Providing coverage of Alaska and northern Canada's oil and gas industry
May 2006

Vol. 11, No. 20 Week of May 14, 2006

EIA expects $68 oil this year, next

Agency says less chance for significant improvement in world petroleum supply and demand due to steady demand growth

Kristen Nelson

Petroleum News

The U.S. Department of Energy’s Energy Information Administration said May 9 that “prospects for significant improvement in the world petroleum supply and demand balance appear to be fading.”

The agency said while U.S. production will grow in 2006 with recovery from 2005 hurricane damage from Rita and Katrina, it expects only moderate increases in production from Organization of Petroleum Exporting Countries and other non-OPEC countries.

Demand growth will be steady and continued, with only modest increases in oil production capacity, and little room for production increases in response to political instability.

As a result the agency expects that crude oil prices will remain high through the end of next year, with West Texas Intermediate prices expected to average $68 per barrel in both years, “up substantially from our prior forecast.”

In last month’s short-term forecast, released April 11, the agency projected a WTI average of $65 in 2006 and $61 in 2007. Henry Hub spot prices for natural gas are expected to average $8.11 per thousand cubic feet in 2006, down about 90 cents per mcf from the 2005 average. EIA said the 2007 Henry Hub average is expected to be more than $9 per mcf, “assuming sustained high oil prices, normal weather and continued economic expansion in the United States.”

Consumption growth has slowed

World petroleum consumption has slowed because of higher prices but consumption growth remains strong at 1.6 million barrels per day for this year and a projected 2 million bpd in 2007, with most of the consumption growth being met from non-OPEC production. A downward revision in U.S. consumption growth in 2006 is compensated by increased Middle East consumption growth “driven by the large revenue flows into major petroleum exporters, continuing if not expanding consumer subsidies and increasing industrial and petrochemical demand,” the agency said.

EIA expects non-OPEC production to grow by 800,000 bpd in 2006. Large new projects in Angola and the Caspian Sea are expected to produce increases in 2006 and 2007, while OPEC production in 2006 is expected to be similar to 2005.

“World surplus crude oil production capacity, which is primarily located in Saudi Arabia, is down slightly in 2006 compared to 2005” and the agency expects capacity to decline again in 2007 as OPEC crude oil production accelerates. Because only limited surplus capacity exists concern about political unrest and possible hurricane damage “will keep upward pressure on oil prices.”

U.S. natural gas consumption down

EIA said 2006 U.S. natural gas consumption is expected to be about 1.1 percent below 2006 levels because of a warm January “and much weaker expected cooling load this summer compared to 2005.”

U.S. dry natural gas production declined 2.8 percent in 2005, largely because of hurricane-related infrastructure damage, is expected to increase by 0.8 percent this year and by 1.6 percent in 2007.

U.S. liquefied natural gas imports, which totaled 630 billion cubic feet in 2005, are expected to increase to 740 bcf in 2006 and 970 bcf in 2007.

At the end of April working gas in storage was an estimated 1.904 trillion cubic feet, 455 bcf above year-ago levels and 699 bcf above the five-year average. EIA said warm January weather accounts for much of the high storage level.

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