-Sees Brent Spot Price Down To $96/Barrel By 2015

By Brai Esene

WASHINGTON (MNI) – The growing importance of unconventional oil and gas to
the U.S. energy landscape was underscored Wednesday, with a new report by the
Energy Information Administration showing domestic oil output is set to grow by
just over 200,000 barrels per day each year through 2019, while projecting the
country will become a key supplier of natural gas as production outstrips demand
over the next decade.

“The advent and continuing improvement of advanced crude oil production
technologies continues to increase projected domestic supply,” the EIA said in
its early release of the Reference case for its 2013 Annual Energy Outlook,
which has updated projections for the U.S. energy markets through 2040. The
actual 2013 outlook report will be released early next year.

After reporting Tuesday that domestic oil production averaged almost 6.5
million barrels per day in September 2012, the EIA said it expects annual growth
in output to average 234,000 bpd through 2019, reaching 7.5 million bpd. Despite
a decline after 2019, U.S. crude oil production remains above 6.0 million bpd
through 2040.

“The growth results largely from a significant increase in onshore crude
oil production, particularly from shale and other tight formations,” the EIA
said.

“Offshore crude oil production trends upward over time, fluctuating between
1.4 and 1.8 million bpd, as the pace of development activity quickens and new
large development projects, predominantly in the deepwater and ultra-deepwater
portions of the Gulf of Mexico, are brought into production,” the report added.

After about 2020, however, the EIA said production of unconventional oil
begins declining gradually to 6.1 million bpd in 2040 as producers develop sweet
spots first and then move to less productive or less profitable drilling areas.

Still, the rise in domestic production means the need for imported oil will
steadily decline, the EIA said. Imported liquid fuels as a share of total U.S.
liquid fuel use is expected to fall from 45% in 2011 to 34% in 2019.

On the natural gas front, the EIA said U.S. natural gas production
increases throughout the projection period, outpacing domestic consumption by
2020 and spurring net exports of natural gas. The U.S. is projected to become a
net exporter of liquefied natural gas beginning of 2016, and an overall net
exporter of natural gas in 2020.

“Higher volumes of shale gas production in AEO2013 are central to higher
production volumes and an earlier transition to net exports than was projected
in the AEO2012 Reference case,” it said.

With regards to energy prices, the Reference case sees Brent spot crude oil
price declining from $111 per barrel in 2011 to $96 per barrel in 2015. After
2015, the Brent price increases, reaching $163 per barrel in 2040 “as growing
demand leads to the development of more costly resources.”

World oil demand is seen growing from 88 million bpd in 2011 to 113 million
bpd in 2040, driven by demand in China, India, Brazil, and other developing
economies.

While West Texas Intermediate is the benchmark U.S. oil price, the EIA said
the oil price is represented by the spot price Brent crude oil instead of WTI
crude oil “to better reflect the price refineries pay for imported light, sweet
crude oil and takes into account the divergence of WTI prices from those of
globally traded benchmark crudes such as Brent.”

The price for motor gasoline and diesel delivered to the transportation
sector in the report increases from $3.45 and $3.58 per gallon, respectively, in
2011 to $4.32 and $4.94 per gallon in 2040.

As for natural gas prices, the EIA revised down its projection due to the
jump in domestic supply.

“With increasing natural gas production, reflecting continued success in
tapping the nation’s extensive shale gas resource, Henry Hub spot natural gas
prices remain below $4 per million Btu (2011 dollars) through 2018 in the
AEO2013 Reference case,” it said.

The report added that, “After 2018, natural gas prices increase steadily as
tight gas and shale gas drilling activity expands to meet growing domestic
demand for natural gas and offsets declines in natural gas production from other
sources.”

With prices rising as lower cost resources are depleted and production
gradually shifts to less productive and more expensive resources, the EIA
forecasts Henry Hub spot natural gas prices to reach $5.40 per million Btu in
2030 and $7.83 per million Btu in 2040.

The extended period of relatively low natural gas prices and the strong
growth in shale gas production will provide a boost to U.S. industrial
production, the EIA said, spurring rapid growth due to lower raw material and
energy costs.

“Most of the increase in industrial energy demand is the result of higher
output in the manufacturing sector,” it said.

–MNI Washington Bureau; tel: +1 202-371-2121; email: besene@mni-news.com

[TOPICS: MAUDS$,M$U$$$,MI$OI$,MN$OI$]