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EIA says 2005 price increases reflect supply DOE’s Energy Information Administration says demand drove ’04 prices; in ’05 spare capacity at lowest level in three decades Petroleum News
Sharp increases in energy prices in 2005 were largely driven by supply concerns due to hurricane-related losses along with a reduction in world oil spare capacity, “which fell to its lowest level in over three decades,” the U.S. Department of Energy’s Energy Information Administration said Dec. 6 in its short-term energy outlook.
By contrast, the agency said, 2004 energy prices were largely driven up by an increase in demand.
U.S. spot prices for crude oil increased an average of 36 percent so far in 2005, while natural gas prices increased some 47 percent, but total U.S. energy demand has been flat, despite an economic growth of more than 3 percent.
Despite slower demand growth in both China and the United States, world oil prices climbed through the year, the agency said.
Total domestic energy demand is expected to increase at a 2 percent annual rate in 2006, the agency said, and prices for crude oil, petroleum products and natural gas “are projected to remain high through 2006 because of continuing tight international supplies and hurricane-induced supply loses.”
It expects West Texas Intermediate to average $57 per barrel in 2005 and $63 per barrel in 2006, regular gasoline to average $2.27 per gallon this year and $2.41 per gallon next year and Henry Hub natural gas prices to average $8.88 per thousand cubic feet in 2005 and $9.30 per mcf in 2006.
The interconnectivity of the natural gas gathering system has speeded up production recovery from hurricane damage and shut-in federal Gulf of Mexico natural gas production is now expected to fall to 6.5 percent of pre-hurricane production by March. Gulf crude oil production is improving at a slower rate, and only 19 percent of pre-Katrina and Rita production is expected to be shut in by March. World oil markets, U.S. gas markets The agency said it expects low OPEC spare oil production capacity and rapid world oil demand growth to continue to drive world oil markets in 2006, with other factors, such as extreme weather and geopolitical instability “less certain.” Demand growth slowed in 2005 from 2004 levels, “due largely to slower growth in China and the United States,” but demand is expected to increase in 2006, “led by an oil demand recovery in the United States.”
As both Organization of Petroleum Exporting Countries and non-OPEC supplies increase, the agency expects to see world oil spare production capacity increase in 2006.
Domestic natural gas demand is expected to remain at 2004 levels in 2005 because of high prices and to increase by 1 percent in 2006. Both residential demand and industrial demand are estimated to decline in 2005, residential use because of weak demand in the latter part of last winter and industrial demand “due to the much higher prices for natural gas as a fuel or feedstock.” Natural gas use in both sectors is expected to grow in 2006.
Domestic dry natural gas production is expected to be down by 3.8 percent in 2005, mainly due to hurricane disruptions in the Gulf, and to increase by 4.8 percent in 2006, with liquefied natural gas net imports for 2005 at a 2004 level of approximately 650 billion cubic feet, then increase to an average of about 1 tcf in 2006.
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