The EIA every year publishes a review of how its long-term forecasts dating back to 1982 have held up against actual developments in US energy production, consumption and pricing.
So, what does this year’s review say?
It’s a very mixed picture – on GDP, rather well, on supply and demand, reasonably well. And on energy prices: not well. Not at all.
Look at this table of differences showing absolute per cent error – we’ve underlined the price forecasts in blue. The rest are production and consumption forecasts. Click through to enlarge:
Source: EIA
Of course long-term forecasting is a mugs’ game and with so many moving parts and unpredictable events affecting energy, it’s probably no mean feat that the differences between the EIA’s forecasts and reality can be measured in per cent, rather than orders of magnitude.
Moreover the EIA’s modelling “assumes trends that are consistent with historical and current market behavior, technological and demographic changes, and current laws and regulations” – but specifically excludes possible new regulations. The idea is to provide a kind of baseline for policymakers.
But it is interesting that the forecasts for prices were so far wide of the mark, especially compared to consumption.
The EIA’s explanation is pretty terse:
As a general matter, energy consumption quantities tend to be less volatile and thus projected with greater accuracy than the relatively more volatile energy prices. Energy consumption has a certain amount of inertia inherent from the energy-consuming capital stock, lead times for capital purchase decisions, locked-in contract periods, and myopic decision making.
It goes on to point out that forecasts of other changes: energy consumption, energy production, and carbon dioxide emissions and realised outcomes – tend to be under 6 per cent, adding:
As expected, the corresponding absolute percent differences are much greater for energy prices – in the 19 to 58 percent range.
True, energy markets are volatile. And one of many questions it raises is: if prices were so much higher than expected, why wasn’t consumption an awful lot lower?
Perhaps one for Joyce Dargay of University of Leeds and Dermot Gately, the economists we wrote about earlier in the week who roundly attacked the idea that oil demand could peak – and put the case that growth will in fact be much, much higher than expect.
Related links:
Index of full data sets for reviews (2009 not yet added) (EIA)
