WASHINGTON, DC – May 6, 2008 – Highlight of the short-term energy outlook
– West Texas Intermediate (WTI) crude oil spot prices increased from $101 to $120 per barrel over the first 3 weeks of April as supply disruptions in Nigeria and the North Sea and continuing strong demand growth in the emerging market countries pressured oil markets. WTI crude oil prices, which averaged $72 per barrel in 2007, are projected to average $110 per barrel in 2008 and $103 per barrel in 2009. These projections are about $9 per barrel higher than the projections in last month’s Outlook.
– The projected prices for crude oil in 2008 will result in higher prices for all petroleum products. Regular-grade gasoline is expected to average $3.52 per gallon in 2008, or 71 cents above the 2007 annual average price. The monthly average regular-grade gasoline price is projected to peak at $3.73 per gallon in June.
– World oil consumption is projected to grow by 1.2 million barrels per day (bbl/d) in 2008. U.S. consumption of liquid fuels and other petroleum is expected to decline in 2008 by about 190,000 bbl/d as a result of the economic slowdown and high petroleum prices. After accounting for increased ethanol use, U.S. petroleum consumption is projected to fall by 330,000 bbl/d in 2008.
– The Henry Hub natural gas spot price averaged $7.17 per thousand cubic feet (Mcf) in 2007 and is expected to average about $9.70 per Mcf in 2008 and $9.40 per Mcf in 2009.
The oil supply system continues to operate at near capacity and remains vulnerable to both actual and perceived supply disruptions. The supply and demand balance for the remainder of the year is tighter than in last month’s Outlook. World oil markets are particularly tight during the first half of 2008, with year-over-year growth in world oil consumption outstripping growth in non-Organization of the Petroleum Exporting Countries (OPEC) production by over 1 million bbl/d. The combination of rising global demand, fairly normal seasonal inventory patterns, slow gains in non-OPEC supply, and low levels of available surplus production capacity is providing firm support for prices.
The flow of investment money into commodities markets and ongoing geopolitical concerns in a number of producing countries, including Nigeria, Iraq, and Venezuela, have contributed to crude oil price volatility. OPEC appears satisfied with current market conditions, given recent statements by some members, suggesting that there are no plans to review OPEC production until the next scheduled meeting on September 9th. Also weighing on market expectations is Saudi oil minister Naimi’s public statement suggesting no need to add production capacity beyond the announced plan to expand Saudi oil production capacity to 12.5 million bbl/d by 2009.
If non-OPEC production rises as expected and some OPEC members add production capacity as planned, surplus crude oil production capacity should increase and ease upward price pressures by early next year. The expected surplus capacity, however, is less than projected in last month’s Outlook.
Consumption. World oil consumption is projected to grow by 1.2 million bbl/d in 2008. Almost all of the growth in 2008 is expected to come from the non-Organization for Economic Cooperation and Development (OECD) countries, led by China, Middle East oil producing countries, and Russia, as well as Brazil and India. China’s oil consumption is expected to rise by 0.4 million bbl/d in 2008, with Chinese oil imports in March showing an increase of 0.8 million bbl/d from year-earlier levels. OECD oil consumption is projected to remain relatively unchanged, with growth in consumption in Europe, where weather factors constrained oil consumption in 2007, offsetting declines in the United States.
Non-OPEC Supply. Non-OPEC supply is forecast to rise by 0.6 million bbl/d in 2008, about the same as in last month’s Outlook. Upward revisions in Africa and the United States offset lower expectations for growth in Russia and the North Sea. Brazil, Azerbaijan, and Sudan are expected to account for most of the increases in production in 2008, while the United Kingdom, Mexico, and Norway are among countries expected to experience declines. Russian oil production in the first quarter averaged 80,000 bbl/d below levels from first-quarter 2007, the first year-over-year decline this decade. However, EIA expects this to be temporary, with Russian production expected to grow on average in 2008. Most of the non-OPEC supply growth in 2008 is expected in the second half of the year, in contrast to very little growth in the first half of the year. Given recent history, EIA recognizes that the pace and timing of non-OPEC supply growth will continue to be subject to possible delays in key projects and accelerating production declines in some older fields. Thus, net production increases could be less than the current forecast.
OPEC Supply. OPEC crude oil production averaged about 32.2 million bbl/d during the first quarter of 2008. Only Saudi Arabia has significant surplus production capacity, currently estimated to be about 1.9 million bbl/d. OPEC crude oil production is expected to remain relatively flat through the third quarter of 2008, though there is the possibility of either higher or lower output in Iraq and Nigeria, depending on how the security situation in each country evolves. EIA expects that OPEC surplus production capacity will not grow significantly until the end of 2008 and will stay concentrated in Saudi Arabia.
Inventories. OECD commercial inventories at the end of the first quarter stood at an estimated 2.54 billion barrels, 22 million barrels above the previous 5-year average level. OECD inventories recorded a seasonal decline during the first quarter of roughly 0.3 million bbl/d, about 0.1 million bbl/d less than the average withdrawal rate during the first quarter. EIA’s projected balances suggest that total OECD commercial inventories likely will remain near average levels for the rest of the year.
Production. In 2007, domestic crude oil output averaged 5.1 million bbl/d, unchanged from 2006. Total output in 2008 is projected to grow by only 10,000 bbl/d. In 2009, domestic crude oil production is projected to average 5.3 million bbl/d, up 210,000 bbl/d from 2008. Federal Gulf of Mexico output is expected to rise by 260,000 bbl/d but declines are projected for Alaska (30,000 bbl/d) and the lower-48 States (20,000 bbl/d).
