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Vol. 15, No. 33 Week of August 15, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

EIA projects WTI at $81 in 4th quarter

Natural gas price expected to average $4.98 per million Btu next year, as US production drops due to impact of prices on drilling

Petroleum News

The U.S. Energy Information Administration said Aug. 10 that it is projecting the spot price for West Texas Intermediate crude oil to average $81 per barrel in the fourth quarter and $84 in 2011. WTI ended July at more than $78 a barrel.

Also in its August short-term energy forecast the agency said the Henry Hub spot price for natural gas is expected to average $4.69 per million Btu this year, up 74 cents from the 2009 average. The EIA expects the 2011 Henry Hub spot price to average $4.98 per million Btu.

The agency said its view of the world oil market is largely unchanged from July: It expects world oil prices to rise slowly as world oil demand increases based on global economic growth, with slower growth in supply from outside OPEC and “continued production restraint by members of the Organization of the Petroleum Exporting Countries.”

EIA also expects a gradual decrease in world oil inventory to lend support to firming oil prices.

Consumption increases

The agency projects that world oil consumption will increase by 1.6 million barrels per day this year, with countries outside of OECD, especially China, Saudi Arabia and Brazil, representing most of the expected growth in consumption, and only the United States among Organization for Economic Cooperation and Development countries projected to show significant oil consumption increases — some 150,000 bpd this year and next.

EIA expects global oil consumption to grow by about 1.5 million bpd in 2011.

Non-OPEC supply is expected to grow by some 720,000 bpd in 2010, with that production coming primarily from the United States, Brazil and Azerbaijan. Non-OPEC production is forecast to fall next year, for only the third time in a 15-year period, with a 160,000 bpd decline led by reduced production from Mexico and the North Sea.

EIA said it “expects OPEC crude oil production to rise somewhat through 2011 to accommodate increasing world oil demand and to maintain OPEC market objectives,” with liquids production increases of 1 million bpd this year and 1.2 million bpd in 2011.

OPEC surplus crude oil production capacity is expected to remain at about 5 million bpd, up from 4.3 million bpd in 2009 and 1.5 million bpd in 2008.

WTI at $85 by end of 2011

EIA said WTI crude oil spot prices averaged $76.32 in July, about $1 above the June average. The agency projects that WTI will average about $80 per barrel over the second half of 2010, rising to $85 per barrel by the end of 2011.

U.S. liquid fuels consumption is projected to grow by 140,000 bpd (0.7 percent) this year and by 170,000 bpd (0.9 percent) in 2011, reversing a four-year trend of falling consumption.

In the first quarter of 2010 there was a year-over-year decline in total liquid fuels consumption of 40,000 bpd, but EIA said that was followed by an average 380,000 bpd year-over-year increase in consumption in the second quarter.

Increases are projected in gasoline and distillate fuel in 2010; jet fuel consumption is growing, but more slowly, due to a drop in air carrier capacity over the last two years.

“Airlines are expected to remain reluctant to expand capacity in the immediate future, relying on increases in utilization rates as air passenger and freight transport recovers from the recession,” EIA said.

EIA said domestic crude oil production increased by 370,000 bpd in 2009 and is projected to increase by 110,000 bpd in 2010, led by a 120,000-bpd increase from the federal Gulf of Mexico.

Domestic crude oil production is forecast to rise by 30,000 bpd in 2011 to 5.46 million bpd, including a projected 120,000-bpd decline from the federal Gulf of Mexico, EIA said, reflecting the agency’s average reduction in crude oil output of about 82,000 bpd in 2011 due to the current six-month moratorium on deepwater drilling.

Natural gas consumption up

EIA said it expects U.S. natural gas consumption to increase by 3.8 percent from 2009 levels to 64.9 billion cubic feet per day this year and then remain flat in 2011.

“Growth in the use of natural gas in both the power generation and industrial sectors accounts for the bulk of the increase in consumption in 2010 over 2009,” the agency said, with use of natural gas for power generation expected to grow by more than 1 bcf per day to 20 bcf per day in 2010, “despite a year-over-year increase in natural gas prices.”

While the use of natural gas for electric power generation has been on a generally upward trend over the last several years, EIA said it is expected to decline slightly in 2011.

Total marketed natural gas production is expected to increase by 1.1 bcf per day to 61.1 bcf per day this year, with production declining gradually in 2011, “as relatively low prices depress drilling activity,” with the small decline in 2011 projected to lead to higher prices, an average of $4.98 per million Btu, compared to a forecast of $4.66 for the second half of this year.

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