Last week the U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2015 (AEO2015). The report presents updated projections for U.S. energy markets through 2040 based on six cases, defined as follows:
1. Reference - Real gross domestic product (GDP) grows at an average annual rate of 2.4% from 2013 to 2040. North Sea Brent crude oil prices rise to $141/barrel (bbl) (2013 dollars) in 2040.
2. Low Economic Growth - Real GDP grows at an average annual rate of 1.8% from 2013 to 2040. Other energy market assumptions are the same as in the Reference case.
3. High Economic Growth - Real GDP grows at an average annual rate of 2.9% from 2013 to 2040. Other energy market assumptions are the same as in the Reference case.
4. Low Oil Price - Light, sweet (Brent) crude oil prices remain around $52/bbl (2013 dollars) through 2017, and then rise slowly to $76/bbl in 2040 while OPEC increases its liquids market share from 40% in 2013 to 51% in 2040
5. High Oil Price - Brent crude oil prices rise to $252/bbl (2013 dollars) in 2040 while OPEC's market share declines to 32%.
6. High Oil and Gas Resource - Estimated ultimate recovery (EUR) per shale gas, tight gas, and tight oil well is 50% higher and well spacing is 50% closer than in the Reference case. Tight oil resources are added to reflect new plays or the expansion of known tight oil plays, and the EUR for tight and shale wells increases by 1%/year more than the annual increase in the Reference case to reflect additional technology improvements. This case also includes kerogen development; undiscovered resources in the offshore Lower 48 states and Alaska; and coalbed methane and shale gas resources in Canada that are 50% higher than in the Reference case. Related: Something To Consider Before Buying In To Rooftop Solar
The Reference case is the EIA's best guess - or perhaps most cautious guess - for what will transpire. For this case the government's forecasters foresee Brent crude rising to $141/bbl by 2040. Even in the low oil price case they do not expect future Brent prices to drop below $50/bbl or future natural gas prices to drop below $3/million Btu. In the high oil price case they project oil rising to $252/bbl and natural gas rising to $11/million Btu:
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Key projections from the report are:
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The report identifies numerous threats and opportunities for investors in the energy sector, but these can vary sharply among different cases. The biggest opportunities appear to be in the growth of LNG exports, the fortunes of U.S. refiners, the further expansion of U.S. oil and natural gas production, and the strong growth of solar PV capacity. The biggest near-term threat continues to be the weakening U.S. coal industry, but the report does project that the coal industry will begin to recover in most of the cases considered.
The EIA certainly has a mixed record regarding their forecasts, but many companies utilize these EIA projections in their decision-making process. Therefore, it is important to at least be informed about what they believe the future will bring.
By Robert Rapier of EnergyTrendsInsider
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Robert Rapier is a chemical engineer in the energy industry. He has 25 years of international engineering experience in the chemical, oil and gas, and… More