WASHINGTON (MNI) – The following is the second and final part of
excerpts from the U.S. Energy Information Administration’s October
Short-Term Energy Outlook published Wednesday:

U.S. Crude Oil and Liquid Fuels

U.S. Liquid Fuels Consumption

Total consumption of liquid fuels in 2010 grew by about 410
thousand bbl/d, or 2.2 percent, the highest rate of growth since 2004.
In contrast, projected total U.S. liquid fuels consumption in 2011 falls
by 230 thousand bbl/d (1.2 percent), revised downward from the previous
Outlook’s 170 thousand bbl/d (0.9 percent) decline as the 2011 U.S. real
GDP growth forecast has been lowered for the seventh consecutive month.
Motor gasoline consumption accounts for much of the projected decline
for the year.

EIA expects total liquid fuels consumption to increase by 90
thousand bbl/d (0.5 percent) to 19.1 million bbl/d in 2012. Projected
motor gasoline consumption rises by 40 thousand bbl/d (0.5 percent) as
highway travel increases modestly, and distillate fuel consumption
increases by 30 thousand bbl/d (0.7 percent) as growth in industrial
activity and non-petroleum imports continues to slow as a result of
continuing weak economic growth.

U.S. Liquid Fuels Supply and Imports

Domestic crude oil production, which increased by 110 thousand
bbl/d in 2010 to 5.5 million bbl/d, increases by a further 180 thousand
bbl/d in 2011 and by 70 thousand bbl/d in 2012, driven by increased
oil-directed drilling activity, particularly in unconventional shale
formations.

The rapid growth in U.S. ethanol production since the mid-2000s is
projected to slow with total production averaging 900 thousand bbl/d in
2011 and 910 thousand bbl/d in 2012. Assuming ethanol net exports
average roughly 40 thousand bbl/d next year, EIA expects that 870
thousand bbl/d of ethanol will be blended into gasoline in 2012, which
is sufficient to meet the requirements of the renewable fuels standard
(RFS). The expiration of the Federal motor fuels excise tax credit for
ethanol blending is expected to have little effect on ethanol blending
levels, as ethanol producers do not currently appear to be capturing
much of the value of the credit.

Liquid fuel net imports (including both crude oil and refined
products) fell from 57 percent of total U.S. consumption in 2008 to 49
percent in 2010 because of rising domestic production and the decline in
consumption during the economic downturn. EIA forecasts that liquid fuel
net imports’ share of total consumption will decline further to 46
percent in 2011 before rising slightly to 47 percent in 2012.

U.S. Crude Oil and Petroleum Product Inventories

Commercial crude oil inventory levels ended September 2011 at an
estimated 336 million barrels, 26 million barrels below last year but 7
million barrels higher than the previous 5-year average for that month.
Commercial crude oil stocks are gradually drawn down to 317 million
barrels by the end of 2012, close to their 5-year average.

Total motor gasoline stocks at the end of September 2011 were an
estimated 214 million barrels, down 5 million barrels from last year but
6 million barrels above the previous 5-year average for that month.
Distillate fuel oil stocks ended September 2011 at an estimated 157
million barrels, down 10 million barrels from the same time last year
but 7 million barrels above the previous 5-year average. Projected total
motor gasoline and distillate inventories average about 3 million
barrels and 8 million barrels higher, respectively, than their previous
5-year averages at the end of 2012. The Northeast Home Heating Oil
Reserve, which was emptied earlier this year because of the move to
low-sulfur heating oil in several northeast States next year, is
expected to be restocked with 650,000 barrels this month and 350,000
barrels next month.

U.S. Petroleum Product Prices

EIA forecasts that the annual average regular-grade gasoline retail
price, which averaged $2.78 per gallon in 2010, will increase to an
average of $3.52 per gallon in 2011, and average $3.43 per gallon in
2012. The increase in retail prices in 2011 reflects not only the higher
cost of crude oil but also changes in the average U.S. refinery gasoline
margin (the difference between refinery wholesale gasoline prices and
the average cost of crude oil). The average U.S. refinery gasoline
margin increases from $0.34 per gallon in 2010, to $0.51 per gallon in
2011, then declines to $0.43 per gallon in 2012.

EIA expects that on-highway diesel fuel retail prices, which
averaged $2.99 per gallon in 2010, will average $3.80 per gallon in
2011, and $3.73 per gallon in 2012. Projected U.S. refinery diesel fuel
margins increase from an average of $0.39 per gallon in 2010 to $0.64
per gallon in 2011, then fall to an average of $0.56 per gallon in 2012.

