO2 from the atmosphere, the CO2 that is returned to the atmosphere when biofuels are burned is part of a short – term closed loop process — in essence, there is little, if any net CO2 added to the atmosphere from the combustion of biofuels.
(3) Biofuels usually contain few, if any, impurities that produce environmental emissions upon combustion, such as SOx (oxides of sulfur) or NOx (oxides of nitrogen).
The current generation of widely used biofuels is derived from crops or uses farmland that could otherwise be used for food production. These include ethanol from corn (as a 10% blend in most of the gasoline in the U.S.), and diesel fuels from palm oil. The ethanol from corn production in the U.S. is required by law and is subsidized — the volumes are such that general market prices for corn have been affected. Diesel from palm oil production in southeast Asia offered farmers a more profitable alternative to growing rice, such the conversion of land from rice production to palm oil production resulted in significant rice shortages in several countries a few years ago.
Newer biofuels are rapidly becoming available. Brazil, for example, produces ethanol from sugar bagasse in such volumes that ethanol, rather than gasoline, is the primary fuel for automobiles in Brazil (bagasse = sugar canes from which the sugar has been pressed). A large number of other biofuels from non-feedstuff biomass processes are now becoming available in quantity, in the U.S. and elsewhere. According to the AEO, the world now produces about 2.0 million barrels per day of biofuels, forecast to double by 2040.
Rather than “biofuels”, I prefer to think of “bio-carbons”, that is, hydrocarbons and related compounds that are derived from biomass, particularly non-foodstuffs biomass. Bio-carbons include biofuels, but go much further. For example, the Brazilians produce ethanol from bagasse. The ethanol can be used as biofuel, or it can be converted to ethylene and used, like ethylene from NGLs, as feedstock for production of many petrochemical products.
Biomass sourcing also provides novel, petroleum independent routes to rather common hydrocarbons like butadiene, a critical component of synthetic rubber that is chronically in short supply. Further, biomass sourcing provides routes to materials that aren’t readily conveniently produced from petroleum. Examples include novel and useful Green packaging materials.
The AEO also forecasts atmospheric emissions due to energy production and consumption in the U.S. As with energy production and consumption, the reference case for emissions is updated every year. This graph labeled “Figure 13” compares AEO’s reference case projections for energy related carbon dioxide (CO2) emissions from the U.S. for the years 2009 – 2013.
The latest reference case projection, labeled “AEO2013”, shows current U.S. CO2 emissions about 11% below those in the base year (2005), increasing slowly to 5% below the base year (2005) in 2040. This not withstanding that U.S. GDP is projected to more than double between 2011 and 2040. I find it even more interesting that the reference case CO2 emissions projection improves every year! In the case of CO2 emissions, the reference case is consistently pessimistic because the realities behind the projections keep improving.
I find this year’s AEO encouraging. For the U.S., the outlook is for increasing independence from reliance on petroleum and other fossil fuels, an avalanche of new technologies, and continuing reduction in environmental impacts. Energy intensity — energy use per capita and energy use per dollar of GDP — is projected to continue to improve. All of these offer opportunities for manufacturers, small or large. There is so much information in the AEO that I expect to return to it in future posts.
Thoughtful comments and experience reports are always appreciated
… Chuck Harrington (Chuck@JeraSustainableDevelopment.com)
P.S: Contact me when your organization is serious about pursuing Sustainability … CH
This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.
Graphs are from the Annual Energy Outlook, except the graph labeled “Figure 13”, which is from an early release on the AEO Reference Case, December 2012.
Annual Energy Outlook
 The new Annual Energy Outlook is available for free download at: www.eia.gov/forecasts/AEO