Short-Term Energy Outlook

January 8, 2008

WASHINGTON, DC – January 8,  2008 – Global oil markets will likely remain tight through 2008, then ease moderately in 2009.  EIA projects that world oil demand will continue to grow faster than oil supply outside of the Organization of the Petroleum Exporting Countries (OPEC) in 2008, leaving OPEC and inventories to offset the upward pressure on prices.  In 2009, higher non-OPEC production and planned additions to OPEC capacity should relieve some of the tightness in the market.  As a result, the level of surplus production capacity is projected to grow from its current level of under 2 million barrels per day (bbl/d) to more than 4 million bbl/d by the end of 2009. 

The West Texas Intermediate (WTI) crude oil spot price approached $100 per barrel twice over the last 6 weeks, reaching $99.16 per barrel on November 20 and $99.64 per barrel, a record price in nominal terms, on January 2, after falling below $90 in mid-December.  Recent high prices and large price swings reflect the current tight and volatile world crude oil market.  The WTI price is expected to average $94 per barrel in January 2008.  The WTI price, which averaged $72 per barrel in 2007, is expected to average about $87 per barrel in 2008 and $82 in 2009.

Retail prices for petroleum products are expected to increase in 2008, pushed up by the higher average crude oil prices.  Both motor gasoline and diesel prices are projected to average over $3 per gallon in 2008 and 2009, with monthly average gasoline prices peaking near $3.50 per gallon this spring. 
The Henry Hub natural gas spot price averaged $7.17 per thousand cubic feet (mcf) in 2007 and is expected to average $7.78 per mcf in 2008 and $7.92 per mcf in 2009.  

Global Petroleum

The outlook for oil supply and demand fundamentals over the next two years points to an easing of the oil market balance in 2009.  Higher non-OPEC production and planned additions to OPEC capacity should more than offset expected moderate world oil demand growth, and relieve some of the tightness in the market.  As a result, surplus production capacity could grow from its current level of under 2 million bbl/d to over 4 million bbl/d by the end of 2009.  This balance suggests some price softening, although delays or downward revisions in capacity additions in both OPEC and non-OPEC nations could alter the outlook, as could OPEC production decisions.


World oil consumption is expected to rise by 1.6 million bbl/d in both 2008 and 2009 compared with the estimated 1 million bbl/d increase recorded last year.  The larger volume gains expected in 2008 and 2009 compared with 2007 mainly reflect higher consumption expected in the Organization for Economic Cooperation and Development (OECD), particularly Europe, where weather factors constrained oil consumption last year.  Projections of continued strong world economic growth will spur oil consumption gains in a number of non-OECD markets, including China, non-OECD Asia, and the Middle East countries, over the next 2 years.

Non-OPEC Supply 

Non-OPEC production is expected to rise by about 0.9 million bbl/d in 2008 and by 1.6 million bbl/d in 2009.  This compares with a gain of 0.6 million bbl/d recorded last year.  Azerbaijan, Russia, Canada, Brazil, the United States, China, Sudan, and Kazakhstan account for a large share of the gain in non-OPEC production growth in 2008 and 2009.  Increases in these nations will more than offset expected declines in production in a number of countries including Mexico, the United Kingdom, and Norway.  As in recent years, the pace and timing of non-OPEC supply growth will continue to be subject to delays in key projects due to a number of factors, including labor and equipment shortages, as well as uncertainty over the rates of decline in existing production.  Projected growth of production capacity is very sensitive to the progress of several large-scale projects, including the already-delayed Sakhalin II project in Russia, the Marlim field in Brazil, and the ACG project in Azerbaijan.  Recent history has shown that non-OPEC capacity growth projections often fall short of expectations.  Non-OPEC supply growth will also benefit from higher non-crude supplies such as biofuels, condensates, and natural gas liquids.

OPEC Supply.

OPEC members’ production decisions and the pace and timing of capacity additions in a number of countries will play a key role in determining oil market trends over the next 2 years.  EIA projects that OPEC crude oil production will average about 32.6 million bbl/d in 2008 and 31.8 million bbl/d in 2009 compared with the 31.7 million bbl/d seen during the fourth quarter of 2007.  Increased production from Angola, Saudi Arabia, Kuwait, and Iraq boosted OPEC’s crude output during the fourth quarter 2007.  OPEC will hold meetings in Vienna on February 1 and on March 5 to assess production plans.

