Environmental Groups, Northeast States and New York City Challenge Weak EPA Energy Standards

New York, NY -- Environmental advocates and state and city governments are filing lawsuits today urging the U.S. Department of Energy (DOE) to adopt stronger energy efficiency standards for residential furnaces and boilers.

The public interest law firm Earthjustice is filing suit on behalf of Natural Resources Defense Council (NRDC), arguing that standards DOE adopted in November are shockingly weak, will cost consumers billions of dollars and fail to reduce global warming emissions.

The City of New York and the States of Connecticut, Massachusetts and New York are also challenging DOE's standards in a joint lawsuit being filed today.

"Stronger energy efficiency standards for furnaces and boilers would save money, stop pollution and spare health," said Connecticut Attorney General Richard Blumenthal.

"The Bush Administration's stagnant standards disregard the law and public interest, benefiting industry at the expense of consumers and the environment. Without increased fuel efficiency, consumers nationwide will unnecessarily spend potentially millions more in home heating costs, while their furnaces and boilers spew millions more tons of harmful CO2."

Tougher efficiency standards translate into significant economic benefits, especially in northern states where the cost difference between low and high efficiency models can be recovered more quickly through reduced heating bills. Advocates for residents in these regions said the weak national standards disproportionately hurt renters who are stuck paying the higher fuel costs of less efficient models installed by landlords.

"By adopting such weak new standards, the Energy Department is telling New Yorkers and others that reducing greenhouse gases and heating bills just doesn't matter," said Ramin Pejan, attorney at the New York City Law Department. "The success of the City's PlaNYC efforts to improve air quality in a cost-effective manner depends, in part, on cooperation from federal agencies."

The new DOE standards for gas-fired furnaces - the most common home heating appliance - represent a miniscule increase: from 78 to 80 percent efficiency. DOE recognized that adopting a 90 percent efficiency standard nationwide would maximize consumer value, saving $11 billion over a 24-year period, while also preventing the emission of 141 million tons of carbon dioxide over the same span. But DOE instead opted for a standard that 99 percent of furnaces sold already meet, resulting in much less cost savings and virtually no reduction in CO2 emissions.

"DOE chose to implement a standard so weak it is simply meaningless," said Earthjustice attorney Tim Ballo. "The vast majority of products on the market already meet the standard DOE has adopted. This is a blink-and-you'll-miss-it efficiency increase."

The lawsuits challenge serious flaws in DOE's economic analysis that led the department to undervalue the benefits of stronger standards. For example, a stronger standard would most likely drive down the cost of natural gas, but the DOE failed to consider this factor in making its decision. The DOE also failed to place a dollar value on the decreased carbon dioxide emissions that would result from a stronger efficiency standard.

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Short-Term Energy Outlook (U.S. Energy Information Administration)

Short-Term Energy Outlook
December 11, 2007 Release

To see details of this forecast update, go to: http://www.eia.doe.gov/emeu/steo/pub/contents.html

Highlights

Global oil markets will likely remain tight through the forecast period. EIA projects that world oil demand will grow much faster than oil supply outside of the Organization of Petroleum Exporting Countries (OPEC), leaving OPEC and inventories to offset the resultant upward pressure on prices.

However, at last week’s meeting in Abu Dhabi, OPEC decided to maintain existing production targets, noting that, in its view, the global oil market continued to be well supplied. Additional factors contributing to expectations that prices will remain high and volatile through 2008 include ongoing geopolitical risks, Organization for Economic Cooperation and Development (OECD) inventory tightness, and worldwide refining bottlenecks.

West Texas Intermediate (WTI) monthly crude oil prices averaged more than $85 per barrel in October and almost $95 per barrel in November, up $27 and $36 per barrel, respectively, from a year earlier. The daily closing spot price for WTI peaked at $99.16 per barrel on November 20, but started falling near the end of the month in anticipation of additional OPEC production and is expected to continue to decline slightly through 2008. Monthly average prices for WTI are expected to exceed $80 per barrel over the next year.

The $80-plus per barrel projected crude oil prices are likely to result in historically high prices for the major petroleum products. Residential heating oil prices are projected to average $3.23 per gallon this heating season, a 30-percent increase over the previous heating season. Both motor gasoline and diesel prices are projected to average well over $3 per gallon in 2008, with gasoline prices peaking at over $3.40 per gallon next spring.

