On Tuesday, the Energy Information Administration (EIA) released its Short-Term Energy Outlook, which includes its first forecasts for 2018. A more detailed look at the EIA’s crude oil forecast was released Thursday, January 12.
The report slightly reduced its forecast for dry natural gas production in 2017 to 43.78 billion cubic feet per day. In 2016, drilling activity slowed due to low natural gas prices. 2016 showed the first yearly production decline since 2005, according to a Reuters analysis.
While EIA projected lower production and consumption for 2017 that its initial predictions, the 2018 forecast shows significant increases. The forecast for natural gas demand in 2018 “would rise to an all-time high of 76.86 bcfd,” says Reuters.
The U.S. also became a net exporter of gas in November 2016 with the increase of LNG exports to Mexico, likely to occur once again in October 2017. Annually, the U.S. is not expected to become a net exporter of gas until 2018, which has not happened since 1957.
Crude oil is forecast to increase as well, with a modest increase in prices over the next two years. Of course, production is related directly to price, as the past two years have shown, as inventories increased alongside production. The OPEC agreement to cut production makes way for a price increase, but EIA names the agreement as one of the uncertainties that could affect price going forward.
Forecast increases in global production should provide downward pressure on prices and mitigate the potential for significant crude oil price increases through 2018. Despite the recent OPEC agreement, EIA expects global petroleum and other liquid inventory builds to continue, but at a slowing rate, in 2017 and 2018.
Crude oil production is forecast to increase to 9.3 million b/d by 2018, reflecting increases in offshore Gulf of Mexico production. EIA also cites a rise in tight oil production that are a result of increases in drilling activity, rig efficiency, and well-level productivity. This is consistent with other similar forecasts regarding oil production across the shale plays that cite efficiency and increased technological advances that have boosted production while cutting costs.
Other highlights from the EIA Short-Term Energy Outlook report
- Brent crude oil spot prices averaged $53 in December, the first month since July 2015 that Brent spot prices averaged over $50 per barrel.
- Brent crude prices are forecast to average $53 per barrel in 2017 and $56 per barrel in 2018.
- WTI crude oil prices are forecast to average approximately $1 per barrel less than Brent through 2018 at $52.50 in 2017 and $55.18 in 2018.
- U.S. regular gasoline retail prices are expected to increase to $2.31 per gallon in the first quarter of 2017, increasing to an average of $2.38 in 2017 overall and $2.41 per gallon in 2018.
- Electricity from energy other than fossil fuels is expected to change slightly, with nuclear power dropping slightly and nonhydropower renewables, such as wind and solar, to increase by 1 percent by 2018 as the cost for wind and solar power continue to decrease. New York, Oregon, and the District of Columbia have extended and expanded their mandates for electric generation from renewable sources to reach 50 percent of each state’s total electricity generation by target dates of 2030, 2032, and 2040 respectively.
Other states, such as Minnesota, have also reported significant increases in renewable electricity generation in 2016 with a forward-looking approach in the upcoming years.
In the previous forecast, EIA generally expected Lower 48 onshore production to decline through the end of 2017. However, the new forecast reflects crude oil prices near or above $50/b, which have led to increased investment by some U.S. production companies, particularly in the Permian Basin. EIA expects that declines in Lower 48 production have largely ended and forecasts relatively flat production in the first quarter of 2017 at 6.7 million b/d, which will then increase to an annual average of 7.0 million b/d in 2018. Even modest increases in crude oil prices could contribute to supply growth in other U.S. tight oil regions.