Global petroleum and liquid fuels demand is expected to average 92.6 million b/d in 2020, a decrease of 8.1 million b/d from last year, before increasing by 7.0 million b/d in 2021, according to the US Energy Information Administration May Short-Term Energy Outlook.
As a comparison, in April’s STEO, global oil demand was expected to decrease by 5.2 million b/d in 2020 from last year before increasing by 6.4 million b/d in 2021.
Lower global oil demand growth for 2020 in the May STEO reflects growing evidence of disruptions to global economic activity along with reduced expected travel globally as a result of restrictions due to COVID-19. The May STEO’s forecast for non-US economic growth is based on forecasts from Oxford Economics, which have been revised down since the April STEO.
Nevertheless, EIA continues to highlight huge uncertainties surrounding its forecasts. The precise effect of lockdowns on petroleum consumption remains highly uncertain because the severity and enforcement of the shutdowns vary by country. EIA currently assumes all stay-at-home orders will be eased by the fourth quarter of 2020. EIA is not assuming resurgent outbreaks of COVID-19 that result in the announcement of further lockdowns.
EIA forecasts both economic growth and global liquid fuels consumption to increase in 2021. However, any lasting changes to transportation and other oil consumption patterns once COVID-19 mitigation efforts end present considerable uncertainty to the increase in liquid fuels consumption, even if GDP growth increases significantly.
Non-OPEC oil supply
EIA forecasts that the supply of non-OPEC petroleum and other liquid fuels will decline by 2.4 million b/d in 2020, compared with a forecast decline of 200,000 b/d in the April STEO. The steeper decline largely reflects the newly implemented production cuts from non-OPEC participants in the OPEC+ agreement. The largest non-OPEC production declines in 2020 are to occur in Russia, the US, and Canada.
EIA expects production of non-OPEC petroleum and other liquid fuels to increase in 2021. Production in countries that have implemented voluntary production cuts will generally rise in 2021 as global oil demand recovers. However, EIA forecasts production to continue to decline in US in 2021, where production is driven by price-sensitive shale operators.
Russia is expected to experience the largest liquid fuels production declines in 2020 among OPEC+ producers, with forecast declines of more than 800,000 b/d compared with 2019. EIA expects Russia’s liquid fuels production to rise in 2021.
EIA expects total production of liquid fuels in the US to fall by 800,000 b/d in 2020, largely as a result of reductions in drilling in price-sensitive tight oil regions. EIA expects US supply to fall by another 600,000 b/d in 2021.
Canada’s total liquid fuels production is expected to fall by 400,000 b/d in 2020, as a result of 2019 government-ordered production cuts in Alberta and economic shut-ins. In 2021, EIA expects Canada’s production to increase and return to near 2019 levels. EIA does not expect any additional production from new upstream projects to come online during the forecast period, only expansions of existing projects.
Brazil’s production of petroleum and other liquid fuels to grow more slowly than previously forecast. On Apr. 1, Brazil’s national oil company, Petroleo Brasileiro SA (Petrobras), deepened its production cuts to 200,000 b/d. EIA expects this level of cuts to continue for the remainder of 2020. Petrobras will idle some shallow-water platforms with higher production costs in the Sergipe, Rio Grande do Norte, and Ceará states to achieve these cuts. In addition, production volumes from the P-70 floating, production, storage, and offloading vessel (FPSO) will be delayed until 2021.
Norway’s Ministry of Petroleum and Energy announced unilateral production cuts on the Norwegian continental shelf to help stabilize world oil markets. Norway will limit production of crude oil to no more than 1.61 million b/d in June and no more than 1.725 million b/d for the remainder of 2020. EIA assumes Norway’s crude oil production will adhere to these levels.
OPEC and partner countries (OPEC+) agreed to new production cuts in early April that will remain in place throughout the STEO forecast period. EIA assumes OPEC countries will mostly adhere to announced cuts during the first 2 months of the agreement (May and June). This forecast assumes OPEC’s production compliance relaxes later in the forecast period, as stated production cuts are reduced, and global oil demand begins growing again.
OPEC crude oil production will fall below 24.1 million b/d in June, a 6.3 million b/d decline from April when OPEC production increased following an inconclusive meeting in March. The forecast for June OPEC production does not account for additional voluntary cuts announced by the Saudi Energy Ministry on May 11. If OPEC production declines to less than 24.1 million b/d, it would be the group’s lowest level of production since March 1995.
EIA expects OPEC production will begin increasing in July 2020 in response to rising global oil demand and prices. From that point EIA expects a gradual increase in OPEC crude oil production through the remainder of the forecast, with production rising to an average of 28.5 million b/d during the second half of 2021. Part of this increase is the result of oil production resuming in Libya.
EIA expects that OPEC surplus crude oil production capacity, which averaged 2.5 million b/d in 2019, will average 5.8 million b/d during the third quarter of 2020. EIA expects it to decline to an average of 3.7 million b/d in 2021 with increased production as the targeted cuts are relaxed. These capacity increases include the Neutral Zone production ramp up that started in March 2020 that will add 600,000 b/d of additional surplus capacity when completed in a year.
