US oil, gas prices to be lower this year on slowing economy - DOE

12 October 2011 17:31  [Source: ICIS news]

WASHINGTON (ICIS)--Average US prices for crude oil and natural gas will be lower than previously forecast this year , the Department of Energy (DOE) said on Wednesday, citing lower expectations for US economic growth and the European sovereign debt crisis.

In its monthly short-term energy outlook (STEO), the department’s Energy Information Administration (EIA) said that it expects the full-year 2011 average cost for benchmark West Texas Intermediate (WTI) crude to be $99/bbl, a reduction of $1 from the administration’s September forecast.

The outlook noted that global oil prices continue to face upward pricing pressure due to supply uncertainty, chiefly because of ongoing unrest in the Middle East.

But the greater impact on worldwide and US crude prices is “downward price pressure because of lowering expectations of economic growth”, the forecast said.

“Downside risks demand predominates,” the administration said, “as fears persist about the rate of global economic recovery, contagion effects of the debt crisis in the European Union and other fiscal issues facing national governments.”

The administration also lowered its outlook for US average crude oil prices for 2012, saying it expects the full-year average to be $98/bbl, down from its month-earlier forecast of $103/bbl.

The DOE also expects the 2011 full-year average Henry Hub spot price for US natural gas to be lower than earlier forecast, dropping to $4.15/MMBtu, down by 5 cents from last month’s outlook and 24 cents below the 2010 average price.

That lower 2011 average gas price was attributed to an expected 6.7% gain in domestic US natural gas production compared with 2010, reaching an average of 66 billion cubic feet (bcf) per day this year.

The price and availability of natural gas are of concern to US petrochemical producers and downstream chemical makers because they are heavily dependent on gas as both a feedstock and energy fuel.

This year's expected overall gain in domestic gas production comes despite what the EIA said was a sharp drop in production from US offshore territory in the Gulf of Mexico.

“The entirety of this [2011] growth is coming from increases in onshore production in the lower 48 states,” the department said, “which will more than offset a steep year-over-year decline of over 0.9 bcf/day (15%) in the federal Gulf of Mexico.”

The sharp gain in US domestic onshore gas production, the department said in an earlier analysis, was attributed to growing output from shale gas plays.

EIA said it expects that overall domestic gas production will continue to expand in 2012, but at a slower pace, increasing by 2.1% to an average of 67.4 bcf/day.

That slower growth in gas production combined with predicted increased gas demand, especially from the electric power sector, means the 2012 average price for Henry Hub spot gas will be $4.32/MMBtu compared with this year’s expected average of $4.15/MMBtu.

The EIA’s new forecast for the 2012 average gas price represents a modest increase from its month-earlier estimate of $4.30/MMBtu.

($1 = €0.73)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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