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Vol. 15, No. 50 Week of December 12, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

EIA forecasts $89 WTI by end of 2011

Winter crude oil price expected to average $6 higher than last year; growth in US real gross domestic product of 2.7% this year

Kristen Nelson

Petroleum News

The U.S. Department of Energy’s Energy Information Administration is forecasting the price of West Texas Intermediate crude oil to average $84 per barrel over this winter (October through March) and rise to $89 by the end of 2011.

In its Dec. 7 short-term energy outlook, the agency said its price forecast for winter is more than $6 higher than the average last winter, while the projected $89 price by the end of next year is a $2 a barrel increase from the November forecast price.

The EIA’s forecast assumes a growth in U.S. real gross domestic product of 2.7 percent this year and 2.1 percent in 2011, and world real GDP (weighted by oil consumption) growth of 4 percent and 3.2 percent this year and next.

Natural gas working inventories were 3.8 trillion cubic feet at the end of November, slightly less than the record-setting level at the end of November 2009, EIA said, and the Henry Hub natural gas spot price is projected to average $4.37 per million Btu for 2010, a 42 cent increase over the 2009 average. The Henry Hub spot price is expected to average $4.33 per million Btu in 2011.

Oil markets tighten

A gradual tightening in global oil markets continues to support world oil prices, the agency said, with a projected liquid fuels consumption growth of 2 million barrels per day this year almost double the growth in supply from countries outside the Organization of the Petroleum Exporting Countries, leading to a growth in demand for OPEC crude oil production and declining global inventories.

World consumption of liquids fuels is projected to increase by 2 million bpd in 2010, after declines in 2008 and 2009, putting total global consumption this year close to the 2007 level, the agency said. Consumption growth is projected to slow to 1.4 million bpd next year, with non-Organization for Economic Cooperation and Development regions, especially China, the Middle East and Brazil, representing most of the expected growth.

Among OECD countries, EIA said only the United States is expected to show any significant growth in consumption volume in 2011, some 200,000 bpd.

Non-OPEC supply growing

Non-OPEC supply is projected to grow by just over 1 million bpd this year to an average of 51.5 million bpd, “the largest year-over-year increase since 2002,” the agency said, the result of higher production in the U.S., Brazil, China and Russia.

But next year non-OPEC supply is expected to fall by 280,000 bpd, only the third time in 15 years that there has been a year-over-year fall in those supplies. Declines in 2005 and 2008 were primarily the result of Gulf of Mexico hurricanes.

EIA said it expects OPEC crude oil production to grow by 300,000 bpd this year and by 400,000 bpd in 2011 to accommodate increasing world consumption.

OPEC surplus capacity is expected to remain close to 5 million bpd, compared to 4.3 million in 2009 and 1.5 million in 2008.

The WTI crude oil spot price averaged more than $84 per barrel in November, more than $2 higher than the October average, a rise which EIA attributed to expectations of higher demand. The agency said it has raised the average winter 2010-11 WIT spot price forecast by $1 per barrel from the November outlook — to $84 per barrel — and expects spot prices to rise to $89 per barrel by the end of 2011.

The agency said its projected annual average prices for WTI are $79 per barrel for 2010 and $86 for 2011.

Natural gas production up

Forecast marketed natural gas production is expected to rise by 3.5 percent in 2010, EIA said. While 2011 production has been revised upward, the agency said it expects a year-over-year decline of 0.1 percent next year.

The natural-gas-directed drilling rig count has been on the increase since mid-2009, which combined with a growing share of horizontal drilling rigs in the Lower 48 contributed to natural gas production growth this year.

Baker Hughes reported an increase in rigs drilling for natural gas from 665 in July 2009 to 973 in April of this year, and EIA said while the natural gas rig count stayed largely unchanged for about six months it ended November down at 953 rigs.

“EIA expects drilling activity to decline in 2011 because of relatively lower natural gas prices.”

The agency said it expects gross pipeline imports of 8.4 billion cubic feet per day in 2011, a decrease of 6.3 percent compared with 2010 pipeline imports. It expects Canadian gas will become less competitive as new U.S. pipelines and Lower 48 production with lower transportation costs displace imports.

LNG imports up 1 percent

Liquefied natural gas imports are projected to average 1.25 bcf a day this year, up 1 percent from last year, but 2011 imports are projected to fall to 1.21 bcf a day, a decline of 2.9 percent, as high domestic production, high inventories and low U.S. prices relative to European and Asian markets continue to discourage LNG imports into North America.

Working natural gas in storage stood at 3.814 trillion cubic feet Nov. 26, slightly below last year’s record level, EIA said, and it expects 1.833 tcf of working gas will remain in storage at the end of March when the winter heating season ends, some 171 bcf higher than March 2010, the result of the projected 3.1 bcf per day increase in natural gas production and an expected 5 percent fewer heating degree days over the next four months compared to the year before.

The Henry Hub spot price averaged $3.71 per million Btu in November, up 28 cents from October’s price of $3.43. EIA said it projects the spot price to peak at $4.29 in January before dropping back down close to $4 in June.

EIA said its December outlook “slightly raises” the average 2011 Henry Hub spot price to $4.33 per million Btu from a November forecast of $4.31.

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