Crude oil prices
Despite the April agreement, crude oil prices have remained at some of their lowest levels in more than 20 years. Brent crude oil prices averaged $18/bbl in April, a decrease of $13/bbl from the average in March. EIA forecasts Brent crude oil prices will average $34/bbl in 2020, down from an average of $64/bbl in 2019.
EIA expects prices will average $23/bbl during the second quarter of 2020 before increasing to $32/bbl during the second half of the year. EIA forecasts that Brent prices will rise to an average of $48/bbl in 2021, $2/bbl higher than forecast last month, as EIA expects that declining global oil inventories next year will put upward pressure on oil prices.
Global oil inventory
EIA expects that global liquid fuels inventories will grow by an average of 2.6 million b/d in 2020 after falling by 200,000 b/d in 2019. Inventory builds will be largest in the first half of 2020, rising at a rate of 6.6 million b/d in the first quarter and increasing to builds of 11.5 million b/d in the second quarter as a result of widespread travel limitations and sharp reductions in economic activity.
Firmer demand growth as the global economy begins to recover and slower supply growth will contribute to global oil inventory draws beginning in the third quarter of 2020. EIA expects global liquid fuels inventories will fall by 1.9 million b/d in 2021.
US oil demand
The COVID-19 travel restrictions and disruptions to business and economic activity lead to significant decreases in US liquid fuels demand during the first half of 2020. EIA expects the largest impacts will occur in the second quarter of 2020 before gradually dissipating over the next 18 months.
EIA expects US motor gasoline consumption to fall from 8.6 million b/d in the first quarter of 2020 to an average of 7.0 million b/d in the second quarter before gradually increasing to 8.7 million b/d in the second half of the year.
US jet fuel consumption will fall from 1.6 million b/d in the first quarter of 2020 to an average of 800,000 b/d in the second quarter. US distillate fuel oil consumption is forecast to decline by 600,000 b/d to average 3.3 million b/d during the same period.
For all of 2020, EIA forecasts that US motor gasoline consumption will average 8.3 million b/d, a decrease of 11% compared with 2019, while jet fuel and distillate fuel oil consumption will fall by 25% and 10%, respectively, during the same period.
US crude oil production
EIA has revised its current forecast of domestic crude oil production down from the April STEO as a result of lower crude oil prices. EIA now expects US crude oil production will average 11.7 million b/d in 2020, down 500,000 b/d from 2019.
In 2021, EIA expects US crude oil production to decline further by 800,000 b/d. If realized, the 2020 production decline would mark the first annual decline since 2016.
US crude oil production has not declined for two years in a row since the 17-year period of declines beginning in 1992 and running through 2008. Typically, price changes affect production after about a 6-month lag. However, current market conditions will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels.
US natural gas
In April, the Henry Hub natural gas spot price averaged $1.73/MMbtu. EIA forecasts that natural gas prices will generally rise through the rest of 2020 as US production declines.
EIA forecasts that Henry Hub natural gas spot prices will average $2.14/MMbtu in 2020 and then increase in 2021, reaching an annual average of $2.89/MMbtu. EIA expects prices to rise largely because of lower natural gas production compared with 2020.
Total consumption of natural gas is expected to average 81.7 bcfd in 2020, down 3.9% from the 2019 average primarily because of lower industrial sector consumption of natural gas.
EIA now forecasts industrial natural gas consumption to average 21.3 bcfd in 2020, down 7.1% from 2019 as a result of lower expected manufacturing activity. This expected decline is lower than the 0.3% decline forecast in the April STEO because of large downward revisions to the macroeconomic forecast in the May STEO.
US dry natural gas production set a record in 2019, averaging 92.2 bcfd. EIA forecasts dry natural gas production will average 89.8 bcfd in 2020, with monthly production falling from an estimated 93.1 bcfd in April to 85.4 bcfd in December.
Natural gas production declines the most in the Appalachian and Permian regions. In the Appalachian region, low natural gas prices are discouraging producers from engaging in natural gas-directed drilling, and in the Permian region, low oil prices reduce associated gas output from oil-directed wells.
In 2021, forecast dry natural gas production averages 84.9 bcfd, rising in the second half of 2021 in response to higher prices.
EIA estimates that total US working natural gas in storage ended April at 2.3 tcf, 20% more than the 5-year (2015–19) average. In the forecast, inventories rise by 2.1 tcf during the April through October injection season to reach almost 4.2 tcf on Oct. 31, which would be a record level.
LNG exports will average 5.8 bcfd in the second quarter of 2020 and 4.8 bcfd in the third quarter of 2020. US LNG exports are expected to decline through the end of the summer as a result of lower expected global demand for natural gas.
Fonte: Oil & Gas Journal (12/05/2020)