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If there’s one thing certain about the long-term outlook released by the U.S. government this week is that it will completely miss the mark in one way or another. In the past, the Energy Information Administration’s (EIA) International Energy Outlook (IEO), which is cited numerously by pundits, analysts, and policy makers to justify their arguments about what the future does or does not hold, has had a mixed record of sketching out long-term energy fundamentals. In its 2003 projections, the EIA said oil prices would rise gradually over the next two decades and reach $26.57 by 2025, while the “high-price” case for that year had the market hitting $32.95 in 2015 and leveling off. The agency failed to see the strength of emerging market growth and the coming dearth of spare production capacity: The oil price, the year after this report was released, went on a bull run the following year and hit $147 in 2008. It also consistently averaged above $100 from 2011 through mid-2014.

The EIA’s International Energy Outlook, which is cited numerously by pundits, analysts, and policy makers to justify their arguments about what the future does or does not hold, has had a mixed record of sketching out long-term energy fundamentals.

In the EIA’s 2008 projections, it said shale oil would grow globally by .06 mbd through 2030. In the U.S., from 2010-2015, crude production in fact rose by 4 mbd, with most of the gains from shale. In 2011, the agency caught up with the shale revolution but erred on the side of being too optimistic. In its “low oil price” scenario that year, the EIA pegged U.S. production at 10.5 mbd for 2016, but actual output will average much lower—the latest weekly numbers put it at 8.8 mbd as shale continues its year-long slide.

In its latest IEO, released Wednesday, there were a lot of changes from the previous outlook in 2014, before the world entered the current low oil price environment. The EIA, in its reference case for instance, now pegs non-OPEC liquid production at 53 mbd in 2040, which is slashed by 13 mbd, or 20 percent, from two years ago.

Even though the EIA’s outlook, which should be seen more so as sketches of different scenarios rather than actual predictions, will likely be wrong, it’s important as a basis for analysis and discussion about the future of the oil market and energy security in general.

Adam Sieminski, the administrator of the EIA, addressed this topic when speaking at the Center for Strategic and International Studies (CSIS) on Wednesday, saying that even though projections can never be perfect, their main contribution is to show how changing assumptions will or will not alter the long-term picture.

Even though projections can never be perfect, their main contribution is to show how changing assumptions will or will not alter the long-term picture.

The latest outlook from the government agency, like all its projections, is based on current policies and existing technologies, and it doesn’t try to pinpoint “black swan” events, such as wars, political shifts, technological breakthroughs, macro shocks, and economic disruptors. Some of the main uncertainties Sieminski pointed out include economic growth, environmental policies, innovation on both the demand and the supply side, unrest in oil-producing countries, and OPEC output and policy.

The importance of long-term outlooks, even when they’re wrong

Reuters columnist John Kemp noted last November, at the time of the release of the World Energy Outlook (WEO) from the International Energy Agency (IEA), another outfit whose projections are generally proven wrong over time, the importance of forecasting despite it being widely incorrect. “Preparing a forecast compels forecasters and policymakers to think in a rigorous and disciplined way about the variables driving different outcomes,” Kemp wrote. “A comprehensive forecast enables policymakers to see how changing the assumptions and policies results in different outcomes, and identify which assumptions are the most sensitive.”

The latest projections should serve as a wake-up call against complacency during the current period of low prices. If the world continues on the existing trajectory, oil will still make up some 30 percent of the energy mix by 2040.

With that in mind, it’s critical to consider the EIA’s outlook and ramifications of continuing on the current path with regards to reliance on oil in the transportation sector. The latest projections should serve as a wake-up call against complacency during the current period of low prices. If the world continues on the existing trajectory, oil will make up some 30 percent of the energy mix by 2040, down only 3 percentage points from the current level, with overall growth in demand occurring in both industrial and transportation sectors. More importantly, against the backdrop of rising demand in non-OECD countries—which causes global consumption to surge by some 30 mbd during the forecast period—and weaker non-OPEC supply growth, the need for OPEC oil will only grow. The EIA says OPEC output, which is now around 33 mbd, will accelerate after 2025 and reach about 47 mbd by 2040, or roughly 47 percent of total crude supply, filling the gap for demand growth. The main growers will be Saudi Arabia, Iraq and Iran, all three of which have issues surrounding political and investment stability. In the agency’s low oil price scenario, global reliance on OPEC is even greater, rising to an astounding 53 percent by 2040. This point was made by the IEA in its WEO—lower prices stymie investment in high-cost production, giving more market power to low-cost producers in OPEC.

At the same time, oil market fundamentals will tighten over time, pushing prices back to levels seen earlier this decade, above $100. “Given the long investment cycle for many projects outside of shale plays, the current decline in investment can have long-term effects,” the EIA notes in the IEO.

It’s hard to compete with oil

Changing certain assumptions can have an outsized impact on trends in the future, which means that even a small shakeup in transportation can go a long way to undermining oil’s monopoly.

“It’s hard to compete with the energy density in oil,” Sieminski told the audience at CSIS. Oil is also relatively cheap for consumers in today’s world, creating an illusion of abundance. Both of these issues represent big challenges with regards to energy security and the need to diversify the transportation sector so there’s not so much reliance on oil. As Sieminski pointed out, changing certain assumptions can have an outsized impact on trends in the future. So, even a small shakeup in transportation can go a long way to undermining oil’s monopoly. The EIA will undoubtedly be off-target in its projections, so let’s hope that oil’s continued dominance is where it will be mistaken.