EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Production and Consumption in the United States

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The United States is the world’s largest consumer of energy in general and of oil and refined products in particular. However, our current, and forecasted, energy production and consumption balance is improving towards a position of declining imports and more efficient use of all energy sources. The vast new supplies of oil and natural gas coming from domestic shale are radically altering our outlook for eventual self-sustainability. And, the continuing development of “renewable” and “alternate” energy sources will decrease our reliance on traditional “fossil” fuels. We will now take a look at the current state of energy production and consumption in the US followed by a brief examination of the renewable and alternative energy sources.

Figure 2 illustrates the history of actual energy consumption in the United States from 1775 to 2012. Note the forecasted decline in the use of both petroleum and coal, while natural gas and nuclear consumption are expected to increase. The increase in natural gas consumption has much to do with the following: the current historically low prices resulting from the huge amount of new shale gas being produced, and new tighter emissions standards being imposed on coal-fired power plants. The rise in nuclear-generated electricity is a result of the increased number of permits issued for new plants for the first time in decades.

Figure 2: History of Energy Consumption in the United States
Credit: U.S. Energy Information Administration, Today in Energy (May 13, 2015)

Figure 3 indicates current and projected United States energy consumption overall by source. Notice the increase in renewables and liquid bio-fuels. These alternative energy sources will continue to grow as long as economically feasible, and especially if government subsidies are available to support their production (e.g. – ethanol). However, realize that the EIA (Energy Information Administration) is projecting only a modest increase of 4% by 2035. There is a general misconception that this category, which includes wind and solar power, will eventually contribute a substantial portion of our energy needs. Clearly, such is not the case.

Figure 3: U.S. Primary Energy Consumption by Fuel, 1980-2035
Credit: U.S. Energy Information Administration, Annual Energy Outlook 2014

Nuclear production is shown as being stable, however, we know that new plants are being permitted, and with the negligible emissions they produce, look for an increase in power output from this source.

As far as natural gas goes, an increase is indicated. The residential use of heating oil and propane is steadily declining as conversions to natural gas steadily continue. (50% of US homes use natural gas for space heating and hot water.) Add to that the retirement of coal plants, or the outright switching from coal to natural gas, and growth in the consumption of natural gas will naturally occur.

The future consumption of oil and “other liquids” will be interesting to observe as well. With automobile efficiency improving and electric cars gaining in popularity, this segment should decline. Also, there are decades-old power plants, mostly in the Northeastern US, that use fuel oil. These, too, will become obsolete or convert to natural gas. (The Northeast US is also the world’s largest consumer of heating oil.)

There should also be a more dramatic decline in the use of coal than is shown above as emissions restrictions and lower natural gas prices make coal less economic to use.

The fuels we will study in-depth, natural gas and “oil and other liquids,” comprise 57% of the projected total US energy consumption profile, thus making it crucial to understand the logistics and “value chain” of these fuel sources.

Energy sources and their respective categories of consumption; graphic illustration. Described in text below
Figure 4: Energy Sources and Their Respective Categories of Consumption
Credit: U.S. Energy Information Administration, International Energy Outlook 2011

In Figure 4, we see the energy sources matched-up with their respective categories of consumption. Both petroleum and natural gas are used in each sector of consumption, while coal is utilized in only industrial, residential (this would have to be a very small amount), and power generation. Nuclear energy is strictly used for electric power generation, and renewables can be consumed in all categories but contribute very little to each on a percentage basis.

The sources and uses of energy are important for the overall understanding of the impact of supply, demand and pricing on the macro-economic environment. Everything depends on energy, and understanding these interrelationships can help us manage our supply needs and price exposure.