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Wednesday, September 26, 2018

U.S. Energy Information Administration predicts future oil prices that are dramatically higher than previously thought and forecasts increased coal consumption

The International Energy Agency (IEA) reports that weak global demand in the third and fourth quarters, in part due to warm weather and hurricane-related disruptions, contributed to a 0.02 mbd downward revision of 2005 growth to 1.18 mbd. The temporary nature of these factors, however, should lead demand growth to recover to 1.79 million barrels daily (mbd) in 2006, a 0.130 mbd upward revision. 

The U.S. Energy Information Administration (EIA) has slashed its long-term forecast for U.S. petroleum and LNG import demand and hiked its outlook for coal consumption on predictions that future oil prices will be dramatically higher than previously thought. According to the Annual Energy Outlook (AEO) 2006, the EIA has increased its reference case for oil pricing to USD 54/barrel in 2025, USD 21/barrel (66%) higher than it predicted last year. The higher world oil prices in the AEO 2006 reference case lead to more domestic crude oil production, lower demand for petroleum products, and consequently lower levels of petroleum imports. 

The EIA now believes that crude oil imports will increase on average by 1.1% annually until 2030, from 22.0 Quadrillioon btu (Qbtu) in 2004, 22.0 Qbtu in 2010, 22.91 Qbtu in 2015, 24.6 Qbtu in 2020, 27.0 Qbtu in 2025 and 29.5 Qbtu in 2030. (One QBtu is roughly equivalent to burning 170 millon barrels of oil, or 25 million short tons of coal.) The EIA believes that petroleum products imports will increase on average by 1.7% annually until 2030, from 5.9 Qbtu in 2004, 6.4 Qbtu in 2010, 7.3 Qbtu in 2015, 8.0 Qbtu in 2020, 8.4 Qbtu in 2025 and 9.3 Qbtu in 2030. Petroleum products consumption is expected to increase by on average 1.1% until 2030. In contrast, coal consumption is expected to grow from 22.5 Qbtu currently to 34.5 Qbtu tonnes by 2030, with an acceleration of coal demand expected to occur after 2020, when coal will theoretically win over a greater share of America's electricity market from high-priced natural gas. Consequently, the EIA now contends LNG imports will be "less economic" than previously believed, lowering LNG import projections to 4.1Tn ft³ in 2025, compared with the earlier outlook for 6.5Tn ft³.

Higher world oil prices are also projected to affect fuel choice and vehicle efficiency decisions in the transportation sector. Higher oil prices increase the demand for unconventional sources of transportation fuel, such as ethanol and biodiesel, and are projected to stimulate coal-to-liquids (CTL) production in the reference case. 

Figures for economic activity in China have also been revised downwards. The Chinese National Reform and Development Commission said annual steel production capacity would be limited to 400m tonnes, according to the Shanghai Daily. Coal exports will be pegged to 80m tonnes in 2006 against an estimated export volume of 85m tonnes this year. Fuel oil imports in 2005 will decrease by 4m tonnes compared to last year to an estimated 24m tonnes. Shipments of bulk commodities to and from China are set to decline as targets, and are being scaled down in the sixth five-year plan beginning in 2006. Annual iron production capacity will be cut by more than 100m tonnes by 2010 while nearly 55m tonnes of steel output capacity will be phased out.  

Contact: Erik Ranheim