Working natural gas in storage reached 3.44 trillion cubic feet (tcf) as of November 30. This high level of storage going into the heart of the winter, combined with limited remaining fuel switching capability, has insulated the natural gas market from the impact of the recent price increases in petroleum markets to some extent.

Consequently, while petroleum product prices are expected to increase and remain historically high, only moderate gains are expected for natural gas prices through 2008. The Henry Hub natural gas spot price is expected to average about $7.21 per thousand cubic feet (mcf) in 2007 and $7.78 per mcf in 2008. Average household natural gas expenditures this winter are expected to show an increase of about 7 percent compared with last winter.

Global Petroleum Markets

Expectations that tight market conditions will persist into 2008 are keeping oil prices high. Despite the OPEC decision to hold production steady at its meeting last week and downward revisions to projected consumption growth in 2008, the oil balance outlook remains characterized by rising consumption, modest growth in non-OPEC supply, fairly low surplus capacity, and continuing risks of supply disruptions in a number of major producing nations.

Although the balance assumes a mild slowdown in world economic growth, the major downside risk remains the possibility of a sharper-than-expected economic slowdown brought on by the fallout from the unsettled financial markets that would dampen oil demand and ease oil price pressures.

Consumption.

China, non-OECD Asia, and the Middle East countries are expected to remain the main drivers of higher world oil consumption through 2008. World oil consumption in the fourth quarter of 2007 is expected to rise by 1.7 million barrels per day (bbl/d) above fourth quarter 2006 levels and oil consumption in 2008 is projected to rise by 1.4 million bbl/d. Both projections are slightly lower than last month’s assessment.

Indeed, higher prices appear to be dampening oil consumption in a few countries, including the United States, in recent months. (Table 3a indicates U.S. consumption in third quarter 2007 was 210,000 bbl/d lower than third quarter 2006 levels, compared with a year-over-year rise of 170,000 bbl/d during first half of 2007.)

In 2008, China alone is expected to account for over 400,000 bbl/d, or one-third, of world oil consumption growth. Downward revisions, however, in consumption growth are certainly possible, particularly if the slowdown in world economic growth is greater than expected.

Non-OPEC Supply.

Non-OPEC production is expected to rise by 0.5 million bbl/d in the fourth quarter of 2007 compared with fourth quarter 2006 levels.

For 2008, non-OPEC supply is projected to grow by 0.9 million bbl/d over 2007. Gains in Brazil, the United States, Russia, and Canada will more than offset lower production in a number of countries, including Mexico, the United Kingdom, Norway, and Egypt. Russia and the other countries of the former Soviet Union combined are projected to account for nearly half of the gain in non-OPEC supplies in 2008.

Non-OPEC supply is expected to increase by less than global oil consumption in 2008, putting pressure on OPEC and inventories to bridge this gap. Projected growth of production capacity is very sensitive to the progress of several large-scale projects, including the already-delayed Sakhalin II project in Russia, the Marlim field in Brazil, and the ACG project in Azerbaijan.

Recent history has shown non-OPEC capacity growth projections often fall short of expectations.

OPEC Supply.

OPEC members decided to maintain existing production targets at last week’s meeting in Abu Dhabi. The combination of recent price weakness, downward revisions in demand projections, and higher supplies already expected from Saudi Arabia, Angola, Iraq, and Abu Dhabi (after recent maintenance), led OPEC to dismiss the need for additional supplies.

EIA projects that OPEC crude production in the first quarter of 2008 will average about 31.6 million bbl/d, an increase of 400,000 bbl/d from fourth quarter 2007 levels. For full year 2008, EIA’s balance assumes that OPEC crude oil production will average 31.7 million bbl/d. In addition, OPEC production of non-crude liquids is expected to increase by 300,000 bbl/d in 2008. OPEC countries’ plans to add substantial crude oil production capacity in 2008, with growth totaling roughly 1.3 million bbl/d by year’s-end, should help meet growing oil demand.

