My patience is wearing thin. Yesterday, to some fanfare, the EIA released a bullish forecast predicting big demand for fossil fuels. Something seemed fishy, but I couldn’t put my finger on it until I saw the brand-new—just revised—projections of future gasoline prices:
No, honestly, this is the US government’s official projection—aka “the reference case” — for gasoline prices, shown here in 2006 dollars. In fact, it’s so official that it comes under this banner: “The tables presented here summarizes [sic] the revised early release version of the AEO2008 reference case and replaces the early release version that was initially posted in December 2007.”
But as anyone not living under a rock is aware, the average retail price of gasoline is currently above $4 per gallon (it’s $4.13 nationally, to be precise). This leads me to one of two conclusions. Either a) the poor researchers at the Department of Energy actually do live under a rock; or b) the EIA is doing what can only be described as “a heckuva job.”
Find this article interesting? Support more research like this with a gift!
With price forecasts like this, it’s no surprise that the EIA is expecting big future fossil fuel demand. With gas so cheap, why not keep guzzling?
Am I being too snarky? Maybe. In fairness, the EIA also publishes a “high price” forecast, just in case something untoward should happen (see page 11 of this pdf). Boy, I sure hope that high price forecast doesn’t materialize because it shows future gas prices getting up almost, but not quite, to $4 a gallon by… wait for it… sometime around 2030.
Now, far be it from me to challenge a team of energy experts, but it’s not like this is the first time the EIA has made a mistake like this. In fact, they make it pretty much every month, as I’ve documented here. And then they sum up their monthly mistakes into big annual mistakes, as I’ve shown here.
Sure, predicting future energy prices is a tough business. There are thousands of variables and the markets are volatile and unpredictable. Plus, the US government energy experts are at a big disadvantage to me — because I have a time machine. In fact, Future Eric just sent a message to me from later this afternoon: it turns out that a gallon of gasoline already costs more than $4. He found out by checking the EIA’s website.
Update 12/26: Apparently, this problem isn’t confined to the US. Just yesterday, British Columbia released its new “climate action plan,” which earned an interesting editorial from the Vancouver Sun:
…the numerical modelling that concludes the plan as presented will achieve 73 per cent of the reductions needed to meet the 2020 goal should be read as an educated guess.
As if to illustrate the point about the range of uncertainties, the price used in the “high energy cost” scenario for a barrel of oil in 2020 is $85. On the day the report was issued, the price was closing on $140 a barrel and some credible observers are predicting it will top $200 before long.
The editorial doesn’t point this out, but there’s actually a weird silver lining here. Higher than expected fuel prices mean that the program can be accomplished more cheaply than the estimates indicate. That’s because the consumption of fuel-based carbon falls faster than the model expects.