INSIGHT: US has sanguine energy outlook to 2030

07 December 2006 17:09  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--The US Department of Energy’s new long-range outlook paints a surprisingly sanguine picture for the country’s energy use, supply and costs over the next 24 years, but as with all such forecasts it could easily collapse under reality.

 

In its new annual outlook department expects the price of oil to decline gradually from this year’s highs - which reached $77/bbl in July for US benchmark West Texas Intermediate (WTI) crude. Oil prices are likely to show an average of near $61/bbl for the year - to $50/bbl (in 2005 dollars) by 2015 before beginning a climb to around $59/bbl by the forecast end year of 2030.

 

Those prices are no bargain compared with the $15 to $30 range that was common through the late 1980s, the 1990s and even as recent as 2003. However, on an inflation-adjusted basis the dollar values are not as scary as some earlier years. The inflation adjusted oil price averaged more than $92/bbl in 1980 and was nearly $80/bbl on average in 1981.

 

The department’s expectation of a decline in oil prices is in no small measure due to this year’s sharp upturn and generally higher oil costs since the start of this decade. “It is clear,” the department says, “that energy markets are changing gradually in response to such readily observable factors as the higher energy prices that have been experienced since 2000”.

 

Those high oil prices along with recent US energy legislation that encouraged more use of alternative fuels and a revival of nuclear power interest, says the department, combine with anticipated new supply to ease the pricing pressure on oil.

 

The US federal energy specialists expect “increased consumption of biofuels (both ethanol and biodiesel), growth in coal-to-liquids capacity and production, growing demand for unconventional transportation technologies (such as flex-fuel, hybrid and diesel vehicles), growth in nuclear power capacity and generation and accelerated improvements in energy efficiency throughout the economy.”

 

Real world crude oil prices, says the agency’s outlook, “are projected to decline gradually from their 2006 average level through 2015 as expanded investment in exploration and development brings new supplies to the world market”.

 

“After 2015, however, real prices begin to rise as demand continues to grow and higher cost supplies are brought to market,” the forecast says. “In 2030, the average real price of crude oil is projected to be above $59/bbl in 2005 dollars or about $95/bbl in nominal dollars.”

 

Prices for natural gas, the principal feedstock for US chemicals manufacturers, also are expected to decline over the near term, according to the Energy Department, but in large part because of demand destruction among chemicals producers and more so in the electric power industry.

 

The department has even lowered significantly its long-term outlook for US natural gas consumption. The agency expects annual national consumption in 2030 to be slightly more than 26tr cubic feet (tcf), down by nearly 1 tcf compared with the department’s year-ago estimate for 2030 gas demand. In still earlier Energy Department forecasts, US natural gas consumption was expected to reach 30 tcf a year.

 

Most of that decline in gas demand is due to a continuing and accelerating shift in fuel choices among electric power companies that are abandoning natgas as fast as they can in favour of coal. The department expects coal, which the US has in great abundance, to hold at its 2005 price of about $1.15/m Btu right on through to 2030.

 

Electric power companies were to a significant degree a major factor in driving the US price of natural gas up from its long-standing $2/m Btu range in the 1980s and 1990s as they turned from coal to natgas in order to meet federal air emissions standards. Now that they are abandoning high-priced gas, the department expects natural gas prices to moderate from its current $7 to $8 range to $5/m Btu by 2013 before edging up again to $6 by 2030.

 

Gas will not return to the $2 to $3 range of the 1990s, the department says, but at $5 or $6/m Btu it looks far better than the $11/m Btu wellhead price seen in October 2005 in the wake of double hurricane hits on the US Gulf energy coast.

 

The gas picture could improve further, according to Guy Caruso, head of the department’s Energy Information Administration, if Congress were to lift drilling bans it has kept in place on vast US offshore reserves of oil and gas on the country’s East and West Coasts. 

 

“There are significant recoverable reserves of gas offshore,” Caruso said, “and clearly those resources would be available for exploitation” if the drilling moratoria are ever lifted. 

 

This year Congress edged closer than ever to opening more of the US outer continental shelf to energy development, and chemicals producers along with a broad range of other manufacturers hope the moratoria will be turned back a little if not wholly lifted within a year or two.

 

Caruso cautioned, however, that his department’s best educated guesses on oil and natural gas availability and costs could easily come to grief with a sudden turn of global events, such as a wider unrest and possibly a broader war in the Middle East, further disruptions among African oil-producing states or destabilisation in Venezuela.

 

Long-range forecasts, says the department, “are subject to considerable uncertainty because small shifts in either supply or demand can necessitate large price movements”.

 

For example, it adds, depending on whether a forecast takes a best or worst case outlook for the next two dozen years, oil might be $35/bbl by 2030 - or maybe $100/bbl.

By: Joe Kamalick
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