Saudi Arabia and Angola will account for most of the growth in capacity. Despite higher capacity, our balance indicates that OPEC surplus production capacity, held mostly in Saudi Arabia, will remain fairly low, averaging about 2 to 3 million bbl/d.

Inventories.

Total OECD commercial inventories continue to fall. Preliminary and partial data indicate commercial OECD inventories fell by 16 million barrels in October, leaving inventories slightly below the 5-year average at an estimated 2.6 billion barrels.

Last year at the same time, inventories were 125 million barrels above the 5-year average.

Preliminary data for the United States indicate that inventories declined by more than the past 5-year average during November. EIA’s oil balance suggests that OECD commercial stocks will be just below their 5-year average at year’s-end.

Even with the additional OPEC production expected next year, OECD commercial inventories (measured on a days-supply basis) would remain in the low end of the 5-year range in 2008.

U.S. Petroleum Markets

Consumption.

Total domestic petroleum consumption is projected to average 20.8 million bbl/d in 2007, up 0.4 percent from the 2006 average.

A further 1.1-percent increase to an average of 21.0 million bbl/d is projected for 2008. Motor gasoline consumption is projected to increase by 0.6 percent in 2007 and 1.0 percent in 2008. Reflecting moderate economic growth and assumptions of normal weather during the upcoming winter season, total distillate consumption is projected to increase by 1.8 percent in 2007 and 1.4 percent in 2008.

Production.

In 2007, domestic crude oil production is projected to average 5.1 million bbl/d, 0.2 percent higher than 2006 production levels. Domestic production in 2008 is projected to rise by 2.3 percent to 5.23 million bbl/d. Contributing to output growth are the Atlantis deepwater platform, which began production in October, and the Thunderhorse platform, expected to come on stream late in 2008.

Prices.

The refiner acquisition cost (RAC) of crude oil is projected to increase from an average of $60.23 per barrel in 2006 to $67.89 per barrel in 2007.

Although RAC prices are expected to decline slowly from their November peak, they are expected to average almost $80 per barrel in 2008. WTI prices are projected to increase from an average of $66.02 per barrel in 2006 to $72.05 per barrel in 2007 and to nearly $85 per barrel in 2008.

Slower U.S. economic growth of 2.1 percent is projected for 2007 and 1.8 percent for 2008, compared with 2.9 percent in 2006, which may be a mitigating factor for even higher crude oil prices.

Gasoline prices, which hit a recent weekly peak of $3.11 per gallon in mid- November, fell by about 19 cents per gallon over the last several weeks corresponding drop in crude oil prices. Nevertheless, by the middle of next spring they are projected to rebound to over $3.40 per gallon as the driving season begins.

In 2008, heating oil prices are projected to average $3.11 per gallon while diesel fuel prices are expected to average $3.21 gallon.

Inventories.

Commercial crude oil inventories have generally been declining since May, a trend that is expected to continue through the forecast. As of November 30, total motor gasoline inventories were an estimated 201 million barrels, down 3.4 million barrels from 2006 and 5.5 million barrels below the previous 5-year average. Distillate stocks were an estimated 132 million barrels on November 30, down 8 million barrels from 2006 but about equal to the previous 5-year average.

Natural Gas Markets

Consumption.

Total natural gas consumption is expected to increase by 5.0 percent in 2007, largely driven by increases in the residential, commercial, and electric power sectors that occurred earlier this year. The return to near-normal weather in 2008 is expected to increase total consumption by 1.1 percent.

Even though consumption of natural gas in the industrial sector is projected to decline by 0.7 percent in 2007, the weaker U.S. dollar and global demand for natural-gas-intensive goods produced domestically are expected to contribute to a 0.8-percent increase in industrial sector consumption in 2008.

Production and Imports.

Total U.S. marketed natural gas production is expected to rise by 2.1 percent in 2007 and by 1.6 percent in 2008. In 2007, a portion of the 2.8-percent rise in marketed natural gas production in the Lower-48 onshore region is being offset by a 1.7-percent decline in Gulf of Mexico production. However, new deepwater supply infrastructure in the Gulf and ongoing efforts to develop unconventional reserves are expected to increase Gulf of Mexico and Lower-48 onshore production by 5.1 and 1.0 percent, respectively, in 2008.