EIA projects that OPEC crude oil capacity could increase by 1.4 million bbl/d in 2008 and by another 1.0 million bbl/d in 2009.  Much of the increase reflects higher capacity in Saudi Arabia.  Although the Khursaniyah project in Saudi Arabia has been delayed, other projects expected to be completed are Nuayyim and Shaybah in 2008 and Khurais in 2009.  Algeria, Angola, Nigeria, Qatar, and the United Arab Emirates are also expected to raise crude capacity over the forecast period.  In addition, substantial gains in natural gas liquids capacity are expected in a number of OPEC nations.  The EIA petroleum balance indicates that OPEC surplus production capacity, held mostly in Saudi Arabia, will rise from 1.6 million bbl/d now to 2.1 million bbl/d by the end of 2008 and perhaps to the 4-to-5 million bbl/d range by the end of 2009, depending on potential project delays. 


Total OECD commercial inventories continue to fall.  Based on partial data, EIA estimates total OECD commercial inventories at year-end 2007 were about 2.54 billion barrels, which is 19 million barrels below the previous 5-year average.  This compares with the end of 2006, when inventories were about 100 million barrels above the 5-year average.  The oil balance assumes OPEC members’ production decisions maintain OECD commercial inventories near the 5-year average levels over the next 2 years. 

U.S. Petroleum


Petroleum consumption averaged an estimated 20.7 million bbl/d in 2007, up 0.2 percent from 2006.  Motor gasoline consumption growth is expected to average 0.8 percent in 2008 and 1.0 percent in 2009 as the driving-age population grows and the ethanol share of the gasoline pool increases.  Airlines are expected to resume fleet expansions, resulting in jet fuel consumption recovering from a 0.3- percent decline in 2007 to show growth of about 1.2 percent per year over the next 2 years.  Based on current weather projections and a slowdown in the economy in 2008, distillate consumption growth is projected to slow from 1.9 percent in 2007 to 1.2 percent in 2008 and 1.6 percent in 2009.


In 2007, domestic crude oil output is estimated to have averaged 5.1 million bbl/d, unchanged from 2006.  In 2008, growth in crude oil production in the Federal Gulf of Mexico, where the Atlantis deepwater platform began production in late 2007, is projected to offset declines in onshore production in Alaska and the Lower-48 states.  Total domestic crude oil production in 2009 is projected to grow by 6.9 percent, or about 350,000 bbl/d, with the startup of the Thunder Horse and Tahiti platforms in the Gulf of Mexico and a small boost in onshore production because of the continued high crude oil prices.

The Energy and Security Independence Act of 2007 mandates that transportation fuels sold in the United States must con
tain at least 9.0 billion gallons of renewable fuels in 2008 and 11.1 billion gallons in 2009.  The 2008 renewable fuels mandate is projected to be exceeded, with domestic ethanol production increasing from a projected total of 6.5 billion gallons in 2007 to about 8.5 billion gallons in 2008.  Ethanol imports and biodiesel should add about 0.5 and 1.2 billion gallons, respectively, to the 2008 renewable fuel volumes.  Although domestic ethanol production capacity is expected to increase from the current level of 7.4 billion gallons per year to about 13 billion gallons per year in 2009, ethanol transportation and distribution infrastructure constraints and State gasoline product quality regulations, which inhibit ethanol blending, are expected to slow market penetration and thus restrain production growth.



WTI crude oil prices averaged $66.02 per barrel in 2006 and $72.30 per barrel in 2007.  WTI prices are projected to average about $87 and $82 per barrel, respectively, in 2008 and 2009.  Regular grade gasoline prices, which averaged $2.81 per gallon in 2007, are projected to average $3.14 and $3.03 per gallon, respectively, in 2008 and 2009.   Heating oil prices are projected to average $3.19 and $3.01 per gallon, respectively, in 2008 and 2009, while diesel fuel prices are projected to average $3.29 and $3.15 per gallon in those years.