Consumption. Total petroleum consumption of liquid fuels and other petroleum products averaged 20.7 million bbl/d in 2007, essentially unchanged from 2006. Based on projections of weak economic growth and record high crude oil and product prices, consumption is projected to decline by 190,000 bbl/d in 2008, a sharper drop than the 90,000 bbl/d decline projected in the previous Outlook. After accounting for projected increases in ethanol use, U.S. petroleum consumption is projected to fall by 330,000 bbl/d. In 2009, total petroleum and other liquid fuel consumption is projected to rise by 210,000 bbl/d.
Prices. WTI crude oil prices, which averaged $72.32 per barrel in 2007, are projected to average $110 per barrel in 2008, up about $9 per barrel from the projection in last month’s Outlook, and $103 per barrel in 2009, up about $11 per barrel from the previous Outlook.
EIA projects regular-grade motor gasoline retail prices, which averaged $2.81 per gallon in 2007, to average $3.52 per gallon this year, up 16 cents from last month’s Outlook. The motor gasoline price is expected to average $3.66 over this summer (April through September). These proje
ctions reflect our assumption of a sizable narrowing of refiner gasoline margins from last year, attributable to weakness in gasoline demand and growth in ethanol supply. In 2009, regular-grade gasoline retail prices are projected to average $3.44 per gallon, 20 cents higher than in the previous Outlook.
Diesel fuel retail prices in 2008 are projected to average $3.94 per gallon, up from $2.88 per gallon last year. This reflects global strength in diesel demand that is contributing to a widening of the margin between diesel prices and crude oil costs since last year. Retail diesel prices are projected to average $3.67 per gallon in 2009.
Consumption. Total natural gas consumption is expected to increase by 1.4 percent in 2008 and by 0.5 percent in 2009. The residential and commercial sectors are expected to lead consumption growth in 2008 because of the projected 5.4-percent increase in heating degree-days compared with 2007. In contrast, the projected 12.4-percent decline in cooling degree-days from the warm summer of 2007 is expected to leave consumption of natural gas in the electric power sector relatively unchanged. Finally, the declining real value of the U.S. dollar and some recovery in the fertilizer market are expected to contribute to slight growth in industrial sector output and natural gas consumption in both 2008 and 2009.
Production and Imports. Total U.S. marketed natural gas production is expected to increase by 4.6 percent in 2008, then decline by 1.1 percent in 2009. Despite current repairs at the Independence Hub, production from the Federal Gulf of Mexico is expected to increase by 4.2 percent in 2008. Sustained high rig counts in the lower-48 onshore region are expected to lead to an increase in onshore production of 4.9 percent in 2008.
Through the first 4 months of 2008 liquefied natural gas (LNG) imports totaled an estimated 115 Bcf, considerably lower than the import total of 283 Bcf at this time last year. The shift of LNG away from the United States this year results from higher prices available to LNG suppliers for deliveries to both the Asia-Pacific region and Europe. Although EIA still expects significant additions to world LNG productive capacity through 2009, recent delays in bringing new liquefaction projects to full operational capacity and current high demand in other parts of the world will continue to constrain LNG shipments to the United States. In 2007, LNG imports totaled 771 Bcf. The 2008 LNG import forecast is revised downward to 580 Bcf from 680 Bcf in last month’s Outlook.
Inventories. As of April 25, 2008, working natural gas in storage was 1,371 Bcf, 3 Bcf below the 5-year average (2003-2007), and 255 Bcf below the level during the corresponding week last year.
Prices. The Henry Hub spot price averaged $10.49 per Mcf in April, $0.74 per Mcf above the average March spot price. Continuing cool weather (heating degree-days were 6 percent higher than normal in April), sagging imports of LNG, lower inventories, and higher oil prices have all contributed to the recent strength in spot prices. Uncertainty over natural gas demand by the electric power sector during the summer and the possibility of hurricane-related supply disruptions later this year could impact spot prices in the coming months. On an annual basis, the Henry Hub spot price is expected to average $9.69 per Mcf in 2008 and $9.41 per Mcf in 2009, increases of $1.10 and $1.09 per Mcf, respectively, from last month’s Outlook.
Consumption. Total electricity consumption is expected to grow by only 0.6 percent in 2008 and then by 1.2 percent in 2009. Although natural-gas-fired power generation has experienced double-digit growth rates over the last few years, growth is expected to be relatively flat this year due to National Oceanic and Atmospheric Administration (NOAA) projections that summer temperatures will fall back to near-normal levels.
Prices. Residential electricity prices are expected to increase by 3.1 percent this year and then grow by 3.4 percent in 2009, slightly higher than the increases in last month’s Outlook, primarily as a result of the increase in fuel costs. If summer temperatures exceed the current projections, increased electricity load during peak periods will raise the proportion of generation fueled by natural gas. That, in turn, could result in price increases for natural gas to electric generators and ultimately higher prices for electricity customers.
Consumption. Electric-power-sector coal consumption grew by 1.9 percent in 2007. Slow growth in electricity consumption, combined with increases in hydroelectric and wind generation, are expected to limit growth in electric-power-sector coal consumption to 0.6 percent in 2008. Electric-power-sector coal consumption growth is projected to remain flat in 2009.
Production and Inventories. U.S. coal production is estimated to have fallen by 1.5 percent in 2007. Growing demand for coal will contribute to a 1.1-percent increase in coal production in 2008. In the Western region, the Nation’s largest coal-producing region, production is expected to increase by 1.9 percent in 2008, but remain unchanged in 2009. Total coal stocks are estimated to have grown by 1.3 percent in 2007 to 189 million short tons.