Not Logged In, Login,

Monday, December 18, 2017

Three plausible outcomes for oil and natural gas supply

In its latest short-term forecast the U.S. Energy Information Administration (EIA) revises upwards its previous estimate of the oil price to USD 51 per barrel in 2005 and USD 56.4 per barrel in 2006. The need for oil imports it revises downwards to 12.2 million barrels per day (mbd) in 2005 (up 0.1 mbd on 2004) and 12.1 mbd in 2006. This includes the need for Strategic Petroleum Reserves (SPR). This is based on relatively strong economic growth of 3.6% 2004-2005 and 3.1% for the next year. World oil demand is still expected to increase by 2.1% or 1.6 mbd in 2005 and 1.8 mbd in 2006, when demand is forecast to be 86.0 mbd. 

Because considerable uncertainty remains regarding the specific extent of Hurricane Katrina's damage, the EIA has established three basic scenarios to represent a range of plausible outcomes for oil and natural gas supply over the next several months and through 2006. The three scenarios are:  

·         Fast Recovery, which assumes a very favourable set of circumstances for getting supplies back to normal;

·         Slow Recovery, which assumes that significant outages in oil and natural gas production and delivery from the Gulf area continue at least into November;

·         Medium Recovery, which assumes a path in between Slow and Fast Recovery. In this case by the end of September all but about 0.9 mbd of crude oil refining capacity is expected to be back at full rates.  

In all cases, return to normal operations, in terms of oil and natural gas production and distribution, is achieved or nearly achieved by December.  

Crude oil production recovery mbd

 

Aug-05

Sep-05

Oct-05

Nov-05

Dec05

2004

2005

2006

Fast

5.338

4.720

5.326

5.382

5.515

5.419

5.356

5.617

Medium

5.338

4.580

5.116

5.382

5.515

5.419

5.327

5.617

Slow

5.338

4.300

4.836

5.172

5.375

5.419

5.351

5.617

                                                                                    

Refinery throughput recovery mbd

 

Aug-05

Sep-05

Oct-05

Nov-05

Dec05

2004

2005

2006

Fast

16.336

15.735

15.986

16.345

16.657

15.985

16.162

16.410

Medium

16.336

15.504

15.827

16.421

16.657

15.985

16.138

16.406

Slow

16.336

15.182

15.609

16.314

16.677

15.985

16.076

16.389

Click here for more information on U.S. refinery capacity

Continued high crude oil prices were expected even prior to Hurricane Katrina. Worldwide petroleum demand growth is projected to remain strong during 2005 and 2006, although not as strong as in 2004.

The EIA expects only tepid production growth in countries outside of the Organization of Petroleum Exporting Countries (OPEC). Non-OPEC supply is projected to increase by an annual average of 0.7 million barrels per day during 2005 and 2006, below the annual average growth rate in the period 2002 through 2004.

In addition, worldwide spare production capacity is at its lowest level in three decades; in reality, only Saudi Arabia has any spare crude oil production capacity available. The Saudis would need to drastically reduce their high oil price in order to market this spare capacity effectively. Overall, continuing geo-political risks, such as the insurgency in Iraq and potential troubles in Nigeria and Venezuela , have increased the general uncertainty in world oil markets.

The International Energy Agency (IEA) has revised downwards projected 2005 global demand growth by 0.250 mbd, to 1.35 mbd. OECD (Organisation for Economic Co-operation and Development) demand was below expectations in July and Chinese apparent demand remains weak. This change is only partly attributable to Hurricane Katrina, as regional demand is expected to recover fairly quickly.

The IEA says that Hurricane Katrina shuttered production capacity of over 1.4 mbd of oil and 8.8 bcf/d of natural gas and disrupted refineries with a total capacity of around 3 mbd when it hit the Eastern Gulf of Mexico on 29 August. While a definitive assessment is not yet possible, recovery profiles suggest a potential loss of 38 mb of products in September and up to 70 mb of crude and NGLs through to early 2006.

OPEC August crude supply averaged 29.7 mbd, up by 0.080 mbd vs. July. Iraqi exports remain prone to disruption, and fell to 1.48 mbd. The call on OPEC crude and stock change averages 28.1 mbd for 2005, peaking at 29.1 mbd in the fourth quarter, below current OPEC output. Downward adjustments to demand hold the 2006 call on OPEC crude and stock change at 28.1 mbd.

Contact: Erik Ranheim