The Energy Information Administration (EIA) released its Short-Term Energy and Summer Fuels Outlook today. Natural gas price targets are raised, gasoline is projected to fall, and Brent & WTI thin the crude oil gap.
Natural Gas --
Natural gas price estimates were revised higher with current expectations for 2013 nattie prices to average $3.80/mmbtu -- up 27 cents from last month's projection -- and 2014 to average $4.00/mmbtu -- up 40 cents from the prior month's expectation.
EIA expects Henry Hub spot prices will fall through September as natural gas markets loosen with lower summer demand. Going into the summer, EIA expects production to be slightly higher than last year's levels, while summer electric power demand is projected to be lower than last year's record-high levels.
Colder winter temperatures forecast for 2013 and 2014 -- compared with the record-warm temperatures in 2012 -- are expected to increase the amount of natural gas used for residential and commercial space heating.
Natural gas marketed production is projected to increase from 69.2 Bcf/d in 2012 to 69.9 Bcf/d in 2013, and 70.1 Bcf/d in 2014. Onshore production increases over the forecast period, while federal Gulf of Mexico production declines. Natural gas pipeline gross imports, which have declined over the past five years, are projected to remain near their 2012 level over the forecast period.
Crude Oil --
Declines in crude pricing have kept highway gasoline prices moderate after spiking to a high in February. Gasoline prices are expected to average $3.53 through the summer -- $3.50 in 2013, and $3.39 in 2014 as U.S. pipeline and refinery capacity improves.
WTI and Brent futures have synched in the past few weeks after having spent months in a de-coupled relationship. The Brent-WTI discount had swelled to over $20 in February 2013, but since has fallen back to around $10.00. Expectations are for the spread to average $13.00 in 2013 and shrink to $9.00 in 2014.
EIA expects world oil production to exceed consumption in the second quarter of 2013, resulting in an average 0.5-million-bbl/d build in global oil stocks, which is consistent with the recent decline in crude oil prices. EIA expects the world oil market to tighten somewhat in the third quarter of 2013 as world demand reaches its summer peak, and to loosen again in the last quarter of the year as world supply grows.
North America accounts for most of the projected growth in non-OPEC supply over the next two years because of continued production growth from U.S. tight oil formations and Canadian oil sands. EIA expects non-OPEC supply to also grow in Central and South America by an average of 160,000 bbl/d each year over the next two years, as Brazil and Colombia bring new production on line.
Text highlights from the EIA report:
- Falling crude oil prices contributed to a decline in the U.S. regular gasoline retail price from a year-to-date high of $3.78 per gallon on February 25 to $3.52 per gallon on April 29. EIA expects the regular gasoline price will average $3.53 per gallon over the summer (April through September), down $0.10 per gallon from last month's STEO. The annual average regular gasoline retail price is projected to decline from $3.63 per gallon in 2012 to $3.50 per gallon in 2013 and to $3.39 per gallon in 2014. Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the projected levels.
- After increasing to $119 per barrel in early February 2013, the Brent crude oil spot price fell to a low of $97 per barrel in mid-April 2013 and then recovered to $105 per barrel on May 3. EIA expects that the Brent crude oil spot price will average $104 per barrel over the second half of 2013 and $101 per barrel in 2014. The projected discount of West Texas Intermediate (WTI) crude oil to Brent, which increased to a monthly average of more than $20 per barrel in February 2013, fell to below $9 per barrel in April. EIA expects the discount to increase in the near term and average $13 per barrel in 2013 and $9 per barrel in 2014.
- Natural gas working inventories ended April 2013 at an estimated 1.82 trillion cubic feet (Tcf), about 0.80 Tcf below the level at the same time a year ago and 0.13 Tcf below the five-year average (2008-12). EIA expects the Henry Hub natural gas spot price, which averaged $2.75 per million British thermal units (MMBtu) in 2012, will average $3.80 per MMBtu in 2013 and $4.00 per MMBtu in 2014, about 27 cents per MMBtu and 40 cents per MMBtu higher than forecast in last month's STEO, respectively.
- The projected increasing cost of natural gas relative to coal contributes to higher levels of electricity generation from coal. The share of total generation fueled by coal is forecast to increase from 37.4 percent in 2012 to 40.1 percent in 2013. Conversely, the share of generation fueled by natural gas declines from 30.4 percent in 2012 to 27.8 percent in 2013.