US sees WTI prices steady this year and next but natgas rising

10 April 2012 22:12  [Source: ICIS news]

WASHINGTON (ICIS)--The US on Tuesday said it expects the average price for US benchmark West Texas Intermediate (WTI) crude oil to hold steady at $106/bbl for this year and into 2013 while domestic natural gas prices are poised to increase next year.

In its monthly short-term energy outlook (STEO), the federal Energy Information Administration (EIA) said that it has lowered its average 2012 price for WTI by $2/bbl from its March forecast of $108/bbl.

The administration noted that at $106/bbl, the projected 2012 average WTI cost would still be $11 higher than the actual 2011 average.

The EIA said that it “expects WTI prices to remain relatively flat in 2013, averaging about $106/bbl”, the same as the anticipated 2012 average cost.

In natural gas, the administration said that it expects prices will average $2.51/MMBtu for this year, which represents a sharp downward revision of 66 cents/MMBtu from the EIA’s month-earlier full-year forecast of $3.17/MMBtu.

The projected 2012 full-year average price of $2.51/MMBtu also marks a significant decline of $1.49/MMBtu from the 2011 actual average price, the EIA noted.

The administration also lowered its forecast for US average natural gas costs for 2013 to $3.40/MMBtu, down from its month-earlier outlook of $3.96/MMBtu.

In its sharp downward revision for natgas prices for full-year 2012, the administration cited high domestic production and record volumes of gas in storage that more than offset projected increased demand for this year.

“Total marketed production of natural gas grew by an estimated 4.8bn cubic feet per day (bcf/d) or 7.9% in 2011,” the administration said, “the largest year-over-year volumetric increase in history.”

“This strong growth was driven in large part by increases in shale gas production,” the EIA said.

“While EIA expects year-over-year production growth to continue in 2012, the projected increases occur at a much lower rate than in 2011 as low prices reduce new drilling plans,” the STEO report said.

In addition to high production levels, the administration noted that the warmer-than-normal North American winter season enabled record contributions to working inventories.

At the end of March this year, US natgas storage was at 2,480 bcf, about 57% higher than the same time last year.

High production and storage levels are keeping the projected 2012 average natgas price low despite what the administration expects will be a 4.2% gain in gas consumption this year compared with 2011.

Although residential and commercial use of natural gas is forecast to show declines for this year, those will be offset by what the EIA expects will be a large 16% increase in gas by electric utilities compared with 2011 as power generators accelerate their move from coal to natgas.

That demand growth along with cutbacks in drilling combine to move the administration’s forecast for the average 2013 natgas price to $3.40/MMBtu, a bump of 89 cents/MMBtu from the predicted 2012 average of $2.51/MMBtu.

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

By: Joe Kamalick
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