Natural Gas

U.S. Natural Gas Consumption

Projected natural gas consumption increases by an average 1.2
billion cubic feet per day (Bcf/d) in 2011 and 0.5 Bcf/d in 2012, with
growth in the electric power and industrial sectors driving the
increases. Projected natural gas consumption for electricity generation
increases by 0.36 Bcf/d and 0.37 Bcf/d in 2011 and 2012, respectively.
EIA expects consumption in the industrial sector to rise from 18.1 Bcf/d
to 18.5 Bcf/d in 2011 and 18.6 Bcf/d in 2012, as the projected
naturalgas-weighted industrial production index also continues to rise
but at a slowing rate. Natural gas consumption for the third quarter of
2011 averaged an estimated 57.9 Bcf/d, with consumption in the electric
power sector making up almost half of the total. There were an estimated
942 cooling degree-days for the third quarter 2011, about 22 percent
more than the 30-year normal, and above the 930 cooling degreedays for
the record-breaking heat of the third quarter of 2010.

U.S. Natural Gas Production and Imports

EIA expects marketed natural gas production to average 66.0 Bcf/d
in 2011, a 4.2 Bcf/d (6.7 percent) increase over 2010. The entirety of
this growth is coming from increases in onshore production in the lower
48 States, which will more than offset a steep year-over-year decline of
over 0.9 Bcf/d (15 percent) in the Federal Gulf of Mexico (GOM) and a
small decline in Alaska. EIA expects that overall production will
continue to grow in 2012, but at a slower pace, increasing 1.4 Bcf/d
(2.1 percent) to an average of 67.4 Bcf/d.

Drilling activity has been resilient despite lower natural gas spot
and futures prices. According to Baker Hughes, the September 30 rig
count was 923 active drilling rigs targeting natural gas, up from this
year’s low of 866 on May 20. If drilling continues to increase,
production could grow more than expected in 2012.

Growing domestic natural gas production has reduced reliance on
natural gas imports and contributed to increased exports. EIA expects
that pipeline gross imports of natural gas will fall by 4.8 percent to
8.6 Bcf/d during 2011 and by another 3.1 percent to 8.4 Bcf/d in 2012.
Projected U.S. imports of liquefied natural gas (LNG) fall from 1.2
Bcf/d in 2010 to 0.9 Bcf/d in 2011 and to 0.7 Bcf/d in 2012. Pipeline
gross exports to Mexico and Canada are expected to average 4.1 Bcf/d in
2011 and 4.2 Bcf/d in 2012, compared with 3.1 Bcf/d in 2010.

U.S. Natural Gas Inventories

On September 30, 2011, working natural gas in storage stood at
3,409 Bcf, 91 Bcf below the 2010 end-of-September level. EIA expects
that inventories, though currently lower than last year, will come close
to last year.s levels towards the end of the 2011 injection season,
reaching 3.77 Tcf at the end of October 2011.

U.S. Natural Gas Prices

The Henry Hub spot price averaged $3.90 per MMBtu in September
2011, 15 cents lower than the August 2011 average. EIA expects that
Henry Hub spot prices will fall further in October, before rising above
$4 per MMBtu in December. This month’s Outlook lowers the 2011 forecast
by 5 cents to $4.15 per MMBtu, 24 cents less than the 2010 average.
Although the average 2011 spot natural gas price is lower than the 2010
average, the forecast price over the winter 2011-12 is higher than last
winter’s average. Last year the Henry Hub spot price hit a low of $3.43
per million Btu in October 2010. EIA expects this winterfs heating
season will start out with an average Henry Hub spot price of $3.78 per
million Btu in October 2011. EIA expects the Henry Hub price in 2012 to
average $4.32 per MMBtu.

Natural gas futures prices for December 2011 delivery (for the
5-day period ending October 6, 2011) averaged $3.93 per MMBtu, and the
average implied volatility was 34 percent. The lower and upper bounds
for the 95-percent confidence interval for December 2011 contracts are
$3.13 per MMBtu and $4.93 per MMBtu. At this time last year, the
December 2010 natural gas futures contract averaged $4.07 per MMBtu and
implied volatility averaged 39 percent. The corresponding lower and
upper limits of the 95-percent confidence interval were $3.09 per MMBtu
and $5.37 per MMBtu.

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** Market News International Washington Bureau: 202-371-2121 **

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