On May 12, the Energy Information Administration (EIA) released its latest Short Term Energy Outlook (STEO).
This report reflects the first deep dive into how the energy demand collapse brought on by the COVID-19 pandemic is impacting energy market projections.
This month’s report includes a special caveat that is indicative of our present unusual circumstances:
“Although all market outlooks are subject to many risks, the May edition of EIA’s Short-Term Energy Outlook remains subject to heightened levels of uncertainty because the effects on energy markets of mitigation efforts related to the 2019 novel coronavirus disease (COVID-19) are still evolving.”
Here are some of the key summarized highlights from the report, followed by my commentary on these projections. Some of the projections are far more optimistic than I would have expected.
Global liquid fuels
EIA forecasts Brent crude oil prices will average $34/b in 2020, down from an average of $64/b in 2019. EIA expects prices will average $23/b during the second quarter of 2020 before increasing to $32/b during the second half of the year.
EIA forecasts that Brent prices will rise to an average of $48/b in 2021, as EIA expects that declining global oil inventories next year will put upward pressure on oil prices.
EIA expects global petroleum and liquid fuels demand will average 92.6 million b/d in 2020, a decrease of 8.1 million b/d from last year, before increasing by 7.0 million b/d in 2021.
EIA expects that global liquid fuel inventories will grow by an average of 2.6 million b/d in 2020 after falling by 0.2 million b/d in 2019. EIA expects inventory builds will be largest in the first half of 2020, rising at a rate of 6.6 million b/d in the first quarter and increasing to builds of 11.5 million b/d in the second quarter as a result of widespread travel limitations and sharp reductions in economic activity.
EIA forecasts significant decreases in U.S. liquid fuel demand during the first half of 2020 as a result of COVID-19 travel restrictions and disruptions to business and economic activity. EIA expects the largest impacts will occur in the second quarter of 2020 before gradually dissipating over the next 18 months.
EIA forecasts U.S. crude oil production will average 11.7 million b/d in 2020, down 0.5 million b/d from 2019. In 2021, EIA expects U.S. crude oil production to decline further by 0.8 million b/d.
EIA forecasts that natural gas prices will generally rise through the rest of 2020 as U.S. production declines. EIA forecasts that Henry Hub natural gas spot prices will average $2.14/MMBtu in 2020 and then increase in 2021, reaching an annual average of $2.89/MMBtu.
EIA expects total consumption of natural gas to average 81.7 billion cubic feet per day (Bcf/d) in 2020, down 3.9% from the 2019 average primarily because of lower industrial sector consumption of natural gas. EIA forecasts industrial natural gas consumption to average 21.3 Bcf/d in 2020, down 7.1% from 2019 as a result of lower expected manufacturing activity.
U.S. dry natural gas production set a record in 2019, averaging 92.2 Bcf/d. EIA forecasts dry natural gas production will average 89.8 Bcf/d in 2020, with monthly production falling from an estimated 93.1 Bcf/d in April to 85.4 Bcf/d in December.
EIA forecasts that U.S. liquefied natural gas exports will average 5.8 Bcf/d in the second quarter of 2020 and 4.8 Bcf/d in the third quarter of 2020. U.S. liquefied natural gas exports are expected to decline through the end of the summer as a result of lower expected global demand for natural gas.
Electricity, coal, renewables, and emissions
The effects of social distancing guidelines are likely to continue affecting U.S. electricity consumption during the next few months. EIA expects retail sales of electricity in the commercial sector will fall by 6.5% in 2020 because many businesses have closed and many people are working from home. Similarly, EIA expects industrial retail sales of electricity will fall by 6.5% in 2020 as many factories cut back production.
EIA forecasts that the total U.S. electric power sector generation will decline by 5% in 2020. Most of the expected decline in electricity supply is reflected in lower fossil fuel generation, especially at coal-fired power plants.
After decreasing by 2.8% in 2019, EIA forecasts that U.S. energy-related carbon dioxide (CO2) emissions will decrease by 11% in 2020. This record decline is the result of restrictions on business and travel activity and slowing economic growth related to COVID-19.