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EIA Annual Energy Outlook: Takeaway #1

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Every year, the U.S. Energy Information Administration (EIA) publishes a report chronicling trends and modeling predictions for U.S. energy markets. This year’s edition covers predictions through 2050. Energy decision makers can look to these projections for valuable insights to inform their planning efforts. 

4 Takeaways 

The 2018 Energy Outlook offers four key takeaways:

  1. Net Exports

  2. Increased Efficiencies

  3. Production Growth

  4. Generation Capacity

In the first article of this four-post series, we focus on takeaway #1: the projection that the United States will become a net energy exporter by 2022. 

The United States as a Net Energy Exporter by 2022

According to all but two side cases, the United States is expected to become a net energy exporter in the near future – something that has not occurred since 1953. With all variables held relatively steady, the reference case projects this switch to happen by 2022. Unexpectedly high oil prices or oil and gas resources could even accelerate the process to occur as early as 2020. 

While the EIA projects that, within two to four years, we’ll produce more energy than we use, their annual projected timelines have steadily compressed year-over-year. A 2010 report expected the country to become a net exporter in 2035. By 2015, estimates moved to 2029, and in 2016, they inched closer still with an ETA of 2026. This year’s four-year timeline projection is the closest that we've come yet, and is a clear indication that net exportation is imminent. 

Why do we suddenly have such a surplus? Both domestic oil and natural gas production have accelerated. Production is currently booming, thanks in part to new technologies that facilitate discovery and abstraction. 

What about energy demand?

Strong domestic oil and gas production are only part of the equation. EIA projections also take domestic demand into consideration. 

Residential and commercial natural gas consumption is expected to remain steady, primarily because of growing efficiencies in energy consumption. While energy usage may increase overall, consumers are increasingly turning to renewable energy sources to meet their needs, and often simultaneously aim to minimize total usage.

In a report last year, the EIA projected worldwide energy use to increase by almost 30 percent over the next 23 years, especially propelled by renewables, natural gas and petroleum. In the U.S., however, demand remains stagnant despite steady Gross Domestic Product growth, causing energy producers to look for profits on the international markets instead.

Break it down by specific source, and the outlook becomes even more clear. Domestically as well as internationally, renewables are leading the way. Coal and petroleum remain stagnant and are expected to decline over the forecasted period. Natural gas remains flat, defying global trends in ways that could lead to lower prices in the near future.

Implications for Large Businesses

Businesses directly connected to the energy sector may see major adjustments. Consider the infrastructure necessary to export energy to international consumers. For example, for businesses connected to crude oil,  the EIA’s projections mean expanded ports and increased investments in some of the world’s largest tanker ships to increase operating capacity and lower costs.  

For domestic businesses buying energy on the retail and wholesale markets, these projections underscore the importance of having a comprehensive energy strategy. As market variables evolve, competitive advantages shift, too. It’s critical for businesses to have an eye on the long-term view in order to consistently meet budget and sustainability goals. Only an informed, comprehensive strategy can ensure that you hit key performance indicators and align your energy goals with your organization’s mission, vision and values.

In fact, this type of strategic approach to energy may be one of the catalysts moving the needle toward net exports. Corporate social responsibility has become much more important for all organizations in recent years, with improved efficiency and a reliance on renewable energy sources playing critical roles. Consider that well over 125 companies – most of belonging to the Fortune 500 – have committed to going 100 percent renewable.

A recent report by Deloitte confirms the EIA's Annual Energy Outlook: renewables are the fastest growing of all potential sources for energy demand. Production of renewable energy is also on the rise in the U.S., but does not yet approach the rate of demand. 

So, what does this mean for your business? Basic economics suggests that as supply outpaces demand, prices should fall. But as the energy market expands to become international, we may see restrictive pricing forces around the globe.

No matter the outcome, we know it's a trend worth watching. By most estimations, it's safer than ever to make decisions with the understanding that the nation will soon become a net exporter. As that shift draws nearer, organizations should monitor the markets. Opportunities to minimize risk and maximize revenue are out there for those who wish to capitalize.

The projection that the U.S. will become a net energy exporter by 2022 is the first of four key takeaways from the EIA's 2018 Annual Energy Outlook – and shouldn’t be taken in isolation.

Liked this article? Check out the next post in the series - what affect does increasing energy efficiency have on energy markets?

Read Takeaway #2

Posted: June 15, 2018