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EIA’s Annual Energy Outlook (AEO) Early Release report was published on December 5, 2012, as a teaser to its full report to be published in the spring of 2013.  Nonetheless, the energy trends brought forth in the report were illuminating and thought-provoking.

A few key highlights from the report:

  • Domestic U.S. oil production is expected to peak at an average of 7.5 MMBOPD in 2019 and remain above 6.0 MMBOPD through 2040;
  • Domestic U.S. dry natural gas production during 2011 totaled 23.1 Tcf, and is expected to grow to 33.2 Tcf by 2040;
  • Henry Hub spot natural gas prices to remain below $4.00 through 2018; and
  • U.S. exports of LNG from domestic sources rise to approximately 1.6 trillion cubic feet in 2027, almost double the 0.8 Tcf projected in AEO2012.

Crude Oil

Crude oil production projections are on the rise from last year’s AEO2012 figure EIA is expecting oil production to increase to 7.5 MMBOPD in 2019 from 5.7 MMBOPD in 2011, and remain above 6.0 MMBOPD through 2040. The increase is largely attributed to increasing onshore drilling, especially in the tight oil plays. Horizontal drilling and hydraulic fracturing are also influencing the increased production these tight plays.

On December 6, Wood Mackenzie reported capital expenditures in the Eagle Ford would surpass $28 billion. It is thought that by 2015 the overall investment in the Eagle Ford could surpass the Kashagan project as the world’s most expensive standalone project at $116 billion. It seems that production in the Eagle Ford is just beginning, following EIA’s projection for tight oil. U.S. E&P companies are still putting together 2013 CAPEX budgets, but a few notable small-cap companies that were operating in the Eagle Ford during 2012 are Sanchez Energy Corp (ticker: SN), Magnum Hunter Resources (ticker: MHR), and Penn Virginia Corp (ticker: PVA).

Offshore drilling is expected to trend upwards between 1.4 and 1.8 MMBOPD with increased activity and large development projects in the deepwater and ultra deepwater areas of the Gulf of Mexico. A few Gulf of Mexico names we would like to point out are expected to invest a substantial amount of capital into Gulf of Mexico operations are Energy XXI (ticker: EXXI) and Saratoga Resources (ticker: SARA) and SandRidge Energy (ticker: SD).

Natural Gas

Natural gas also is seeing production increases attributed to horizontal drilling and hydraulic fracturing in shale gas production.

Dry natural gas production during 2011 totaled 23.1 Tcf, and is expected to grow to 33.2 Tcf by 2040. Natural gas consumption in 2011 was 24.4 Tcf, and is expected to grow to 29.5 Tcf by 2040. The driving force behind the increase in production is coming from the electric power sectors. EIA is expecting this sector alone to increase demand by 1.9 Tcf by 2040. Even with the increase in domestic demand, EIA see U.S. dry natural gas production outpacing domestic consumption by 2020 that will lead the U.S. to export natural gas. U.S. exports of LNG from domestic sources is expected to rise to approximately 1.6 Tcf in 2027, almost double  the 0.8 trillion cubic feet projected in AEO2012.

OAG360 notes that a research note from Wells Fargo on findings from its Energy Conference on December 6th reported members of the E&P industry showed a lower threshold for natural gas prices between $4.00 and $4.50. This could be attributed to more efficient operations on shale gas with horizontal drilling and hydraulic fracturing. This fits in line with the EIA’s spike in natural gas production in the coming years, with the majority of the increase coming from shale gas. However, we would like to point out the EIA says they believe Henry Hub prices will likely remain below $4.00 through 2018.

Coal

Coal remains responsible for the majority of U.S. electricity generation, and is the destination for 91% of U.S. coal production. Coal production and consumption in the coming years are variable. EIA is predicting coal and liquid production to converge in the next few years, and then for coal to increase and liquids decrease.

Renewable Energy

EIA is expecting renewable energy usage to increase at a rate of 1.6% per year. This growth can be attributed to the federal renewable fuel standards (RFS) for transportation fuels and state renewable portfolio standards (RPS). EIA also believes renewable energy is likely to account for about 32% of the overall growth in electricity generation through 2040. Much of this growth can be attributed to federal tax credits, state-level policies, and federal requirements for transportation fuels.

Population

An important factor in energy consumption is the population growth. EIA is anticipating the U.S. population to grow by 29% between now and 2040. With improved efficiency and higher standards, EIA is only expecting energy use to climb 10%. This would result in a 15% decrease in energy use per capita. However you look at energy consumption, population is going to play a significant role even with increased efficiency.

The full EIA AEO2013 report can be viewed at http://www.eia.gov/forecasts/aeo/er/?src=email

OAG360 notes that the EIA has made changes to their methodology from AEO2012.  Click here for the list of methodology updates made in the 2013 report.

Graphs courtesy of EIA AEO2013 Early Release Report

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.