As Finance Minister Colm Imbert prepares his 2021 budget, the advice from the United States Energy Information Agency (USEIA) is that crude oil prices will decline next year to average US $66 a barrel.
In its September Short-Term Energy Outlook the US EIA predicts that slowing demand growth and higher production will lead to a softening of prices towards the end of calender 2021 and into 2022.
It said, “In 2022, we expect that growth in production from OPEC+, US tight oil, and other non-OPEC countries will outpace slowing growth in global oil consumption and contribute to Brent prices declining to an annual average of $66/b (barrel).”
Imbert has in the past said he relies on the US EIA energy outlook to help him in his forecast for energy prices. The energy forecast is important in calculating government revenue, foreign exchange earnings and can have a major impact on the performance of the offshore and onshore economies.
Last October, Imbert presented a $49.57 billion budget, based on an oil price of US$45 per barrel, and $3 mmbtu for natural gas.
According to the EIA’s Short Term Energy Outlook (STEO) Brent crude oil spot prices averaged $71 per barrel (b) in August, down $4/b from July but up $26/b from August 2020.
It said Brent prices have risen over the past year as result of steady draws on global oil inventories, which averaged 1.8 million barrels per day (b/d) during the first half of 2021 (1H21).
“We expect Brent prices will remain near current levels for the remainder of 2021, averaging $71/b during the fourth quarter of 2021 (4Q21).” The report read.
For Imbert the headache is not just going to be oil and natural gas process but as important will be the production.
Lower natural gas production has hurt the country in both LNG exports and availability for the petrochemical sector.
The US EIA sad its STEO remains subject to heightened levels of uncertainty related to the ongoing recovery from the COVID-19 pandemic.
“US economic activity continues to rise after reaching multiyear lows in the second quarter of 2020 (2Q20). US gross domestic product (GDP) declined by 3.4% in 2020 from 2019 levels. This STEO assumes US GDP will grow by 6.0% in 2021 and by 4.4% in 2022. The US macroeconomic assumptions in this outlook are based on forecasts by IHS Markit. Our forecast assumes continuing economic growth and increasing mobility. Any developments that would cause deviations from these assumptions would likely cause energy consumption and prices to deviate from our forecast.” the EIA reported.
According to the EIA, more than 90 per cent of crude oil production in the Federal Offshore Gulf of Mexico (GOM) was offline in late August following Hurricane Ida.
As a result of the outage, GOM production averaged 1.5 million b/d in August, down 0.3 million b/d from July.
However, it is expected that crude oil production in the GOM will gradually come back online during September and average 1.2 million b/d for the month before returning to an average of 1.7 million b/d in 4Q21.
Total US crude oil production averaged 11.3 million b/d in June—the most recent monthly historical data point.
And the EIA forecast it will remain near that level through the end of 2021 before increasing to an average of 11.7 million b/d in 2022, driven by growth in onshore tight oil production.
It also expects that growth will result from operators beginning to increase rig additions, offsetting production decline rates.
“We estimate that 98.4 million b/d of petroleum and liquid fuels was consumed globally in August, an increase of 5.7 million b/d from August 2020 but still 4.0 million b/d less than in August 2019,” the EIA said.
It also forecasts that global consumption of petroleum and liquid fuels will average 97.4 million b/d for all of 2021, which is a 5.0 million b/d increase from 2020, and by an additional 3.6 million b/d in 2022 to average 101.0 million b/d, almost even with 2019 levels.
US regular gasoline retail prices averaged $3.16 per gallon (gal) in August, the highest monthly average price since October 2014.
Recent gasoline price increases reflect rising wholesale gasoline margins amid relatively low gasoline inventories.
In addition, recent impacts from Hurricane Ida on several US Gulf Coast refineries are adding upward price pressures in the near term.
Regarding natural gas, the EIA said in August, the natural gas spot price at Henry Hub averaged $4.07 per million British thermal units (MMBtu), which is up from the July average of $3.84/MMBtu.
This increase, it explained, reflects hotter temperatures in August on average across the US compared with July, which caused demand for natural gas in the electric power sector to be higher than expected.
Prices rose further in late August when Hurricane Ida caused a decline in natural gas production in the GOM.
“We expect the Henry Hub spot price will average $4.00/MMBtu in 4Q21, as the factors that drove prices higher during August lessen,” the EIA said, adding that forecast Henry Hub prices this winter reach a monthly average peak of $4.25/MMBtu in January and generally decline through 2022, averaging $3.47/MMBtu for the year amid rising US natural gas production and slowing growth in LNG exports.
More than 90 per cent of natural gas production in the GOM was offline in late August following Hurricane Ida.
The EIA noted that GOM production of marketed natural gas averaged 1.9 billion cubic feet per day (Bcf/d) in August, down 0.4 Bcf/d from July.
It said it expects that natural gas production in the GOM will gradually come back online during the first half of September and average 1.5 Bcf/d for the month before returning to an average of 2.1 Bcf/d in 4Q21.
Electricity, coal, renewables, emissions
The share of electricity generation produced by natural gas in the US will average 35 per cent in 2021 and 34 per cent in 2022, down from 39 per cent in 2020, according to the EIA..
It added that in 2021, the forecast share for natural gas as a generation fuel declined in response to its expectation of a higher delivered natural gas price for electricity generators, which the EIA forecasts will average $4.69/MMBtu in 2021 compared with $2.39/MMBtu in 2020.
“The share of natural gas as a generation fuel also declines through 2022 because of expected increases in generation from renewable sources,” the EIA added.
As a result of the higher expected natural gas prices, the forecast share of electricity generation from coal rose from 20 per cent in 2020 to about 24 per cent in both 2021 and 2022.
New additions of solar and wind generating capacity, the EIA added, are offset somewhat by reduced generation from hydropower this year, resulting in the forecast share of all renewables in US electricity generation to average 20 per cent in 2021, about the same as last year, before rising to 22 per cent in 2022. The EIA also noted that the nuclear share of US electricity generation declined from 21 per cent in 2020 to 20 per cent in 2021 and to 19 per cent in 2022 as a result of retiring capacity at some nuclear power plants.
It forecasts that planned additions to US wind and solar generating capacity in 2021 and 2022 will increase electricity generation from those sources.
The EIA also estimates that US energy-related carbon dioxide (CO2) emissions will decrease by 11 per cent in 2020 as a result of less energy consumption related to reduced economic activity and responses to COVID-19.
For 2021, it forecasts that energy-related CO2 emissions will increase about eight per cent from the 2020 level as economic activity increases and leads to rising energy use.
It also expect energy-related CO2 emissions to rise in 2022 but at a slower rate of two per cent.
Further, the EIA forecast that after declining by 19 per cent in 2020, coal-related CO2 emissions will rise by 22 per cent in 2021 and then decrease by two per cent in 2022, adding that short-term changes in energy-related CO2 can be affected by temperature.