What If EIA Annual Energy Outlook Were Written by an Honest Person?

December 22, 2009 at 3:40 pm
Contributed by: Chris

For last week’s Green Chip Stocks, I critiqued the 2010 Annual Energy Outlook from the EIA, and wondered what it would look like if it were written by an honest person.

What If EIA Annual Energy Outlook Were Written by an Honest Person?

Why The EIA Should Be Statutorily Barred From Making Predictions

By Chris Nelder
Friday, December 18th, 2009

Suppose you worked at the Energy Information Administration (EIA), the agency within the U.S. Department of Energy charged with keeping data and making projections on energy, and you had to produce an annual report with a scenario for the next 25 years.

Being an intelligent and informed investor, you might grapple with the $147 to $33 range in oil prices over the last year and try to imagine how such volatility might happen in the future.

You might be tempted to model a few economic factors such as GDP growth rates and credit availability, and how they affect investment in energy supply.

You might consider the price at which producing a barrel of oil or a thousand cubic feet of natural gas becomes profitable, and the price at which it becomes too expensive and destroys demand.

You might take peak oil, peak gas, and peak coal into account, since the best available models on those subjects all suggest peaks within the time frame of your scenario.

You might extend the line tracing the 40-year trend of declining U.S. oil production.

You might look at the steadily falling prices of power generated from wind and solar and the steadily increasing prices from fossil fuels, and include those in your model.

You might take a cautiously optimistic view of the future of unconventional fuels like shale gas and biofuels, since their commercial history is short and good data is hard to come by…plus there are all those niggling questions about things like long-term production rates, net energy return and fuel-vs.-food tradeoffs.

You might include a tip of the hat, at least, to some sort of future pricing for carbon emissions, since it’s all the rage right now and it seems likely that something will happen along those lines before 2035, even if this year’s Copenhagen summit is a failure.

You’d wind up with thousands of linked, detailed spreadsheets, employing all sorts of advanced mathematical functions to tease coherence out of chaos.

And you’d most definitely ring the alarm bell that we’ve got a serious energy supply problem on our hands and we’d better do something about it, fast.

You’d probably point out that moving aggressively to renewables could solve the climate change problem, and do it without a global agreement on emissions.

But then, you’re not working for the EIA.

Anatomy of an Illusion

If you were, you’d do something like this…

You’d get out your crayons and your graph paper, and starting with your most recent data, you’d plot a nice, steady 1.5% global growth rate for energy demand over the next 25 years.

You’d do something similar for supply so that it matches demand at prices that also climb at a nice steady rate. For oil prices, call it, oh, how about 0.4% per year? That sounds pretty good.

You’d draw basically flat lines into the future for all the fuels dominant today, since you know they have serious challenges ahead, and then draw sharply rising lines for the latest and greatest technology, projecting enormous growth rates for things like shale gas and enhanced oil recovery.

You’d be sure to count all possible supply from new sources — like a new gas pipeline from Alaska — even if those projects don’t yet exist. Hey, it could happen!

You would not, however, factor in any CO2 reduction, because policies to control it don’t exist.

Naturally, you’d assume that the next 25 years would show gradual economic growth, so there wouldn’t be any troublesome issues like credit availability or depressed consumer demand to worry about.

You’d wind up with a chart like this:

nedler graph 1 12-18

AEO 2010, Figure 1: U.S. Primary Energy Consumption. Source

In sum, you’d present a picture of the future that looks like a continuation of the best parts of the past, with none of the bad parts.

You’d assert that the declining trend of U.S. oil production would be reversed by the miracle of technology, and grow from 5 million barrels per day (mbpd) in 2008 to over 6 mbpd in 2027, then flatten out for decades to come. You certainly wouldn’t try to explain how that would happen while mature fields continue to decline — in fact, you wouldn’t mention decline rates at all.

You’d explain that, even though domestic biofuels will fail to meet their 2022 renewable fuels target, they’ll exceed it by 2035 as new sources that don’t exist commercially today, like biomass-to-liquids and cellulosic ethanol, suddenly bloom.

To that you’d add some major gains from efficiency and “structural changes” like switching to hybrid cars — hey, what if the fleet of alternative vehicles tripled in the next five years? — eliminating about 90% of the new energy demand that would otherwise result from a constantly growing economy.