As of December 31, total motor gasoline inventories were an estimated 208.2 million barrels, down 3.6 million barrels from the end of 2006 and 2.6 million barrels below the previous 5-year average at that time of year.  Motor gasoline stocks entering April are projected to be 208.6 million barrels, 7.4 million barrels above last year and close to 4 million barrels above the previous 5-year average at that time of year.  Distillate stocks were an estimated 127.4 million barrels at on December 31, down 16.2 million barrels from the previous year and 7.9 million barrels below the previous 5-year average at that time.  At the end of the heating season (March 31), distillate stocks are projected to be 104.1 million barrels, 15.6 million barrels below last March and 5.6 million barrels below the previous 5-year average at that time.

Natural Gas


Total natural gas consumption is estimated to have increased by 6 percent in 2007, driven largely by increases in the residential, commercial, and electric power sectors that occurred earlier in the year.  The forecast of near-normal weather in 2008 and 2009 is projected to lower the annual increase in total consumption to 0.6 and 1 percent, respectively, for those two years.  

Production and Imports

Total U.S. marketed natural gas production is estimated to have increased by 2.5 percent in 2007, with increases in onshore lower-48 production offsetting declines in the offshore Gulf of Mexico.  In 2008, total marketed production is expected to increase by 1.6 percent primarily because of the start-up of new deepwater Gulf of Mexico supply infrastructure, which is expected to increase Gulf production by 7.9 percent for the year.  In addition, lower-48 onshore production in 2008 is expected to rise by 0.5 percent.  In 2009, the anticipated 2.8 percent decline in production from the Gulf due to steep decline rates in the offshore fields is expected to be offset by production growth of 0.8 percent in the lower-48 onshore region, resulting in net growth in total marketed production of 0.2 percent.

Imports of liquefied natural gas (LNG) are estimated to have reached about 781 billion cubic feet (bcf) in 2007, a 34-percent increase over 2006.  The import volume in 2007 varied significantly throughout the year; the highest daily receipts of over 3 bcf occurred in the spring and the lowest daily receipts of less than 1 bcf occurred in recent months.  The latest decline in LNG imports to the United States has been caused by the combination of increased demand and higher natural gas prices in other markets around the world, including Asia and Europe.  Annual import volumes are projected to reach about 937 bcf and 1,179 bcf in 2008 and 2009, respectively. 


On December 28, 2007, working natural gas in storage was 2,921 bcf .  Current inventories are now 222 bcf above the 5-year average (2002-2006) and 160 bcf below the level during the corresponding week last year. 


The Henry Hub spot price averaged $7.32 per mcf in December.  The Henry Hub monthly average spot price is expected to average slightly over $8 per mcf in both January and February.  On an annual basis, the Henry Hub spot price is projected to average $7.78 per mcf in 2008 and $7.92 per mcf in 2009. 



With temperatures this summer expected to be milder than last summer, although close to normal, growth in residential electricity sales should slow from 3.0 percent in 2007 to 0.7 percent in 2008.  Lower summer temperatures along with projected slower economic growth in 2008 will also limit electricity sales growth in the commercial and industrial sectors.  Total electricity consumption is expected to grow by only 0.5 percent in 2008, but return to a more normal growth rate of 1.8 percent in 2009.


Following relatively modest increases in power generation fuel costs, U.S. residential electricity prices are expected to grow by 2 percent in 2008 to an average of 10.8 cents per kilowatthour.   



Electric-power-sector coal consumption, which accounts for more than 90 percent of total U.S. coal consumption, is estimated to have grown by 2.1 percent in 2007.  Slow growth in electricity consumption, combined with projected increases in natural-gas-fired and hydroelectric generation, will lead to a slight decline, 0.2 percent, in electric-power-sector coal consumption in 2008.  Electric-power-sector coal consumption is projected to increase by 1.3 percent in 2009. 


U.S. coal production is estimated to have fallen by 0.8 percent in 2007.  Projected weak demand for coal in 2008 will result in an additional 0.8-percent decline in coal production, but production is expected to recover in 2009.  In the Western region, the Nation’s largest producing region, coal production is expected to fall by 0.3 percent in 2008 and remain relatively flat in 2009.


Total coal stocks are estimated to have grown by 3.1 percent in 2007 to 192.7 million short tons.  Total coal stocks are expected to fall by 1.7 percent in 2008 and by 3.6 percent in 2009, with reductions in primary inventories accounting for the change in both years.