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WTI in year’s 2nd half to average $70 Natural gas usage in US down; gas storage expected to end injection season at historic high; natural gas drilling activity down Petroleum News
Crude oil prices rose in June for the fourth consecutive month, and were expected to average near $70 per barrel through the second half of 2009, the U.S. Department of Energy’s Energy Information Administration said July 7 in its short-term energy outlook.
EIA said the rise in crude oil prices in June was partly due to “stronger-than-anticipated economic activity, primarily in Asia.” The agency said expectations of economic recovery and future rebound in oil demand “are outweighing weak current oil consumption and high inventory levels.”
The monthly average Henry Hub natural gas spot price, given plentiful U.S. natural gas supplies and weak demand, is expected to remain below $4 per thousand cubic feet until late in the year, the agency said, with the price expected to average $4.22 this year and $5.93 next year, based on expected economic growth.
U.S. consumption of liquids fuels and other petroleum products is projected by EIA to decrease 650,000 barrels per day, 3.3 percent, this year — including a 7 percent decline in distillate fuel consumption and an 8.7 percent decline in jet fuel consumption.
2008 domestic crude oil production averaged 4.96 million bpd, down from 5.06 million bpd in 2007 and is expected to increase to 5.23 million bpd this year and to 5.36 million bpd in 2010.
EIA said production from new federal offshore fields in the Gulf of Mexico — Thunder Horse, Tahiti, Shenzi and Atlantis — is expected to account for 14 percent of Lower 48 crude oil production by the fourth quarter of 2010.
West Texas Intermediate crude oil prices are expected to average $60.35 per barrel this year, down from $99.57 per barrel last year, and to increase to $72.42 per barrel in 2010, EIA said, a $2- to $5-per-barrel increase over the June forecast.
Gas consumption declining The agency projects that U.S. natural gas consumption will decline by 2.3 percent in 2009 and remain unchanged in 2010; poor economic conditions are expected to prolong the current slump in natural gas demand.
Total U.S. marketed natural gas is expected to decline by 0.6 percent this year and by 2.9 percent in 2010. Natural gas producers have responded to the decrease in consumption and prices with a reduction in drilling. EIA said Baker Hughes is showing a reduction of 57 percent in working natural gas rigs since September 2008. The production decline from the drop in working rigs is expected to occur almost exclusively in the Lower 48 non-Gulf of Mexico region during the second half of this year, the agency said.
“While the drop in natural gas drilling rigs is expected to result in lower natural gas production in 2010, recent improvements in drilling technology have lowered costs, reduced drilling time, and increased well productivity. These factors should improve the responsiveness of producers to changes in demand, limiting the extent of sustained upward price movements through the forecast period,” EIA said.
LNG imports to rise
U.S. imports of liquefied natural gas are expected to increase to about 506 billion cubic feet this year, up from 352 bcf in 2008 because of weak demand and growing global LNG supply. EIA said lower demand for LNG in Japan and South Korea has increased the available amount of LNG, leading to larger LNG purchases in China and Europe, but “with limited natural gas storage capacity in Asia and Europe, lower global demand is expected to increase available LNG cargoes for import by the United States.”
On June 26 working natural gas storage in the U.S. was 2.721 trillion cubic feet and inventories were 467 bcf above the five-year average. Through the first three months of the injection season (March 27 through June 26) the estimated inventory build was 1.067 tcf, the largest increase for the period since 2001, EIA said.
Working natural gas storage is expected to reach 3.67 tcf by Oct. 31, the end of the injection season, some 105 bcf above the previous record of 3.565 tcf reported at the end of October 2007.
EIA said the Henry Hub spot price, which averaged $3.91 per thousand cubic feet in June, continued to reflect “the disparity between weak demand and strong supply.”
U.S. natural gas production is expected to decline in the coming months, but “historically high storage levels and limits to storage capacity may cause prices to decline further this fall,” the agency said. EIA projects natural gas price recovery early next year as the market balance tightens, but said “rising prices are expected to be tempered by improvements in the productive capacity of domestic onshore supply sources throughout the forecast period.”
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