You’d do away with the problem that much of the U.S. nuclear fleet has to be rebuilt in the next 25 years because the reactors are past their expiration dates and living on extended operating licenses already, by assuming that they’ll get another extension to operate beyond 60 years. So you won’t have to worry about any loss in nuclear capacity.

Finally, you’d toss in a scenario for electricity production where renewables grow modestly then flatten out, while the use of cheap biomass suddenly explodes for unknown reasons.

You won’t explain where that biomass comes from, or the net energy of using it, or any difficult details like that.

You’d continue the recent sharp growth curve for wind for a few years then flatten it out, perhaps because you don’t think a storage solution will be found to address the intermittency issue. After all, it’s not your job to know about emerging technologies like flywheel storage systems or V2G — it’s your job to make the future look kinda like the past, only better.

That would give you a chart like this:

nelder graph 2 12-18

AEO 2010, Figure 5: Projection of U.S. non-hydropower electricity sources. Source

And voilá! You’d be able to claim that U.S. oil demand peaked in 2005, and would remain flat around 19 mbpd for the next 25 years — even while the economy continued to grow. It’s like magic!

Just Doing Your Job

It wouldn’t bother you in the least that none of your projections use the best available information on these complex matters.

You’d be completely untroubled by the fact that oil prices averaged $74 in 2007, $100 in 2008, and $59 in 2009, but you drew straight lines into the future. Presumably, all that volatility owed to noise outside your sphere of consideration, and won’t happen again.

You’d sleep just fine at night despite the obvious vapidity, in retrospect, of the oil price predictions in your 2004 annual outlook… nor would you be perturbed if I overlaid your 2010 prediction on it in chart form:

nedler graph 3 12-18

Three AEO 2004 oil price projections, plus AEO 2010 Reference Case. Chart by Chris Nelder.

You’d be careful to follow the lead the IEA set in its recent annual report and arrive at basically the same prediction they did for future oil supply, while trying not to piss off your bosses.

You’d be sustaining the illusions that everybody around you believes in and supporting their religious beliefs about endless growth rates, American ingenuity, and so on. Nobody would fault you for that!

You could do all this secure in the knowledge that, apart from a few snarky financial bloggers out there who nobody reads anyway, you’ll never be challenged on any of it. The press will dutifully report your projections verbatim, and won’t ask you any difficult questions.

And when the business and policy leaders of America drive the whole enterprise off the net energy cliff because they relied on your expert opinion and neglected to invest in the renewable energy solutions of the future in time, you wouldn’t worry your pretty little head about it.

After all, that’s not your job.

[Author’s note: This is based on the “early release” of the EIA’s 2010 Annual Energy Outlook, which offered only a summary press release, a slide deck of charts and some data, without the main text. Perhaps when the final report is released in March 2010 they will explain themselves better, but I doubt it. The EIA does an excellent job of collating and reporting historical energy data, but they should be statutorily barred from making projections.]

Until next time,


Related Articles

The IEA’s Come-to-Jesus Moment
Energy analyst Chris Nelder reviews the 2007 Medium Term Oil Market Report from the IEA.
Evaluating EIA’s Oil Outlook Report
Energy analyst Chris Nelder critiques the EIA’s 2009 Annual Energy Outlook (December 2008) and contrarily concludes that there are at least five reasons why oil prices should go higher.
Is the IEA World Energy Outlook Politically Distorted?
Energy analyst Chris Nelder analyzes the IEA’s 2009 World Energy Outlook and reveals an agency in political shackles, desperate to come clean about peak oil and push the world toward renewables.
Investing in an Empire of Illusion
Energy analyst Chris Nelder critiques an America in thrall to its illusions, and cautions investors to be self-reliant in facing the challenges ahead.


  1. Incredible post Chris! Thanks for this info.

    Comment by Justin Ritchie — December 22, 2009 @ 6:46 pm

  2. HA! Moments after reading your analysis, I bumped into these fitting words from Anne Herbert:

    The group doesn’t force you to lie. It’s a matter of emphasis. There are things you naturally notice and think about that the group doesn’t want you to talk about. Getting sickly silence when you speak is no fun, so you don’t talk in that direction. Not talking is easier if you don’t notice and don’t think in that direction. There are also some mild feelings you naturally have that the group likes. So you intensify your expression of these emotions which intensifies your inner experience of them. The applause that follows expressing these popular emotions helps fill the space left by the things you don’t notice anymore. Over time, your mind is custom designed, but not for you.

