U.S. crude oil production to fall in 2020, 2021

Crude oil production in the United States is projected to fall in 2020 and would be the first annual decline since 2016, according to the U.S. Energy Information Administration (EIA). Domestic production is expected to fall again in 2021, and the production has not fallen for two consecutive years since the 17-year period of decreases starting in 1992 and running through 2008.

The EIA released Tuesday (May 12) its short-term energy outlook for May, and as a result of the efforts to mitigate COVID-19 (coronavirus) pandemic, the outlook remains at heightened levels of uncertainty. Uncertainties persist across EIA’s outlook for energy sources, including natural gas, electricity, coal and renewables.

Crude oil prices have fallen significantly since the start of 2020, largely as a result of reduced oil demand because of the mitigations efforts. Despite the April agreement between the Organization of the Petroleum Exporting Countries (OPEC) and partner countries to cut production, crude oil prices have remain at their lowest levels in more than 20 years.

International benchmark Brent crude oil prices fell to $18 a barrel in April, a decrease of $13 a barrel from March. The price of oil is expected to be an average of $34 per barrel in 2020, down from $64 a barrel in 2019. Prices are expected to be $23 per barrel in the second quarter of 2020 before rising to $32 per barrel in the second half of the year. The price is expected to rise to $48 per barrel in 2021 as declining oil inventories lead prices to rise.

Global petroleum and liquid fuels consumption declined by 5.8 million barrels per day to an average of 94.1 million barrels per day in the first quarter of 2020. Global petroleum and liquid fuels demand is expected to fall by 8.1 million barrels per day to an average of 92.6 million barrels per day in 2020. It’s expected to rise by 7 million barrels per day in 2021. The lower demand growth can be attributed to disruptions to global economic activity and reduced travel globally as a result of restrictions related to COVID-19.

“The possibility of lasting behavioral changes to transportation and oil consumption patterns present considerable uncertainty to the increase in liquid fuels consumption, even with a significant increase in GDP,” said EIA Administrator Linda Capuano.

Global liquid fuels inventories are expected to increase by 2.6 million barrels per day in 2020 after falling by 200,000 barrels per day in 2019. Inventories are projected to be the largest in the first half of 2020 and rise 6.6 million barrels per day in the first quarter and to 11.5 million barrels per day in the second quarter as a result of travel restrictions and economic activity reductions. Inventories will start to fall in the third quarter of 2020 as the global economy begins to recover and supply growth slows. Inventories are expected to fall by 1.9 million barrels per day in 2021.

U.S. DEMAND DECLINES
U.S. liquid fuels demand is expected to fall in the first half of 2020 as a result of the travel restrictions and disruptions to business and economic activity. The greatest impacts are projected to happen in the second quarter of 2020 before easing over the next 18 months.

U.S. motor gasoline consumption is expected to fall from 8.6 million barrels per day in the first quarter of 2020 to an average of 7 million barrels per day in the second quarter before rising to 8.7 million barrels per day in the second half of the year. U.S. jet fuel consumption is expected to fall from 1.6 million barrels per day in the first quarter of 2020 to an average of 800,000 barrels per day in the second quarter. Over the same period, U.S. distillate fuel oil consumption is expected to fall by 600,000 barrels per day to an average of 3.3 million barrels per day.

For 2020, U.S. motor gasoline consumption will fall 11%, from 2019, while jet fuel and distillate fuel oil consumption will decline by 25% and 10%, respectively.

Crude oil production is expected to fall by 500,000 barrels per day to an average of 11.7 million barrels per day in 2020, from 2019. The production is expected to fall by 800,000 barrels per day in 2021. Price changes affect production after about a six-month lag, but existing market conditions will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels.

“EIA expects the United States to return to importing more crude oil and petroleum products than it exports in the third quarter of 2020 and to remain a net importer in most months through the end of 2021,” Capuano said.

NATURAL GAS PRICES TO RISE
The Henry Hub natural gas spot price was an average of $1.73 per million British thermal units in April. The price is expected to rise through the rest of 2020 as U.S. production falls. Henry Hub natural gas spot prices are expected to be an average of $2.14 per million British thermal units in 2020 and will rise in 2021 to an average of $2.89 million British thermal units. The prices are expected to rise as a result of lower natural gas production compared to 2020.

Total natural gas consumption is expected to fall 3.9% to 81.7 billion cubic feet per day in 2020, from 2019, as a result of lower industrial sector consumption of natural gas. Industrial natural gas consumption is expected to fall 7.1% to an average of 21.3 billion cubic feet per day in 2020, from 2019.

Natural gas inventories are expected to rise by 2.1 trillion cubic feet to a record level of 4.2 trillion cubic feet between April and October.

U.S. liquefied natural gas exports are expected to fall through the end of the summer as a result of lower demand for natural gas. The exports will be an average of 5.8 billion cubic feet per day in the second quarter of 2020 and 4.8 billion cubic feet per day in the third quarter.

ELECTRICITY USE FALLS
U.S. electricity consumption is expected to continue to be impacted over the next few months as a result of social (physical) distancing guidelines. Retail sales of electricity in the commercial sector are projected to decline by 6.5% in 2020 because many businesses have closed and many people are working from home. Industrial retail sales of electricity are expected to fall by 6.5% in 2020 as factories reduce production. U.S. sales of electricity to the residential sector are expected to decline by 1.3% in 2020 because of lower electricity demand as a result of a milder winter and summer weather. This is slightly offset by increased use of electricity because much of the population is spending more time at home.

U.S. electric power sector generation is projected to fall by 5% in 2020. Most of the decline can be attributed to lower fossil fuel generation, especially at coal-fired power plants. Coal-fired generation is expected to decline by 25% in 2020. Natural gas generation is expected to be flat this year. Renewable energy sources are projected to account for the largest portion of new generating capacity in 2020 as renewable energy attributed to the electric power sector increases by 11%.

The effects of COVID-19, however, are expected to impact the addition of new generating capacity. The sector is projected to add 20.4 gigawatts of new wind capacity and 12.7 gigawatts of utility-scale solar capacity in 2020.

U.S. energy-related carbon dioxide (CO2) emissions are expected to fall by 11%, or 572 million metric tons, in 2020. The record decline can be attributed to the restrictions on business and travel and slowing economic growth as a result of COVID-19. In 2021, energy-related CO2 emissions are expected to rise by 5% as the economy recovers and stay-at-home orders are lifted.