Good news, with a catch

Based on what is known about current energy prices, technology, regulations, and consumer and corporate behavior, the U.S. government's annual energy outlook predicts the price of electricity should not change much over the next 27 years.

Well, that's a relief.

That forecast is predicated on the world not changing much in unforeseen ways, and no big global energy shocks over the next 27 years.

Well, that tempers the relief, doesn't it?

Each year, the U.S. Energy Information Administration, a statistical agency housed in the Department of Energy, issues AEO, the Annual Energy Outlook, which is pretty much what it sounds like, the government's annual projections of the U.S. energy economy. EIA administrator Adam Sieminski presented AEO2013 at the Paul H. Nitze School of Advanced International Studies last December, which afforded the opportunity to talk about what it all means with David Jhirad, the director of SAIS' Energy, Resources, and Environment Program.

From Jhirad's viewpoint, the report indicates the United States will become less reliant on imported energy resources as domestic production—particularly oil, natural gas, and renewable power—increases faster than domestic consumption. AEO2013 predicts total domestic energy use will grow by only 10 percent between now and 2040 while the U.S. population grows by a predicted 29 percent, which means per-capita energy use will decrease. This trend will be assisted by recently enacted efficiency standards for cars and light trucks (from 32.6 miles per gallon in 2011 to 47.3 mpg in 2025). "As vehicle efficiency increases, we'll import less oil. Under certain assumptions, it could be as much as 1.5 million barrels of oil a day less in 2035 than in 2011," says Jhirad. And while U.S. demand for oil falls, the country will be producing more of it: 12 million barrels per day in 2019, up from 10.4 million in 2011. Meanwhile, the proportion of consumed oil that comes from imports will drop from 45 percent to 37 percent between 2011 and 2040.

The domestic oil surge mainly comes from North Dakota, where new rock fracturing technologies have led to a boom in shale oil production and an associated waste of natural gas called "flaring." But do not think this means that U.S. oil prices will decline, says Jhirad. "Oil is a globally traded commodity, so apart from job creation in North Dakota due to the oil boom, the average consumer won't see any impact on oil prices unless there are some international forces at work as well."

Production should increase not only in oil but in natural gas and renewable energy as well, says the EIA. Natural gas production will burgeon by about 45 percent between now and 2040, which puts the country on schedule to become a net exporter by 2020. Because gas is traded regionally rather than globally, a glut in the U.S. gas supply means lower prices in the future. "It's cheap gas that will keep prices for electricity, for heating costs, down for consumers," explains Jhirad. "It also allows the U.S. manufacturing industry to be more competitive."

As for renewables, the share of electricity generated from sources such as hydro, wind, biomass, solar, geothermal, and waste will grow from 13 percent in 2011 to 16 percent by 2040. Though the change may seem modest, the use of these renewables is growing faster than that of fossil fuels.

The EIA's forecast is a useful baseline, says Jhirad—assuming that the world remains much as it is, with the same technologies, economic forces, and government regulations. "The model assumes a continuation of today's policies with no shocks and surprises," he says. After a meaningful pause, he points to 2011's disaster in Fukushima, Japan, when a tsunami smashed a nuclear power plant, and the subsequent shutdowns of nuclear power plants in Germany. "The world energy system has always been subject to unpleasant shocks and surprises."