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Vol. 25, No.03 Week of January 19, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Brent expected to average $65 in ’20

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US crude production forecast to set new records, 13.3 million bpd in 2020, 13.7 million bpd in 2021, up from 12.2 million in 2019

Kristen Nelson

Petroleum News

Brent crude oil spot prices are expected to average $65 per barrel this year and $68 per barrel in 2021, the U.S. Energy Information Administration said in its January Short-Term Energy Outlook, released Jan. 14, the first outlook to include forecasts through 2021.

“We expect Brent crude oil prices to generally stay in a range between $60 per barrel and $70 per barrel,” EIA Administrator Dr. Linda Capuano said in a statement accompanying the outlook. “However, a number of risk factors, such as geopolitical-related supply disruptions and the pace of global economic growth, could push prices out of this range.”

Brent averaged $64 per barrel in 2019 - the December price averaged $67 per barrel, up $4 from November, EIA said.

Capuano said that while Brent is expected to average $65 this year, global oil inventories are forecast to build during the first half of the year and “some downward oil price pressures could emerge in the coming months, though geopolitical risks could limit downward price movements.”

West Texas Intermediate is forecast to average about $5.50 per barrel lower than Brent in 2020 and 2021, EIA said, “based on the assumption of continued sufficient pipeline capacity from production areas in West Texas and from Cushing, Oklahoma, to refineries and export terminals along the U.S. Gulf Coast.” The $5.50 discount is lower than the $7.35 per barrel spread in 2019.

US Crude production

U.S. crude oil production is expected to “reach new records in 2020 and 2021,” Capuano said. “Driven primarily by higher production in the Permian region of Texas and New Mexico, the outlook forecasts an average of 13.3 million barrels per day of U.S. crude oil production in 2020 and 13.7 million barrels per day in 2021,” she said.

EIA said it estimates that U.S. crude production averaged 12.2 million bpd in 2019, up 1.3 million bpd from 2018.

The agency said the slowing growth of U.S. crude production it is forecasting results from fewer rigs operating over the past year, a decline it expects will continue into 2020 and 2021. But even with fewer rigs, EIA said, “production will continue to grow as rig efficiency and well-level productivity rises.”

The price of West Texas Intermediate crude is forecast to rise by $2 per barrel from 2019 levels and average $59 per barrel this year, rising further to average $62 per barrel in 2021. EIA said it expects WTI prices above $60 per barrel “to contribute to rising crude oil production, as producers will be able to fund drilling programs through cash flow and other funding sources, despite a somewhat more restrictive capital market.”

Onshore crude oil production in the Lower 48 is estimated to have averaged 9.9 million bpd last year, up from 8.8 million in 2018, and is expected to increase by almost 1 million bpd in 2020, and by another 400,000 bpd in 2021.

“Almost all of the Lower 48 production growth can be attributed to production from tight oil formations within the Permian region in Texas and New Mexico,” EIA said, with the Permian accounting for 800,000 bpd of the expected Lower 48 production growth in 2020 and almost 400,000 bpd of growth in 2021.

“Favorable geology and technological and operational improvements have allowed the Permian region to become one of the most prolific regions for oil production,” the agency said.

Gulf of Mexico production is forecast to average 2 million bpd this year, up 100,000 bpd from 2019, and to stay flat at 2 million bpd in 2021.

Alaska production is forecast to remain unchanged at 500,000 bpd in 2020 and 2021, EIA said.

EIA said it estimates that the U.S. has exported more crude and petroleum products than it has imported since September 2019. U.S. net imports of crude oil and petroleum products fell from some 2.3 million bpd in 2018 to 500,000 bpd in 2019. EIA said it is forecasting that the U.S. will be a net exporter of total crude oil and petroleum products by 800,000 bpd this year and by 1.4 million bpd in 2021.

Natural gas

“EIA’s January outlook expects a 3% increase in U.S. dry natural gas production growth in 2020, building on record production from 2019,” Capuano said, with most of that growth from the Permian region. She said EIA expects to see natural gas production decline in 2021, “as relatively low natural gas prices contribute to a reduction in natural gas directed drilling.”

Dry natural gas production is expected to average 94.7 billion cubic feet per day this year, up 2.9% from 2019, but with a decline of 0.7% projected for 2021 to an average of 94.1 bcf per day, EIA said.

This year’s expected natural gas production growth “is largely in response to improved drilling efficiency and cost reductions, higher associated gas production from oil-directed rigs, and increased takeaway pipeline capacity from the Appalachian and Permian production regions,” the agency said.

The U.S. exported more natural gas than it imported in 2019. Net exports averaged 5.3 bcf per day, up 2 bcf from 2018, and forecast to rise to 7.3 bcf per day in 2020 and 8.9 bcf in 2021. “Rising LNG exports and pipeline exports changed the United States from its long history as net importer of natural gas, which it had been as recently as first quarter of 2017,” EIA said.

U.S. liquefied natural gas exports averaged 5 bcf per day in 2019 and are expected to increase to 6.5 bcf per day in 2020 and 7.7 bcf in 2021.

EIA said U.S. LNG export capacity is expected to reach 8.9 bcf per day by the end of 2020, and 9.5 bcf per day in 2021. The agency said the additional capacity will “drive continuing growth in LNG exports” to that 7.7 bcf per day average in 2021, “as facilities gradually ramp up to full production.”

There has also been an increase in U.S. natural gas exports by pipeline to Mexico with growth in infrastructure. Those exports averaged 5.1 bcf per day through October, a 10% increase compared to the same period in 2018. U.S. net natural gas imports from Canada decreased from 2018 to 2018, a trend which began in 2008, and that trend is expected to continue as Appalachian production displaces some Canadian imports to the U.S. Midwest.

Henry Hub spot prices averaged $2.57 per million British thermal units in 2019, down 59 cents from 2018, and EIA said it is forecasting the those prices will average $2.33 in 2020 and $2.54 in 2021, with some upward price pressure in 2021 “because of falling natural gas production that stems from the low prices forecast in 2020,” but with falling demand for natural gas limiting upward price movement.



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