U.S. crude oil producers have drilled new wells as prices remain at or above $50 per barrel, but production isn’t projected to exceed 2020 levels until 2022, according to the U.S. Energy Information Administration (EIA).
EIA released Tuesday (Feb. 9) the February Short-Term Energy Outlook showing that U.S. GDP fell by 3.6% in 2020, from 2019. The GDP is expected to rise by 3.8% in 2021 and by 4.2% in 2022, according to IHS Markit forecasts.
International benchmark Brent crude oil spot prices rose by $5 per barrel to an average of $55 per barrel in January, from December, but down $9 per barrel from January 2020. The higher Brent prices in January could be attributed to the Jan. 5 announcement by Saudi Arabia that it would cut 1 million barrels per day of crude oil production in February and March. This cut was on top of the reduced production levels previously agreed on by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+).
Brent crude oil prices are expected to be an average of $56 per barrel in the first quarter of 2021 and $52 per barrel for the remainder of the year. A decrease in prices later in 2021 as a result of rising supply is projected to slow the pace of global oil inventory withdrawals. Also, the high global inventory levels and spare production capacity will limit upward price pressures. Brent prices are expected to be an average of $55 per barrel in 2022.
Global consumption of petroleum and liquid fuels declined by 2.8 million barrels per day to 93.9 million barrels per day in January, from the same month in 2020. The consumption is expected to rise by 5.4 million barrels per day to 97.7 million barrels per day in 2021, from 2020. The consumption is projected to rise by 3.5 million barrels per day in 2022 to an average of 101.2 million barrels per day.
U.S. crude oil production fell by about 100,000 barrels per day to 11 million barrels per day in January, from November 2020. The production is expected to continue to decline slightly in the coming months and reach 10.9 million barrels per day in June. Oil-directed drilling has increased in the United States recently, but the number of active drilling rigs is lower than at the same time last year. Production from newly drilled wells is expected to be more than offset by declining production rates at existing wells in the first half of 2021. West Texas Intermediate crude oil prices are expected to remain near or higher than $50 per barrel, and drilling is to continue to rise. Production from new wells will exceed the declines from legacy wells, and overall crude oil production will rise in the second half of 2021 and in 2022. U.S. crude oil production will be an average of 11 million barrels per day in 2021, down from 11.3 million barrels per day in 2020 and 12.2 million barrels per day in 2019. The production is projected to increase to 11.5 million barrels per day in 2022.
U.S. regular gasoline retail prices increased to $2.33 per gallon in January, from $2.20 per gallon in December. The price was down from $2.55 per gallon in January 2020. The gasoline prices are projected to be an average of $2.44 per gallon in 2021 and $2.46 per gallon in 2022. U.S. diesel fuel prices rose to $2.68 per gallon in January, from $2.58 per gallon in December and $3.05 per gallon in January 2020. The prices are projected to be an average of $2.70 per gallon in 2021 and $2.77 per gallon in 2022.
U.S. gasoline consumption is expected to rise to 8.6 million barrels per day in 2021 and 8.9 million barrels per day in 2022, from 8 million barrels per day in 2020. However, the consumption levels are projected to remain lower than the 9.3 million barrels per day consumed in 2019.
Total U.S. consumption of natural gas is projected to fall by 1.9% to an average of 81.7 billion cubic feet per day in 2021, from 2020. The decline can be attributed to a reduction in natural gas consumption in the electric power sector as a result of higher natural gas prices compared to 2020. The consumption is projected to fall to 81 billion cubic feet per day in 2022.
The Henry Hub natural gas spot price is expected to rise to a monthly average of $2.98 per million British thermal units in February, from $2.71 per million British thermal units in January. The price was $2.59 per million British thermal units in December. The rising price can be attributed to expectations of continued strong exports of liquefied natural gas (LNG) and declining natural gas inventories compared to the five-year (2016-2020) average.
“Increased use of natural gas for space heating this winter and strong (LNG) exports at a time when U.S. natural gas production is relatively low will cause natural gas inventories – currently running above five-year average levels – to return to average levels by the end of March,” said Steve Nalley, EIA acting administrator.
Expected cold temperatures across the United States in mid-February create upside risk to near-term prices in the EIA’s February outlook. However, Henry Hub spot prices are expected to rise to $2.95 per million British thermal units in 2021, from $2.03 per million British thermal units in 2020. Prices are expected to rise to an average of $3.27 per million British thermal units in 2022 as LNG exports continue to rise and domestic natural gas consumption increases outside of the electric power sector while production remains flat.
U.S. working natural gas in storage withdrawals were 703 billion cubic feet in January, and the lower-than-expected withdrawals were the result of warmer-than-average temperatures that reduced natural gas use for space heating. Natural gas inventories are expected to be 1.8 trillion cubic feet by the end of March, or about the same as the five-year average.
U.S. production of dry natural gas is expected to be an average of 90.5 billion cubic feet per day in 2021 and 91 billion cubic feet per day in 2022. This is down from 91.3 billion cubic feet per day in 2020 and 93.1 billion cubic feet per day in 2019. The production is expected to be flat through July 2022. This is the result of falling production in several smaller natural gas producing regions being offset by growth in other regions, including the Appalachia and Haynesville regions.
U.S. LNG exports are expected to be 8.5 billion cubic feet per day in 2021 and 9.2 billion cubic feet per day in 2022. The latter would surpass the amount of natural gas exported by pipeline for the first time.
U.S. electricity consumption is expected to rise by 1.6% in 2021 after falling by 3.8% in 2020. The rise can be attributed to colder temperatures in the first quarter of 2021 compared to the same period in 2020. Total electricity consumption is projected to rise by 1.7% in 2022.
“We currently project that the share of U.S. electric power generated from natural gas will fall from 39% in 2020 to 35% by 2022 as a result of higher natural gas prices,” Nalley said. “EIA expects that renewables will continue to be the fastest-growing source of electricity generation in the United States through 2022 as the share of U.S. electricity generation coming from renewables rises to 23% of generation in 2022 from 20% in 2020.”
The share of electricity produced by coal is expected to rise from 20% in 2020 to 21% in 2021 and to 22% in 2022. Meanwhile, U.S. coal production is expected to rise 9% to 589 million short tons in 2021, from 2020. The production is expected to increase 1% or by 5 million short tons in 2022. The rise can be attributed to the increased demand for coal in the electric power sector because of rising natural gas prices, which increases the competitiveness of coal for power generation.
“EIA expects U.S. coal exports to increase 24% in 2021 as the global economy recovers and the demand for power and steel production increases demand for coal,” Nalley said.