The US Energy Information Administration on Tuesday dramatically reduced its projections for Brent and WTI spot prices over the next decade, amid climbing production and stagnant demand.
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In its Annual Energy Outlook, the agency is forecasting Brent and WTI at $79/b and $73/b, respectively, by 2020 and climbing to $91/b and $85/b, respectively, by 2025, showing both lower prices and a wider spread between the two benchmarks than forecast a year earlier.
In last year's outlook, EIA forecast Brent to climb to $96.57/b in 2020 and then $108.99 in 2025 and for WTI to jump to $94.57/b in 2020 and to $106.99/b in 2025. EIA's forecast for 2040 prices are $141/b for Brent and $136/b WTI, roughly the same as the outlook from last year.
"US crude oil production starts to decline after 2020, but increased output from non-OECD and OPEC producers helps to keep the Brent price below $100/b through most of the next decade and limits price increases through 2040, when Brent reaches roughly $140/b," EIA said in the report.
These figures are for the EIA's reference case, essentially the baseline between a variety of projections the agency made in the report. EIA cases include low and high economic growth, low and high oil prices and high oil and gas resources. The projections vary widely depending on which of the six cases the EIA used.
For example, in the EIA's low oil price case, the Brent spot price reaches only $76/b in 2040 while in the high oil price case it climbs to $252/b that same year.
PRODUCTION EXPECTED TO JUMP
Despite the projected drop in prices, the EIA boosted its production estimates. US crude oil production is expected to peak in 2020 at 10.6 million b/d under the EIA's reference case. Last year, EIA forecast US production to peak at 9.61 million b/d in 2019 and then begin a gradual fall.
Under EIA's new, reference case forecast, after US crude oil production peaks at 10.6 million b/d in 2020, it will fall to 10.28 million b/d in 2025, to 10.04 million b/d in 2030, 9.38 million b/d in 2035 and 9.43 million b/d in 2040.
Over that same time, net imports of crude oil will bottom out at 5.51 million b/d in 2020 and climb steadily to 6.09 million b/d in 2025 to 8.21 million b/d in 2040. The report does not envision a change in crude export policy, which currently restricts many crude exports, and sees crude oil exports from the US staying at 630,000 b/d from 2020 to 2040. Still, due partly to US oil and gas production growth, the EIA now projects that net US energy imports could be eliminated within this decade.
"The United States has been a net importer of energy since the 1950s," EIA Administrator Adam Sieminski said in a statement. "In cases with the highest supply and lowest demand outlooks, the United States becomes a significant net exporter of energy."
Under the reference case, the net import share of petroleum and other liquids product falls from 26% in 2014 to 15% in 2015 while the US transitions from being a net importer of natural gas to a net exporter by 2017 under all cases.
Under its reference case, energy imports and exports come into balance in 2028. However, EIA is projecting high levels of crude imports to continue in the Gulf and West coasts which will "support growing levels of gasoline, diesel, and jet fuel exports as US refineries continue to have a competitive advantage over refineries in the rest of the world," EIA said.
At the same time, EIA projects US demand to remain relatively flat. US energy use is projected to grow at only 0.3% per year through 2040 in EIA's reference case, below both the 2.4% economic growth and 0.7% population growth. This flat demand is due largely to declines in energy use from energy efficiency technologies and policies, new fuel economy standards and changing driver behavior, EIA said.
EIA also projects domestic refinery distillation capacity to climb from 17.8 million b/d in 2013 to 18.8 million b/d in 2020 and remain at that level for the next two decades. The sector's capacity utilization rate, however, will grow from 88.3% in 2013 to 87.8% in 2020 to 92% in 2040.