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EIA ’06 outlook for higher crude prices Sharp price increase since 2000 projected to continue; domestic production expected to increase; demand and imports to drop Kristen Nelson Petroleum News
The Department of Energy’s Energy Information Administration has released its Annual Energy Outlook 2006, for the first time presenting long-term forecasts of energy supply, demand and prices through 2030.
The agency said it has “reevaluated its prior expectations about world oil prices in light of the current circumstances in oil markets,” where world prices “have risen sharply as supply tightened” since 2000. Initially the driver was “strong demand growth in developing economies such as China” but later prices rose “as a result of supply constraints resulting from disruptions and inadequate investment to meet demand growth.”
This has resulted, the agency said, in “much higher” world oil prices than it projected last year. Crude oil prices — the average price of imported low-sulfur crude oil to U.S. refineries — are projected to increase from $40.49 per barrel (2004 dollars) in 2004 to $54.08 per barrel in 2025 and $56.97 in 2030. The 2025 price, the agency said, is “about $21 per barrel higher” than it projected last year. Implications for energy markets The impact of higher prices on U.S. petroleum imports is expected to be significant.
“Net imports of petroleum are projected to meet a growing share of total petroleum demand” in both the 2005 and 2006 outlooks, but the higher prices in the 2006 reference case “lead to more domestic crude oil production, lower demand for petroleum products, and consequently lower levels of petroleum imports.”
While last year’s outlook forecast that net petroleum imports would meet 68 percent of U.S. petroleum demand in 2025, the current outlook has dropped that to 60 percent.
The current reference case has also dropped the projected level of U.S. imports for liquefied natural gas. LNG imports are projected to grow from 0.6 trillion cubic feet in 2004 to 4.1 tcf in 2025; last year’s reference case put the 2025 figure at 6.4 tcf.
“More rapid growth in worldwide demand for natural gas” in the current reference case “reduces the availability of LNG supplies to the United States, and raises worldwide natural gas prices, making LNG less economical in U.S. markets.” Energy prices growing The agency said projections for key interest rates are slightly lower in the current forecast than in 2005, but despite higher forecast energy prices gross domestic product is still projected to grow at an annual rate of 3 percent from 2004 to 2030, the same rate as last year’s outlook forecast for 2004 through 2025.
Average world crude oil prices are expected to rise through 2006 and then decline to $46.90 per barrel in 2014 (2004 dollars) “as new supplies enter the market.” The price then rises slowly to $54.08 per barrel in 2025, about $21 per barrel higher than the agency forecast last year ($32.95 per barrel).
The agency said prices in its 2006 outlook reference case reflect a shift in its “thinking about long-term trends in oil markets.”
Those markets have been “extremely volatile for the past several years,” and the agency said it now believes that its 2005 outlook “did not fully reflect the causes of that volatility and the implications for long-term average oil prices.” In the current outlook, combined production capacity of members of the Organization of Petroleum Exporting Countries “does not increase as much as previously projected, and consequently world oil supplies are assumed to remain tight.” Natural gas The agency said the U.S. wellhead price for natural gas in its current outlook reference case “declines gradually from the current level as increased drilling brings on new supplies and new import sources become available.”
The average price of natural gas is projected to fall to $4.46 per thousand cubic feet in 2016 (2004 dollars) and then rise gradually to more than $5.40 per mcf in 2025. The agency said that would be equivalent to about $10 per mcf in nominal dollars. The 2030 price is expected to be more than $5.90 per mcf.
On the supply side the agency said LNG imports, Alaska natural gas production and Lower 48 gas production from unconventional sources “are not expected to increase sufficiently to offset the impacts of resource depletion and increased demand.”
The agency said its current projected wellhead natural gas prices in the reference case from 2016 to 2025 are consistently some 30 cents to 60 cents higher per mcf than in its 2005 outlook, “primarily as a result of higher exploration and development costs.” Energy consumption increases more slowly Total primary energy consumption is projected to increase at an average of 1.2 percent per year, from 99.7 quadrillion Btu in 2004 to 127 quadrillion Btu in 2025, 6.2 quadrillion Btu less than in the 2005 outlook.
“In 2025, coal, nuclear, and renewable energy consumption are higher — while petroleum and natural gas consumption are lower,” in the current reference case than in 2005.
The agency said these differences are primarily due to “higher energy prices, particularly for petroleum and natural gas,” lower projected manufacturing growth, larger numbers of hybrid and diesel vehicles and impacts of recent legislation.
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