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EIA: oil supplies stay tight, prices high Energy Information Administration releases 2006 reference case, says crude prices will remain volatile, supplies tighter Petroleum News
The U.S. Department of Energy’s Energy Information Administration has released its reference case for 2006 and the agency says “world oil supplies are assumed to be tighter” than in its recent annual projections. As a result, world crude oil prices, while projected to fall to about $47 per barrel (average price of imported light, low-sulfur crude oil to U.S. refiners) in 2014 (2004 dollars), will rise to $54 per barrel in 2025 and $57 per barrel in 2030. The price projected for 2025 is about $21 per barrel higher, the agency said, than in its 2005 reference case.
Higher world oil prices will lead to greater domestic crude oil production and demand for unconventional sources of transportation fuel such as ethanol and biodiesel and also stimulate domestic coal-to-liquids production, “and, in some of the alternative scenarios with even higher oil prices, domestic gas-to-liquids and shale oil production,” the agency said.
There will be both supply and demand changes, resulting in less growth in petroleum imports than previously projected. “Net petroleum imports, which met 58 percent of oil demand in 2004, are projected to meet 60 percent of demand in 2025, considerably less than the projected 68 percent” in the agency’s 2005 reference case. Lower natural gas demand Natural gas wellhead prices are projected to fall from today’s high levels to $4.46 per thousand cubic feet (2004 dollars) by 2016 due to increased drilling and new export prices, and are expected to increase gradually after 2016 to more than $5.90 per mcf in 2030 (equivalent to about $10 per mcf in nominal dollars), as increased drilling brings on new supplies and new import sources become available.
The agency has also reduced its projected natural gas consumption figures. It now believes natural gas consumption will grow from 22.4 trillion cubic feet in 2004 to 27 tcf in 2024, and then decline modestly to 26.9 tcf in 2030. The agency is now projecting natural gas usage nearly 4 tcf lower in 2025 than it projected last year, “as natural gas loses market share to coal for electricity generation.” Growth in U.S. natural gas supplies will come from unconventional gas production, the Alaska pipeline and LNG imports, with unconventional natural gas expected to account for 45 percent of domestic U.S. natural gas production in 2030.
The agency said it expects construction planning for the Alaska gas pipeline to begin “soon, and the new pipeline is expected to be completed by 2015.”
Higher world oil prices in the new reference case “raise worldwide natural gas demand and prices,” the agency said, and as a result LNG will be less economic in U.S. markets than the agency projected last year. It now projects LNG imports to grow from 600 billion cubic feet to 4.1 tcf between 2004 and 2025, compared to a 6.4 tcf level for 2025 in last year’s reference case. Volatility of oil prices The agency said it believes its 2005 reference case did not fully reflect causes of oil price volatility “and the implications for long-term average oil prices.” In the 2006 reference case, combined production capability of members of the Organization of Petroleum Exporting Countries “does not increase as much as previously projected, and consequently world oil supplies are assumed to remain tight.” Demand from the United States and China is expected to keep pressure on prices through 2030.
In the 2006 reference case world petroleum demand is expected to increase from 82 million barrels per day in 2004 to 111 million bpd in 2025, with additional demand to be met by increase production from both OPEC and non-OPEC suppliers.
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