The year 2004 will be remembered as a year of high prices for gasoline and natural gas, and Americans are understandably worried about the cost of energy for 2005 and beyond. But the federal Energy Information Administration (EIA) recently released a preliminary version of its Annual Energy Outlook 2005, and it paints a surprisingly optimistic picture for the decades ahead.
With regard to petroleum, EIA acknowledges that global demand will remain strong, especially with China’s growing need for motor fuels unlikely to subside. Nonetheless, the report does not predict runaway prices. Demand may be increasing, but EIA believes that the global supply can expand to meet it. Under one set of assumptions, EIA projects that the inflation-adjusted price “rises slowly to $30.31 per barrel in 2025.” Under another set of assumptions, the price reaches $35 per barrel by 2025 — still less than the current price and in line with the average over the last few years. If true, then the inflation-adjusted price at the pumps should stay below $2.00 per gallon for a long time.
The story is similar for natural gas. EIA expects to see enough new supplies coming online in the years ahead to meet demand, which is “projected to grow from 22 trillion cubic feet in 2003 to almost 31 trillion cubic feet in 2025.” The agency predicts additional natural gas production from the Rocky Mountain region, Alaska, and the Gulf of Mexico, as well as more supplies from overseas shipped in the form of liquefied natural gas (LNG). Indeed, EIA sees homeowners paying less for natural gas in 2025 than they are paying today.
EIA also projects an increase in construction of electric power plants to meet demand, which it sees expanding by 1.8 percent each year through 2025. Most of these new plants will use natural gas, with many of the rest being coal-fired. EIA estimates that we’ll be paying an inflation-adjusted 7.3 cents per kilowatt hour on our electric bills in 2025, compared to 7.4 cents today.
Overall, EIA does not foresee a future of bargain-basement energy costs, nor does it expect gasoline, natural gas, or electricity to go through the roof. Granted, it is nearly impossible to accurately project future energy supplies and prices, but EIA is as good as anyone at it and this long-term forecast should be taken seriously.
The good news from this report is that we can solve our energy problems. The bad news is that we may or may not actually do what is necessary. The things that will need to be built — new oil and natural gas wells and pipelines, refineries, electric power plants, transmission lines — can all be held hostage to environmental restrictions.
EIA assumes that our need for energy will be sensibly balanced against environmental concerns, but environmental activists aren’t known for being very sensible. Many have adopted a hard-line BANANA philosophy towards energy infrastructure (Build Absolutely Nothing Anywhere Near Anyone), the only exception being wind, solar, and other renewable sources that EIA estimates will provide no more than a few percent of our energy needs.
Federal agencies and advocacy groups have endeavored to halt or delay many badly needed energy development projects. And, using the numerous laws and regulations skewed against these projects, they have had their share of successes.
For example, there’s an estimated 238 trillion cubic feet of natural gas beneath the Rocky Mountains, which could go a long way towards serving America’s growing demand in the years ahead. But a 2003 study by the National Petroleum Council, an advisory committee to the U.S. Secretary of Energy, estimated that 29 percent of this resource is effectively off-limits. The study also noted that access to another 23 percent is possible but made significantly more difficult by environmental restrictions. Yet, demand for natural gas continues to grow, in part because the Clean Air Act and other federal environmental laws favor its use over coal for new electric power plants. “Government policy encourages the use of natural gas but does not address the corresponding need for additional natural gas supplies,” concludes the NPC. Unless this changes, EIA’s prediction of natural gas supplies rising to meet demand is unlikely to happen.
If EIA is right, America is not facing an unavoidable energy shortage. We can take steps to meet our energy needs for the foreseeable future, but it remains to be seen if we will actually take those steps.