U.S. oil consumption expected to rise through remainder of 2020, 2021

The largest declines in U.S. oil consumption have already happened in the wake of the COVID-19 (coronavirus) pandemic and demand is expected to rise over the next 18 months, according to the U.S. Energy Information Administration (EIA).

The EIA released Tuesday (June 9) the Short-Term Energy Outlook for June that shows spot prices for international benchmark Brent crude oil rose $11 to an average of $29 per barrel in May, from April. The prices rose as global oil demand was higher than expected and amid high adherence to planned production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+).

The prices are expected to be an average of $37 per barrel in the second half of 2020 and to rise to an average of $48 per barrel in 2021. The prices will rise as global oil inventories fall in the second half of 2020 and through 2021. High inventories are expected to limit the price increases, but as inventories fall into 2021, prices are expected to rise.

Demand for global petroleum and liquid fuels is expected to fall by 16.6 million barrels per day to an average of 83.8 million barrels per day in the second quarter, from the same period in 2019. The lower demand can be attributed to the shutdowns as a result of the COVID-19 pandemic. As restrictions are eased, liquid fuels consumption is expected to rise to 94.9 million barrels per day in the third quarter, down 6.7 million barrels per day from the same period in 2019. The consumption is projected to be an average of 92.5 million barrels per day in 2020, down 8.3 million barrels per day from 2019, and it will rise by 7.2 million barrels per day in 2021.

In the United States, liquid fuels consumption is projected to fall 23%, or by 4.6 million barrels per day, to 15.7 million barrels per day in the second quarter, from the same period in 2019. The decline is a result of travel restrictions and reduced economic activity related to the mitigation of COVID-19. Liquid fuels consumption is expected to be an average of 18.4 million barrels per day in the third quarter, down 2.3 million barrels from the same period in 2019, before rising to an average of 19.5 million barrels per day in 2021. The level will be 1.4 million barrels per day more than the expected 2020 consumption but 1 million barrels per day less than the 2019 average.

Jet fuel consumption is expected to fall by 64% in the second quarter, from the same period in 2019. Over the same period, gasoline consumption is expected to decrease by 26%, and distillate consumption is projected to fall by 17%. The consumption of the three fuels is expected to rise in the third quarter and into 2021 but remain lower than 2019 levels.

U.S. crude oil production decreased to 11.4 million barrels per day in May, from a record level of 12.9 million barrels per day in November, as Baker Hughes reported the fewest active drilling wells in the United States in their records, which date back to 1987. The production is expected to continue to fall to 10.6 million barrels per day in March 2021 before starting to rise through the end of 2021.

Crude oil production will be an average of 11.6 million barrels per day in 2020, down 700,000 barrels per day from 2019. In 2021, U.S. crude oil production is projected to be 10.8 million barrels per day. The 2020 production decline would be the first annual decline since 2016. Usually, price changes affect production after a six-month lag, but existing conditions have shortened the lag as many producers have already cut production and reduced capital spending and drilling in response to the lower prices.

The reduced drilling activity in the United States and voluntary supply cuts by OPEC+ led to declines in the global oil supply. The supply is expected to fall 7.9 million barrels per day to 92.6 million barrels per day in the second quarter, from the same period in 2019. Supply of oil fell by less than demand in the second quarter, and supply is expected to be slower to rise. The global supply of oil is projected to fall to 92 million barrels per day in the third quarter before rising to 97.4 million barrels per day in 2021. OPEC is expected to be the largest contributor to the growth in 2021.

NATURAL GAS PRICES
The Henry Hub natural gas spot price was an average of $1.75 per million British thermal units in May and is expected to remain below $2 per million British thermal units through August as a result of low demand for natural gas. The prices are projected to rise through the end of 2021. The prices are expected to be $2.04 per million British thermal units in 2020 and $3.08 per million British thermal units in 2021.

Natural gas consumption is expected to fall 3.6% to an average of 81.9 billion cubic feet per day in 2020, from 2019. The decline can be attributed primarily to less consumption in the industrial sector as a result of reduced manufacturing activity. Consumption in the sector is expected to fall 8.7% to 21 billion cubic feet per day in 2020, from 2019.

Natural gas production is expected to fall to an average of 89.7 billion cubic feet per day in 2020, from a record level of 92.2 billion cubic feet per day in 2019. Low natural gas prices have discouraged producers from drilling, and in the Permian region, low crude oil prices have reduced associated natural gas output from oil-directed wells. Natural gas production is expected to be 85.4 billion cubic feet per day in 2021. Production is expected to start rising in the second quarter of 2021 as a result of higher prices.

ELECTRICITY PRODUCTION, EMISSIONS
U.S. electricity consumption is expected to fall by 5.7% in 2020, from 2019. Consumption is projected to fall the largest in the commercial sector, down 9.1%. In 2021, total U.S. electricity consumption is expected to rise by 1%.

Utility-scale electricity generation from natural gas-fired power plants is expected to rise to 41% this year, from 37% in 2019. The share is projected to fall to 36% in 2021 in response to higher natural gas prices. The share of electricity generation from coal-fired plants is expected to fall to 17% this year, from 24% in 2019. It is expected to rise to 20% in 2021. Electricity generation from renewable energy sources is expected to rise to 21% this year, from 17% in 2019. It will increase to 23% in 2021.

“If realized, 2020 would mark the first year on record that renewable electricity generation surpasses coal,” said EIA Administrator Linda Capuano.

Renewable energy will be the fastest-growing source of electricity generation in 2020, according to the EIA. The electric power sector is expected to add 23.2 gigawatts of new wind capacity and 12.6 gigawatts of utility-scale solar capacity this year.

Coal production is expected to fall by 25% to 530 million short tons in 2020. In 2021, coal production is expected to increase to 549 million short tons because of rising natural gas prices and rising demand for U.S. exports.

U.S. energy-related carbon dioxide (CO2) emissions are expected to fall by a record of 14% this year after falling 2.8% in 2019.

“We forecast a 14% decrease in 2020 as a result of COVID-19-related travel restrictions and reductions in economic activity, followed by a 5% increase in 2021 as the economy recovers and restrictions are lifted,” Capuano said.