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2013 is in the books as one of the most productive years in E&P history, and the United States is soaking up the flowing oil from the country’s prolific shales. According to the Energy Information Association (EIA), U.S. oil demand in October 2013 totaled 19.3 MMBOPD, an increase of roughly 3% from October 2012 levels. Crude oil production is up 12% from the same period, and the country continues to be the greatest natural gas developer in the world. The Energy Information Association’s (EIA) early release of the 2014 Annual Energy Outlook outlines hydrocarbon consumption as the U.S. continues its torrid climb towards becoming possibly the world’s top energy producer, a feat it may have achieved by the end of 2013.

Energy Consumption Overview

The majority of hydrocarbons are being used to fuel the transportation and industrial shipment sectors, both of which are expected to be the main drivers of consumption for the foreseeable future. The EIA report believes transportation consumption will be overtaken by industrial consumption needs before 2020 as a result of increased efficiency in motor vehicles.

Domestic crude production is expected to increase roughly 0.8 MMBOPD per year and peak at 9.5 MMBOPD by 2016, just shy of the country’s record of 9.6 MMBOPD set in 1970. Crude is expected to level off and begin a gradual decline by 2020. Natural gas is predicted to pick up oil’s deficiency and increase its stake in the energy sector. Total natural gas production is forecasted to increase by 56% between 2012 and 2040.

Industrial consumption, which includes manufacturing, agriculture, construction and mining, accounted for roughly 33% of total energy in 2012. Consumption is expected to rise simultaneously with the production of natural gas, as the abundant resource becomes an even greater factor in the energy markets. Interestingly enough, the two are homogeneous results from increased shipping levels. Since record rates of U.S. production has cut back on needs for exports, ultimately relying on more on domestic businesses for shipments.

The Industry has Evolved, but so has Efficiency

Consumption from civilian vehicles, which the EIA describes as “light duty” transport, declines significantly almost overnight in the report. The EIA’s 2014 projections for miles traveled increases an average of 0.9% per year, compared to 2013’s estimate increase of 1.2% per year. Rising fuel economy, in addition to lower population growth rates, add to the downward trend. The factors result in 12.1 total quadrillion BTUs consumed in 2040, a decline from 2013’s estimate of 13.0. The country consumed 16.0 quadrillion BTUs by use of light duty vehicles in 2012.

So, people are driving less. Cars have also become much more fuel efficient. According to information from the U.S. Department of Transportation, the average light duty passenger car’s mile per gallon jumped to 35.6 in 2012 from 30.1 in 2006, an increase of 18%. Automakers are building many more electric, plug-in and hybrid vehicles to create a vast alternative fuel market and consumers are responding. Roughly 440,000 such vehicles were purchased in 2012, an increase of 73% over 2011.

The change in transportation consumption, if it takes place, will go against the historical grain of transportation need, which has increased an average of 1% annually from 1975 to 2012.

Natural Gas Prepares to Unseat Coal in Electricity Sector

Efficiency is also improving in the residential and commercial sector, as is the emphasis on cleaner fuels. Restrictions proposed by the Environmental Protection Agency in September 2013 have not helped matters for the coal industry, which is left scrambling for new techniques to cut back on emissions. Coal plants emit more than twice the amount of pollutants than natural gas, a total of 1,768 pounds of carbon dioxide per megawatt hour. The EPA is pushing the number to drop below 1,000. The restrictions have not yet been imposed, but coal is anticipating an increase in costs to develop new technology.

Natural gas is expected to account for 35% of electricity by 2040, while coal is predicted to dip to 32%. Carbon emissions are predicted to reflect the switch. Emissions are expected to remain lower through the year 2040 than they were in 2005.

Gas Leaving a Mark on the Transportation Industry

Natural gas’ clean energy is appealing industrial and transportation sectors alike. Liquefied natural gas (LNG) is being implemented for use in larger vehicles, and several breakthrough achievements were reached in 2013. General Electric (ticker: GE) developed an LNG-powered locomotive, UPS (ticker: UPS) has invested $68 million in adding LNG tractors to its fleet, and even a gas-fueled tugboat was constructed in Europe. According to UPS’ fact sheet, benefits of LNG include a 30% to 40% discount opposed to imported petroleum prices and 25% less CO2 emissions. There are also no mileage constraints for the tractors using LNG, which have a range of up to 600 miles with no route limitations. GE said the locomotive unit could save railways more than $1.5 billion in operating costs and cut emissions by more than 70%.

The EIA believes LNG will account for 35% of freight rail transportation by 2040.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.