Imports of liquefied natural gas (LNG) are expected to reach about 790 billion cubic feet (bcf) in 2007, a 35-percent increase over 2006, and about 940 bcf in 2008, a 19-percent increase over 2007. In recent months, LNG imports have slowed due to complications with key production and liquefaction facilities as well as increases in global demand.

The expansion of global liquefaction capacity is expected to boost LNG shipments to the United States in 2008, but the risk of project delays and production shortfalls, as well as negative price differentials between the U.S. market and other LNG-consuming countries, could temper the number of spot cargoes directed to U.S. ports next year.

Inventories.

On November 30, 2007, working natural gas in storage was 3,440 bcf (U.S. Working Natural Gas in Storage). Current inventories are now 273 bcf above the 5-year average (2002-2006), and 32 bcf above the level during the corresponding week last year.

Prices.

The Henry Hub spot price averaged $7.31 per mcf in November, $0.37 per mcf more than the average October spot price. Despite high storage levels and the relatively moderate winter weather thus far, the onset of seasonal natural gas demand for space heating has caused an steady increases in the monthly average spot price since September.

Spot prices at the Henry Hub are projected to reach a winter peak of $8.22 per mcf in January 2008. On an annual basis, the Henry Hub spot price is expected to average about $7.21 per mcf in 2007 and $7.78 per mcf in 2008.

Electricity Markets

Consumption.

Total electricity consumption in 2007 is projected to increase by 1.9 percent over last year. Cooling degree‐days in 2008 are assumed to be about 12 percent lower than in 2007. The assumed return to near-normal temperatures should keep residential electricity sales growth relatively flat at a rate of 0.2 percent next year. Slow macroeconomic growth in 2008 will also limit growth in electricity sales to the commercial and industrial sectors.

Prices.

U.S. residential electricity prices are expected to average 10.6 cents per kilowatthour in 2007, 2.1 percent above prices in 2006. Residential prices are expected to grow at a somewhat lower rate of 1.7 percent in 2008. Most States that had planned to let price caps expire within the next year have either delayed those plans or changed the expiration schedule so that increases occur over a longer time frame.

Coal Markets

Consumption.

Electric-power-sector coal consumption, which accounts for more than 90 percent of total U.S. coal consumption, is expected to grow by 2.2 percent in 2007. Slow growth in electricity consumption, combined with projected increases in natural-gas-fired and hydroelectric generation, will lead to a 0.5-percent decline in 2008.

Production.

U.S. coal production, which increased by 2.8 percent in 2006, is expected to fall by 1.0 percent in 2007. Interior region coal production is expected to grow slightly (by 0.5 percent) in 2007. The projected decline in coal consumption, coupled with continued draws on inventories, will lead to a 1.7-percent decline in total coal production in 2008, with declines occurring in all coal producing regions.

Inventories.

Withdrawals from primary (producer/distributor) and secondary (consuming sectors) inventories are expected to supply approximately 28 percent of the projected coal consumption increase in 2007.

Total coal stocks are expected to fall by 3.6 percent in 2007 to 180 million short tons. Primary inventories are projected to fall by an additional 11.2 percent in 2008, and secondary inventories are projected to be 2.2 percent lower than the previous year.

DOE Announces up to $33.8 Million for Cellulosic Biofuels Development

On August 27, DOE announced a Funding Opportunity Announcement (FOA), providing as much as $33.8 million to support research into enzymes to convert cellulosic biomass into biofuels

DOE announced on August 27th a Funding Opportunity Announcement (FOA) offering up to $33.8 million to support the development of enzymes for converting cellulosic biomass into biofuels. Cellulosic biomass includes a variety of non-food plant materials, such as agricultural wastes, sawdust, paper pulp, and switchgrass. Enzymes can be used in biorefineries to more efficiently break down cellulosic biomass into simple sugars, which can then be fermented into biofuels such as ethanol. Enzymes developed under the FOA must prove durable and effective in the conditions at which biorefineries would operate.

Funding will total nearly $68 million, with 50% of the cost shared by industry. Letters of intent are due on September 10, 2007, and completed applications are due on October 30, 2007. Projects are expected to begin in fiscal year 2008 and continue through fiscal year 2011. See the DOE press release and the complete FOA.