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Energy Outlook Actually Bright

WASHINGTON – A week after President Obama denied the application for the Keystone XL pipeline – which would carry oil from Canada’s tar sands deposits in Alberta to U.S. refineries along the Gulf of Mexico – it’s time for an energy reality check. What does the future hold? It may be better than you think. That’s one message from the U.S. Energy Information Administration’s latest “Annual Energy Outlook,” which projects the supply and demand for fuels through 2035.

Even Obama struck an optimistic tone in his State of the Union. The EIA report suggests three important conclusions.

First, despite big gains in energy efficiency and increases in “renewables” (wind, solar, biofuels), fossil fuels will remain the mainstay of America’s energy system for years. In 2010, fossil fuel represented 83 percent of U.S. energy consumption, with oil at 37 percent, natural gas at 25 percent and coal at 21 percent. Although total energy use grows only 10 percent between 2010 and 2035, the fossil-fuel share stays high at 77 percent in 2035. Oil is 32 percent, natural gas 25 percent and coal 20 percent.


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Second, it would take herculean efforts to cut greenhouse gas emissions sharply. The gains in efficiency and the expansion of renewables are offset by increased energy demand from a larger population (390 million in 2035, up from 310 million in 2010) and more homes, office buildings, shopping malls and cars. In 2035, emissions of carbon dioxide – the largest greenhouse gas – are reckoned to be 3 percent higher than in 2010. This contrasts with the declines of 50 percent to 80 percent by midcentury that some scientists say are needed to stabilize global temperatures.

Finally, U.S. oil and natural gas production are growth industries. For years, they seemed in irreversible decline. Oil imports were rising, and higher natural gas demand would be met by foreign liquefied natural gas. Now, advances in “fracking” (using pressurized water to “fracture” tight oil and gas formations) have opened new fields. From 2007 to 2010, U.S. oil production rose from 5.1 million barrels a day to 5.5 mbd. By 2020, it will hit 6.7 mbd, projects the EIA. Oil imports are declining, and higher natural gas output will turn the United States into an exporter by 2016, says EIA.

Viewed this way, our energy future seems reassuring. We’ve become vastly more efficient. In 2010, it took about half the energy to produce a dollar’s worth of output (gross domestic product) as in 1980. This reflected more fuel-efficient vehicles – a response to higher gasoline prices and government fuel economy standards – and a shift from an energy-intensive industrial economy to a service economy. An office complex with 5,000 workers uses less energy than a steel mill with 5,000 workers. The EIA expects these trends to continue; energy use per dollar of GDP is projected to drop 42 percent from 2010 to 2035.

Meanwhile, domestic energy production is rising and – astonishingly – import dependence is rapidly falling. In 2010, oil imports accounted for 49 percent of U.S. consumption, down from 60 percent in 2005. By 2035, imports could decline to 36 percent, projects the EIA. All this seems good news.

But we don’t view energy this way. We clamor for grander goals: becoming energy “independent” or stopping global warming. And these – as the EIA report also shows – are unreachable anytime soon, if ever. Barring vast new discoveries, we won’t produce enough oil to meet our needs. Indeed, the EIA’s assumption about biofuels, which roughly triple by 2035, could be too optimistic. If so, oil imports would exceed EIA projections. (In 2035, the EIA expects biofuels to account for 12 percent of liquid fuel use, up from 4 percent in 2010.)

The same is true of global warming. It’s hard to see how, under plausible assumptions, greenhouse gas emissions could be reduced substantially in the foreseeable future. The pressures of population and economic growth overwhelm improved energy efficiency or shifts to “green” energy. For example, renewable fuels (wind, solar, geothermal, biomass) are projected to more than double by 2035. Still, including hydro-power, they account for only 16 percent of electricity generation in 2035. Coal and natural gas dominate.

We need to view matters as they are, not as we wish them. Take the Keystone XL pipeline. We may depend indefinitely on oil imports, but not all imports are equal. Canadian oil, transported south by pipeline, is almost as secure as American crude. Canadian oil sands now produce about 1.9 million barrels a day; by 2035, the EIA expects that to reach 5 mbd. Rejection of Keystone did nothing to cut greenhouse emissions. It simply spurred Canada to explore ways to sell to China and other Asian customers.

The energy outlook isn’t half bad. With common sense, it could be even better.

Samuelson’s columns, including those not published in the Journal, can be read at – look for the syndicated columnist link. Copyright, The Washington Post Writers Group; this commentary first was published in Newsweek.