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EIA 2012 has wide crude price variations Scenarios in ‘Annual Energy Outlook 2012’ range from 2035 price of $62 in low-oil price case through $200 in high-oil price case Kristen Nelson Petroleum News
The U.S. Energy Information Administration’s complete “Annual Energy Outlook 2012,” released June 25, includes projections through 2035, with crude oil prices varying from $62 per barrel in the low-oil price case, through $145 per barrel in the reference case and topping out at $200 per barrel in the high-oil price case.
EIA defines the oil price as “the average price of light, low-sulfur crude oil” delivered in Cushing, Okla., which the outlook says is similar to the price of light, sweet crude oil, West Texas Intermediate, traded on the New York Mercantile Exchange.
In the outlook the agency said the current price differential between WTI and similar-quality crude oils, Brent and Louisiana Light Sweet, is expected to “fade over time, as construction of more adequate pipeline capacity between Cushing and the Gulf of Mexico eases transportation of crude oil supplies to and from U.S. refineries.”
Key factors determining long-term supply, demand and prices fall into four broad categories, EIA said: economics of non-Organization for the Petroleum Exporting Countries supply; OPEC investment and production decisions; economics of other liquids supply; and world demand for petroleum and other liquids.
Slower growth In a statement summarizing the outlook, EIA said the rate of growth in energy use is expected to slow over the projection period (through 2035), “reflecting moderate population growth, an extended economic recovery, and increasing energy efficiency in end-use applications.”
In the reference case, U.S. energy consumption grows at an average annual rate of 0.3 percent from 2010 through 2035 and the U.S. does not return to the “levels of energy demand growth” it saw in the 20 years prior to the 2008-09 recession “because of more moderate projected economic growth and population growth, coupled with increasing levels of energy efficiency and rising energy prices.”
Domestic crude oil production is projected to increase (see story on this aspect of the outlook in this issue of Petroleum News Bakken), but the agency noted that because recent technology advances are in early stages of development, future U.S. production could vary significantly.
Natural gas production is expected to increase, allowing the U.S. to “transition from a net importer to a net exporter of natural gas.”
Reference case EIA said the reference case in the outlook is based on “continued robust economic growth” in non-Organization for Economic Cooperation and Development nations, including China and India, which is expected to “more than offset slower growth projected for many OECD nations.”
In the reference case non-OECD petroleum and other liquids consumption (the EIA said petroleum refers to crude oil, including tight oil from shale, chalk and other low-permeability formations, lease condensate, natural gas plant liquids and refinery gain; other liquids refers to biofuels, bitumen, coal-to-liquids, biomass-to-liquids, extra-heavy oils and oil shale) is about 21 million barrels per day higher in 2035 than in 2010 while OECD consumption grows by less than 2 million bpd.
World consumption grows to 106 million bpd in 2030 and to 110 million bpd in 2035.
Limitation on access to resources in many areas is assumed to restrain growth of non-OPEC production and OPEC is expected to retain a relatively constant share, 40-42 percent, of total world supply.
“With those constraining factors, satisfying the growing world demand for petroleum and other liquids in coming decades requires production from higher-cost resources, particularly for non-OPEC producers with technically challenging supply projects,” EIA said in the outlook, and that factor, along with a constant OPEC market share and easing of Cushing WTI infrastructure constraints “combine to support average increases in real oil prices of about 5 percent per year from 2010 to 2020 and about 1 percent per year from 2020 to 2035,” hence the projected average $145 price (in 2010 dollars) in the reference case. EIA said the rapid near-term increase is based on the assumption that WTI will return to parity with Brent in 2016 as pipeline capacity constraints between Cushing and the Gulf of Mexico are eliminated.
Low oil price case Non-OECD growth is lower in the low-price oil case than in the reference case, leading to slower demand growth.
“Lower demand, combined with greater access to and production of petroleum liquids resources, results in sustained lower oil prices.”
EIA said demand in the low oil price case focuses on non-OECD countries, “where uncertainty about future growth is much higher than in the mature economies of the OECD.”
In the low oil price case prices are assumed to “fall steadily after 2011 to about $58 per barrel in 2017, then rise slowly to $62 per barrel in 2035.”
Lower gross domestic product growth in non-OECD countries than in the reference case slows petroleum demand, which is 7 million bpd lower than in the reference case in 2035 and total world consumption is 2 million bpd lower in 2035 than in the reference case, at 107 million bpd.
With lower demand, producing countries develop stable fiscal policies and investment regimes that encourage resource development and OPEC nations increase production, achieving a market share of 46 percent in 2035. Non-OPEC levels of production are maintained until about 2020, as projects currently under way or planned are completed. After 2020, non-OPEC production declines as fields are depleted and not fully replaced by production from new fields and higher-cost enhanced oil technologies.
High oil price case The high oil price case assumes high demands in non-OECD countries, combined with a more constrained supply, resulting in higher oil prices than in the reference case, EIA said.
“Oil prices ramp up quickly to $186 per barrel (2010 dollars) in 2017 and continue rising slowly thereafter, to about $200 per barrel in 2035.”
In the high oil price case, prices and demand are driven by higher economic growth than in the reference case, with GDP growth rates in 2012 for China and India 1 percentage point higher than in the reference case, and 0.3 percentage point higher in 2035, with most other non-OECD regions averaging GPD growth rates about 0.5 percentage points above the reference case in 2012.
“For the OECD regions, where prices rather than a higher economic growth rate are the main factor affecting demand, consumption of petroleum and other liquids remains fairly flat over the projection,” EIA said.
In the high oil price case OPEC countries are assumed to have a somewhat reduced market share, less than 41 percent through 2035.
Outside the United States, non-OPEC petroleum liquids resources “are assumed to be less accessible and/or more costly to produce” than in the reference case “and higher prices make other liquids supply more attractive.”
EIA said that in the high oil price case, other liquids production totals 17 million bpd in 2035, about 4 million bpd above the reference case, and other liquids account for 15 percent of the total supply of petroleum and other liquids.
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