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Government Energy Arm Releases 2015 Annual Energy Outlook

The Energy Information Administration (EIA) released various energy-related projections through the year 2040 in its yearly release of the Annual Energy Outlook (AEO). In the 2015 edition, the EIA made five rather notable projections, including:

Brent Prices will stay below $100 through 2028

The EIA shook the oil markets in its Short-Term Energy Outlook for December 2014, revising its 2015 prices for West Texas Intermediate (WTI) and Brent to $62.75 and $68.08, respectively. The cuts maintained a downward trend, considering previous WTI projections were $78.00 in November and $95.00 in October, while Brent projections were at $83.00 and $101.00 for the respective months. The EIA offered a bearish outlook in its latest report, saying:

“Prices rise steadily after 2015 in response to growth in demand from countries outside the OECD; however, downward price pressure from continued increases in U.S. crude oil production keeps the Brent price below $80/bbl through 2020. U.S. crude oil production starts to decline after 2020, but increased production from non-OECD countries and from countries in the Organization of the Petroleum Exporting Countries (OPEC) contributes to the Brent price remaining below $100/bbl through 2028 and limits the Brent price increase through 2040, when it reaches $141/bbl.”

In the EIA’s projection, WTI prices don’t approach the $100 threshold until 2030, but will then rise steadily through 2040. The report hints that OPEC seems to have the upper hand, adding that “As increased OPEC production depresses world oil prices in the Low Oil Price case, development of some non-OPEC resources that are viable in the Reference case become uneconomical. As a result, non-OPEC production increases only slightly in the Low Oil Price case, from 45.3 MMBOPD in 2013 to 46.8 MMBOPD in 2040. In the High Oil Price case, non-OPEC production totals 63.8 MMBOPD in 2040.”

Source: EIA

Source: EIA

According to the report, the “downward price pressure” will be influenced by:

“Near-Zero” Growth in U.S. Energy Consumption

United States energy consumption is projected to grow by 0.3% annually from 2013 to 2040 in the EIA reference case. The AEO explains:

Declines in energy consumption tend to result from the adoption of more energy-efficient technologies and policies that promote energy efficiency. Increases tend to result from other factors, such as economic growth and the relatively low energy prices that result from an abundance of supplies. Near-zero growth in energy consumption is a relatively recent phenomenon, and substantial uncertainty is associated with specific aspects of U.S. energy consumption in the AEO2015. This uncertainty is especially relevant as the United States continues to recover from the latest economic recession and resumes more normal economic growth. Although demand for energy often grew with economic recoveries during the second half of the 20th century, technology and policy factors currently are acting in combination to dampen growth in energy consumption.”

Cars Will Get 53 MPG

The most significant examples are made regarding the transportation sector and its combination of fuel economy standards and efficiency. The EIA projects gasoline consumption in 2040 to be 21% lower than 2013’s use, with the average miles per gallon (mpg) forecasted to rise to 53 mpg from 30 mpg in the same time frame.

eia3

Source: EIA

Net Energy Exporter on the Horizon

While domestic production is expected to rise while demand slows, the EIA expects the U.S. to shop its resources to international markets and become more self-reliant. The net import share of crude and petroleum products is expected to shrink to 17% of total supply in 2040, which is almost half the amount from 2013.

The U.S. is expected to become a net exporter of natural gas by 2017, with the amount of exported gas reaching a midpoint of about 8.0 Tcf annually (22 MMcf/d) in 2040. The near-term boom will likely level off after oncoming LNG markets like India and China become more settled in the market. The EIA says:

“Global growth and trade weaken beyond 2025, creating headwinds for U.S. export-oriented industries In the AEO2015 projections, growth in U.S. net exports contributes more to GDP growth than it has over the past 30 years (partially due to a reduction in net energy imports); however, its impact diminishes in the later years of the projection, reflecting slowing GDP growth in nations that are U.S. trading partners, along with the impacts of exchange rates and prices on trade. As economic growth in the rest of the world slows, so does U.S. export growth, with commensurate impacts on growth in manufacturing output, particularly in the paper, chemicals, primary metals, and other energy-intensive industries.”

LNG exports are expected to reach 3.4 Tcf (9.3 MMcf/d) in 2030 and remain at that level through 2040, ultimately accounting for 46% of natural gas exports. More exports are available if relations continue to grow with Mexico, leading to a more extensive pipeline network.

eia1

Source: EIA

Dakotas/Rocky Mountains for Oil Growth, Appalachia for Gas

On the crude side, the EIA believes the strongest oil growth will come from the Dakotas/Rocky Mountains region with the Appalachia continuing to pace growth on the natural gas side. Petroleum and natural gas are projected to account for 62% of domestic energy production in 2040, while coal will maintain its share of about 18%. Renewables, meanwhile, will increase by 72% from 2013 to 2040 and will account for much of the growth in electricity demand. The higher prices of electric power generation come at a price, however – retail prices are projected to jump by 18% in the time period.

Oil prices traded up late in the day Tuesday, with Brent at $58.92 and WTI up almost 3% at $53.44.

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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.