EIA’s Annual Energy Outlook 2016 addresses ethanol

By Erin Voegele | September 29, 2016

The U.S. Energy Information Administration recently released its Annual Energy Outlook 2016, which includes projections through 2040. The outlook features forecasts for liquid biofuels, including ethanol.

According to the EIA, projections in the AEO16 focus on factors expected to shape U.S. energy markets through 2040. The administration said these projections provide a basis for examination and serve as starting point for analysis of potential changes in energy policy, rules, and regulations, as well as the potential role of advanced technologies.

The report focuses largely on the AEO16 reference case, which reflects new legislation and regulations enacted since 2015, along with model changes and data updates. For example, the reference case includes updated fuel use data for corn ethanol plants. The AEO16 also presents 17 alternative cases that address several key uncertainties in the AEO16 projections.

The AEO16 reference case predicts biofuels production will grow from 1 million barrels per day in 2015 to 1.1 million barrels per day in 2040. The U.S. share of world biofuels production, however, is forecast to fall from 44 percent in 2015 to 26 percent in 2040.

Under the reference case, biofuels production accounts for the largest share of total world nonpetroleum liquid fuels through 2040. Its share, however, falls from 81 percent in 2015 to 78 percent in 2040. The reference case states world biofuel production is expected to crease 4.1 billion barrels per day in 2040.

Regarding light-duty vehicles (LDVs), the AEO16 predicts that LDVs that use diesel, alternative fuel, hybrid-electric or all-electric systems will increase from 18 percent of all new LDV sales in 2015 to 61 percent in 2040. Micro hybrid vehicles are expected to account for 34 percent of new LDV sales, with flex-fuel vehicles (FFVs) accounting for approximately 10 percent of new LDV sales. Within the report, the EIA explains that manufacturers selling FFVs currently receive fuel economy credits for use with CAFE compliance. Those incentives, however, expire at the end of 2019. As a result, the EIA predicts the FFV share of LDV sales will increase through 2019 and then remain flat through 2040.

Within the report, the EIA explains that U.S. demand for transportation fuels falls in the reference case, and without significant additional market penetration of higher-level ethanol blends or drop-in biofuels, the possibilities for expanded biofuel production are limited. According to the EIA, total gasoline consumption is expected to decrease by 2.3 million barrels per day from 2015 to 2040, while diesel consumption grows by 700,000 barrels per day during the same time period. Ethanol consumption is projected to be essentially flat through 2040 due to declining gasoline consumption and limited penetration of FFVs.

The reference case predicts ethanol consumed in motor gasoline will increase from 1.14 quadrillion Btu (quad) per year in 2014 to 1.24 quad in 2040, an annual growth rate of approximately 0.2 percent. Total supply of ethanol from renewable sources is expected to increase from 0.86 million barrels per day in 2014 to 0.93 barrels per day in 2040, an annual growth rate of 0.2 percent. Domestic production is expected to remain relatively level at 0.91 million barrels per day, with an annual growth rate of -0.1 percent.

Over the projection period, the reference case predicts gasoline prices will be subject to 1.7 percent annual growth rate, reaching $3.81 per gallon in 2015 dollars. The price of E85 is expected to increase at an annual rate of 1.6 percent, reaching $3.33 per gallon in 2015 dollars. Ethanol wholesale prices are expected to grow at an annual rate of 0.6 percent, reaching $2.60 per gallon in 2015 dollars.

In addition, the reference case predicts consumption of starch-based ethanol will reach 1.17 quad per year by 2040, a -0.1 percent annual growth rate. The case predicts consumption of cellulosic ethanol will achieve an annual growth rate of 6.4 percent, accounting for less than 0.01 quad per year.

The report also includes ethanol production for a variety of alternative case scenarios. Under a low-economic growth case, fuel ethanol consumption is expected to reach 1.12 quad by 2040, with consumption reaching 1.35 quad under a high-economic growth case.

Under a low-oil price case, domestic production of ethanol is expected to reach 0.89 million barrels per day by 2040, with production at only 0.69 million barrels per day under a high-oil price scenario.

 Under a low oil and gas resource and technology case, domestic ethanol production is expected to reach 0.89 million barrels per day by 2040, increasing to 0.92 million barrels per day under a high oil and gas resource and technology scenario.

A full copy of the report can be downloaded from the EIA’s website.