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EIA anticipates oil price rise
The Energy Information Administration’s newly published Energy Outlook 2016 report foresees in its reference case an oil price of $52 per barrel in 2017, rising to about $100 in 2030. But, when introducing the new report on June 28, EIA Administrator Adam Sieminski cautioned about the huge uncertainties in oil price forecasting - Sieminski suggested that people use the various energy scenarios that EIA has analyzed and the corresponding energy price models as a basis for evaluating what is happening rather than as a means of definitive price prediction.
“Even in the very near term there’s a wide spread in how we look at oil prices,” Sieminski said. “You should be very, very careful assuming that those point forecasts are going to give you the right answer.”
Against a backdrop of an assumed U.S. economic growth rate of 2 percent per year, EIA has assessed a range of potential future scenarios, from scenarios involving low world oil prices to high oil prices, and including various possibilities for future energy regulation in the United States. The low oil price case predicts a price of about $50 in 2030, while the high price case raises the price level to nearly $200. And an analysis of oil option market prices indicates oil prices ranging anywhere from $25 to $80 over the next year or so, Sieminski said.
Oil production The EIA sees the rising oil price driving a corresponding increase in U.S. oil production, although the rate of increase is sensitive to further advances in production technologies. But the agency’s oil production forecast shows Alaska production steadily declining to near zero by 2035.
In response to a question about the Alaska forecast, Sieminski said that production from the oil fields on the North Slope is declining and that the EIA data reflect existing regulations that do not allow oil development in areas such as the Arctic National Wildlife Refuge.
“Unless more oil is found in Alaska or along the (trans-Alaska) pipeline right of way, it’s very possible that the Alaska pipeline itself, which delivers oil from the northern part of the state to Valdez, would end up shutting down,” Sieminski said.
In terms of U.S. liquid fuel demand, the share of energy consumption by light-duty vehicles in the United States continues to grow. But proposed new vehicle fuel economy standards, if implemented, would reduce the relative share of energy consumption by these vehicles while also leveling off the use of diesel fuel by medium- and heavy-duty vehicles. The subsequent drop in diesel oil demand could cumulatively amount to a much as 2.5 billion barrels from 2021 to 2040, the EIA report suggests.
Natural gas When it comes to natural gas, EIA, in a low price scenario, sees the possibility of Henry Hub market prices in the United States remaining below $4 per million Btu for several decades, while, at the high end, prices could rise to about $9 by 2040. The reference case suggests a price climbing to about $4.50 by the mid-2020s and then leveling off. A robust natural gas resource base coupled with production competition will tend to keep prices down, Sieminski said.
But, with a continuing upsurge in shale gas production in the United States, EIA anticipates continuing strong growth in U.S. gas production despite the soft price outlook, with the country becoming a net exporter of gas sometime around the middle of 2017, as domestic production overtakes domestic consumption. In the near term the agency anticipates the exporting of liquefied natural gas from the United States and the export of pipeline gas to Mexico, with gas imports from Canada dropping a bit, Sieminski said.
Electricity generation The EIA expects electricity generation and industrial gas usage to drive growth in natural gas demand in the United States. Residential gas demand will likely flatten.
The agency anticipates U.S. electricity use continuing to grow. However, the rate of growth will continue a multi-decadal downward trend, thanks to moves towards less energy intensive industries in the U.S. economy, higher electricity prices and improved energy efficiency.
Questions over whether the Obama administration’s Clean Power Plan will be implemented, the manner in which it is implemented and implementation of the plan beyond 2030 figure large in some of the energy cases that the EIA has considered and, in particular, the impact of those cases on future power generation. EIA’s reference case for the Energy Outlook does assume that the Clean Power Plan will be implemented, Sieminski said.
The carbon dioxide emissions targets under the Clean Power Plan will tend to act as an accelerator for energy trends which are already underway. Implementation of the plan will challenge all U.S. regions that produce coal although, given the decline that has already taken place in the coal industry in the Appalachian region, coal production in the west will now be particularly impacted, Sieminski said.
Growth in renewables Under the Clean Power Plan the agency sees natural gas and renewable energies, in particular wind and solar power, overtaking coal as the primary energy sources for power generation by 2030. If the Clean Power Plan does not go into effect, coal demand will likely remain level, with only natural gas overtaking coal in the power generation mix. Implementation of the Clean Power Plan would raise electricity prices by some 4 to 7 percent in 2030, EIA has estimated.
However, the declining capital cost of wind and solar is driving the uptake of these technologies.
“So even without the Clean Power Plan we are expecting quite a bit of increase in wind and solar generation,” Sieminski said.
In general, the growth in the use of technologies such a solar power will increase the tendency for buildings to generate their own power, thus dampening the demand for centralized electricity power generation. Implementation and extension of the Clean Power Plan will tend to accentuate this trend, the EIA thinks.
Falling energy intensity The EIA expects continuing reductions in energy intensity, the amount of energy consumed per unit of economic activity, with the reduction largely offsetting growth in the U.S. gross domestic product. As a consequence, overall U.S. growth in energy consumption will be slow, the agency thinks. At the same time, a shift towards fuels that contain low carbon content or no carbon will cause the U.S. carbon dioxide intensity, the volume of carbon dioxide emitted per unit of economic activity, to continue to fall. The falling cost of solar power and the increasing use of natural gas will particularly push a drop in carbon dioxide emissions, the EIA thinks.
The EIA also anticipates that the energy consumption per person will fall slowly in the United States, as a consequence of improved appliance and vehicle efficiencies, and because of a tendency of the retiring “baby boomer” sector of society to move from cooler to warmer regions of the country.
Industrial energy consumption will tend to grow, but with the petroleum feedstock’s share of the energy mix rising while coal’s share drops, the EIA predicts.
“We are expecting to see more natural gas consumption, especially for feedstocks,” Sieminski said. “Lower natural gas prices mean a lot more natural gas being used in the petrochemicals and fertilizers industries, as well as just general industrial output.”
- Alan Bailey
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