Understanding Errors in EIA Projections of Energy Demand

This paper investigates the potential for systematic errors in the Energy Information Administration’s (EIA) widely used Annual Energy Outlook, focusing on the near- to midterm projections of energy demand as measured in physical quantities. Overall, based on an analysis of the EIA’s 22-year projection record, we find a fairly modest but persistent tendency to underestimate total energy demand by an average of 2 percent per year over the one- to five-year projection horizon after controlling for projection errors in gross domestic product, oil prices, and heating/cooling degree days. For the 14 individual fuels/consuming sectors routinely reported by the EIA, we observe a great deal of directional consistency in the error patterns over time, ranging up to 7 percent per year. Electric utility renewables, electric utility natural gas, transportation distillate, and residential electricity all show significant biases, on average, across the full five year projection horizon examined. Projections for certain other fuels/consuming sectors have significant unexplained errors for selected time horizons. Independent evaluation of this type can be useful for validating ongoing analytic efforts and for prioritizing future model revisions.