15 May 2014
The U.S. Department of Energy forecasts energy production and consumption in an Annual Energy Outlook. AEO is published annually in two releases. The first part — the early release — is published in November or December and presents “reference case” projections. “Reference case” means projections based on established trends and on existing government regulations. The “reference case” does not predict technical innovation, nor does it predict future regulation.
The full report is published in April. The full report offers much more analysis and consideration of alternate cases. The AEO 2014 full report was recently released. Its 269 pages provide lots of zoomed out  insight, some of which is useful for smaller manufacturing business units. The post offers a few of those.
Energy Consumption in Manufacturing
The AEO differentiates between energy-intensive and non energy-intensive manufacturers. Energy-intensive manufacturers include primary metal and bulk chemicals producers, among others. The great majority of smaller manufacturers fall into the non energy-intensive group. The AEO 2014 offers this:
“Shipments from the non energy-intensive manufacturing sector increase by 2.7% per year from $2.9 trillion in 2012 to $6.1 trillion in 2040 in the AEO 2014 reference case, with growth rates of 3.2% per year from 2012 to 2025 and 2.3% per year after 2025. Energy consumption for non energy-intensive manufacturing grows from 3.6 quadrillion BTU in 2012 to 4.9 quadrillion BTU in 2040, averaging 1.0% per year — the same as the AEO 2013 reference case. In parallel with the growth of shipments, energy consumption in the non energy-intensive manufacturing sector grows more rapidly from 2012 to 2025 (1.3% per year) than from 2025 to 2040 (0.8% per year).” 
The chart labeled “Energy Consumption in Non Energy – Intensive Manufacturing” presents the same good news in visual form: projected shipments grow strongly, especially until 2025. Energy consumption increases less rapidly than shipments, indicating that energy utilization efficiency improves.
“Fracking” Makes the Difference
It would be difficult to overstate the difference that the sudden abundance of natural gas means to the global competitive posture of U.S. manufacturing. Until recently, the price of natural gas was effectively linked to that of petroleum. Today, the price of natural gas depends on supply and demand for natural gas. And, due to “fracking”, the supply of American natural gas is increasingly long.
The chart labeled “Industrial Fuel Prices”  tells the story. The chart projects prices to non energy-intensive manufacturers for equivalent quantities of fuel oil, electricity and natural gas. As you can see, a million BTU of natural gas costs about 1/5th that of fuel oil and about 1/4th that of electricity. 4 to 1 or 5 to1!
The Bureau of the Census, hence the AEO 2014 reference case, significantly revised its forecast for the rate of population growth in the U.S. from 0.9% annually to 0.7% annually. The revision is due to a drop in forecast immigration, rather than to a further reduction in the birth rate. The table labeled Table IF4-1shows changes in population by age group in future years.
An older population has fewer people of working age. The Economist  projects that, by 2035, there will be over 40 Americans over 65 for every 100 of prime working age (25 – 64). Older workers have more experience, but their training and skill sets may be less current.
Different age groups also have very different buying habits. For example, fewer children means less demand for schools and for everything associated with schools — buildings, books, even teachers. It also means fewer new graduates with the latest ideas and the vigor of youth. Fewer children also mean less demand for family sized homes, furniture, playgrounds, soccer coaches and many other products and services.
For Smaller Manufacturers
AEO 2014’s forecast for significant growth in shipments from non energy-intensive manufacturers is certainly good news. The improved shipments projection is largely due to the cost advantage implicit in the availability of “fracked” natural gas — an advantage now widely available in the U.S., but not in most other countries. The natural gas advantage isn’t limited to heating. Natural gas is also source for low molecular weight hydrocarbons, particularly C2 and C3 hydrocarbons, which are raw materials for many polymers and other products. For volume plastics such as polyethylene, “fracking” means a strong global position in raw materials cost, as well as processing costs.
The information the AEO provides a reminder of how fast global economic realities are changing. Regardless of how busy one is with zoomed in matters, it is truly necessary to stay aware of those changes, and to factor those changes into the strategic direction of your firm. Keep in mind that the AEO does not anticipate future innovations, which are very likely to occur, and to add further change. So much is changing in so many dimensions that it is very easy to join the dinosaurs.
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.
 The Annual Energy Outlook – AEO 2014 final report is available for free download at:
http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf. Charts shown in this post are from AEO 2014 unless otherwise noted.
 Some examples to make “reference case” more clear: (1) “established trends” include current Census Bureau population projections; (2) “existing regulations” assume compliance with the regulations, but not extension of the regulations — the current regulations on average fuel consumption for automobiles require compliance with a schedule of reductions through model year 2025 (the current regulations stop with the 2025 model year).
 Posts to this blog frequently use the term zoomed out and to refer a “big picture” view (which provides the context necessary for prioritization) and zoomed in to refer to a tightly focused view (where effective action is possible).
 Annual Energy Outlook – AEO 2014, Early Release, December 2013, page 10.
 The chart labeled “Industrial Fuel Prices” is based on information from AEO 2014 Table A6 – Industrial sector key indicators and consumption.
 The Economist, April 26th – May 2nd 2014 issue, page 24. This article puts population trends into a global prospective.