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EIA projects WTI at $64 per barrel in 2006 Oil demand growth expected to be steady, only modest increase in spare oil production capacity, continued risks of instability Petroleum News
The U.S. Department of Energy’s Energy Information Administration expects crude oil prices to remain high, an average of $64 a barrel for West Texas Intermediate, through the end of the year, and then decline to an average of $61 per barrel next year.
The agency said in its March 7 short-term energy outlook that it based its projection on continued steady world oil demand growth, only modest increases in world spare oil production capacity and continued risks of geopolitical instability.
Henry Hub natural gas prices, which averaged $8.98 per thousand cubic feet in 2005, and averaged about $13 an mcf in December, have recently slipped to below $8 per mcf, the agency said, due to weaker heating demand and resulting high levels of gas in storage. The EIA expects an average 2006 Henry Hub spot price of $8.11 per mcf, about 10 percent lower than in 2005, and then expects the price to move back toward an average of $8.74 per mcf in 2007 as demand picks up and the domestic market tightens.
On the weather front, EIA said January was warmer than expected, followed by a relatively normal February. The agency said heating fuel demand has been down this winter across fuels and regions due to the relatively warm overall weather conditions. Global oil markets Many of the same factors that drove world oil markets in 2005, such as low world spare production capacity and rapid world demand growth, will continue to affect markets in 2006 and 2007, the EIA said. Other factors are less certain, such as the frequency and intensity of hurricanes, other extreme weather and geopolitical instability.
The agency said recent events in Nigeria, Iran, and Iraq have been of particular concern and are contributing to current and projected high oil prices. For example, following attacks on Nigerian oil facilities in mid-February, Shell suspended export operations at its Forcados facility, shutting-in 340,000 barrels per day of production. An additional 154,000 barrels of daily onshore and offshore production by Shell is also unavailable.
The increase in world spare oil capacity is projected to be only modest this year and next, the agency said, despite new supplies from both non-OPEC and OPEC countries. New supplies are being offset by declines in many mature fields, including the North Sea, Mexico and the Middle East.
Non-OPEC supply grew by an annual average of 800,000 barrels per day between 1995 and 2005, and is projected to grow by 900,000 bpd in 2006 and by 1.6 million bpd in 2007.
World oil demand growth, 1.2 million bpd in 2005, is expected to increase to 1.5 million bpd in 2006, as U.S. demand recovers from a net decline in 2005 to slow growth of 280,000 bpd in 2006.
World demand growth is expected to be 1.8 million bpd in 2007 because of economic growth in developing Asian countries, with Chinese demand growth projected at about 500,000 bpd per year. Domestic production expected to increase The agency said average domestic oil production is expected to increase by 6.8 percent, some 350,000 barrels per day, to an average of 5.5 million barrels per day.
A 5.3 percent increase is expected in 2007, for an average daily production rate of 5.8 million barrels.
The Minerals Management Service expects some 255,000 barrels per day of oil production in the federal offshore Gulf of Mexico to remain offline until the start of the next hurricane season June 1.
Lower 48 oil production is expected to increase by 390,000 barrels per day to 4.6 million barrels per day this year, followed by an increase of 322,000 barrels per day in 2007. Oil production from federal offshore fields Mars, Mad Dog, Thunder Horse, Atlantis, Holstein, and Nakika is expected to account for about 14.4 percent of Lower 48 oil production by the fourth quarter of 2007.
The agency said Alaska is expected to account for 13.7 percent of total U.S. oil production in 2007, is expected to decline by 4.9 percent in 2006 and by an additional 4.5 percent in 2007. Oil production from recent discoveries will partially offset the decline in oil production from the Prudhoe Bay field in the North Slope. Level gas demand expected this year Total 2006 natural gas demand is expected to remain near 2005 levels and then increase by 2.4 percent in 2007.
Natural gas-intensive industrial output is expected to recover following last year’s hurricanes, contributing to a 4.3 percent growth in industrial demand this year and a 1.5 percent increase in 2007.
Domestic dry natural gas production in 2005 is estimated to have declined by 3.2 percent owing mainly to the hurricane-induced infrastructure disruptions in the Gulf of Mexico. According to MMS, approximately 400 million cubic feet per day of natural gas production is expected to remain offline prior to the start of the next hurricane season, June 1. However, overall dry gas production is projected to increase by 2.2 percent in 2006 and 1.7 percent in 2007.
Total liquefied natural gas imports are projected to increase from their 2005 level of 630 bcf to 830 bcf in 2006 and to reach 1.03 trillion cubic feet in 2007.
On Feb. 24, working gas in storage was an estimated 1.97 tcf, with stocks 344 bcf above a year ago and 641 bcf above the five-year average. Much of the current high storage level is accounted for by unexpectedly warm winter weather, particularly in January.
Spot Henry Hub natural gas prices, which averaged $8.98 per mcf in 2005, are expected to fall close to $7 per mcf over the next few months (from an average of about $13.44 per mcf in December).
The agency said that barring extreme weather conditions for the rest of the year, 2006 should bring a noticeable easing in spot natural gas prices, leading to an annual average decline in the Henry Hub price of about 10 percent.
The respite is expected to be short-lived. Concerns about potential future supply tightness and continuing pressure from high oil market prices are keeping expected spot natural gas prices for the next heating season at high levels, with the Henry Hub spot price again rising above $10.00 per mcf.
The Henry Hub price is expected to average approximately $8.74 per mcf in 2007.
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