    Comment by Brian Hayes — December 22, 2009 @ 7:07 pm

  3. Chris, if you really want to have some fun, go back to the historical Annual Energy Outlooks from say 2000-2001 and look at how those projections panned out. Not a pretty picture.


    Comment by Robert Rapier — December 25, 2009 @ 1:01 pm

  4. At 85,000,000 barrels per day using these number let’s do some basic math

    * 42 gallons equals one oil barrel
    * A 55 gallon steel drum is 3 feet tall by 22 inches wide
    * A mile is 5,280 feet
    * The circumference of the earth is 24,901 miles
    * Speed of sound 768 mph

    (85,000,000bbl x 42gal) / 55gal = 64,909,090 fifty-five gallon steel drums
    (64,9090,090 x 3ft) / 5280ft = 36,880 mile long pipeline
    36,880 / 24,901 = 1.48 or a pipeline stretching 1 1/2 times around the earth….every day 24/7
    (36,880 / 24hr) / 768mph = Mach 2 or twice the speed of sound the oil would need to flow to replace the 85 million barrels being consumed every day.
    (36,880 x 365days) / 24,901miles = 540 times you could encircle the earth every year with steel drums.

    In World Energy Outlook 2008 the IEA basically said a new Saudi Arabia needs to be brought on line every 5 years just to offset global decline rates. However to meet increasing demands while offsetting declines a new Saudi Arabia would need to be brought on line every 3 1/2 years, 6 new SA by 2030.

    As National Geographic magazine put it: http://ngm.nationalgeographic.com/print/2009/03/energy-challenge/mckibben-text
    “Let’s do a little math to see why. The Energy Information Administration, an arm of the U.S. government, forecast last year that, all things being equal, world energy consumption would increase 50 percent by 2030. That’s a good round number, summing up the desire of people across the world for refrigerators, televisions, ice cubes, hamburgers, motorbikes, and maybe even a little air-conditioning in the tropics.

    But it’s not at all clear where that energy can come from, because we happen to be alive at the moment when the oil is starting to run out. In No­vem­ber 2008 the International Energy Agency estimated that production from the world’s mature oil fields was declining 6.7 percent a year, a rate that is expected to get even worse over time. Offsetting this decline will require finding a new Kuwait’s worth of output every year, or somehow squeezing that much more from existing fields. Many observers think we’ve already passed the peak of oil production. An optimist in this world is someone who thinks it might still be a matter of years. But there’s little question where the future lies, which is why the cost of a barrel of oil spiked to $147 last year. It took the prospect of a Great Recession to bring it back down to $40. Curbing high gas prices with recurrent economic slumps is probably not the smartest of remedies.”

    Comment by Scott — December 27, 2009 @ 10:25 am

  5. The EIA reviews how their Annual Energy Outlooks match up with reality. Check out their retrospective review at http://www.eia.doe.gov/oiaf/analysispaper/retrospective/pdf/0640%282008%29.pdf

    Comment by Oh Honestly — January 6, 2010 @ 8:02 pm

  6. […] finally, I have to recommend Chris Nelder’s humorous angle take on the EIA’s draft Five Year Outlook. […]

    Pingback by Electricity prices keep rising. Welcome to the Recession. « Cleanbuilder — February 1, 2010 @ 8:58 pm

  7. Google the Integral Fast Reactor (it’s no longer at the Argonne Labs website)
    or visit my website’s global warming pages. skepticva.org/EnergyIndependence.html

    You should get a PBS Frontline interview about a safe, renewable, sustainable energy technology that Greenpeace, the Sierra Club, various anti-nuclear-war organizations, and the Clinton Administration killed in 1994.

    We should do what France did, build a national nuclear power system.

    Comment by Albert Rogers — July 3, 2010 @ 6:03 am

  8. However, if you ignore the politically-influenced stuff, EIA has some perfectly good and enlightening data.
    For instance, the dominant renewable energies are hydro, and wood and waste burning.
    We could increase the last item by creating even more waste, but I don’t call that renewable.
    As for wood, the Industrial Revolution started when Britain and others in Europe ran short of forests.

    Comment by Albert Rogers — July 3, 2010 @ 6:07 am

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