EIA Short Term Energy Outlook: September 2020
Thursday, September 10, 2020
The September Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty because mitigation and reopening efforts related to the 2019 novel coronavirus disease (COVID-19) continue to evolve. Reduced economic activity related to the COVID-19 pandemic has caused changes in energy demand and supply patterns in 2020. This STEO assumes U.S. gross domestic product declined by 4.6% in the first half of 2020 from the same period a year ago and will rise beginning in the third quarter of 2020, with year-over-year growth of 3.1% in 2021. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit.
Global liquid fuels
- Brent crude oil spot prices averaged $45 per barrel (b) in August, up $2/b from the average in July. Brent prices in August were up $26/b from the multiyear low monthly average price in April. The increase in oil prices has occurred as EIA estimates global oil markets have shifted from global liquid fuels inventories building at a rate of 7.2 million barrels per day (b/d) in the second quarter to drawing at a rate of 3.7 million b/d in the third quarter. EIA expects inventory draws in the fourth quarter of 3.1 million b/d before markets become relatively balanced in 2021, with forecast draws of 0.3 million b/d. Despite expected inventory draws in the coming months, EIA expects high inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices. EIA forecasts monthly Brent spot prices will average $44/b during the fourth quarter of 2020 and rise to an average of $49/b in 2021 as oil markets become more balanced.
- EIA estimates that global consumption of petroleum and liquid fuels averaged 94.3 million b/d in August. Liquid fuels consumption was down 8.2 million b/d from August 2019, but it was up from an average of 85.1 million b/d during the second quarter of 2020 and 93.3 million b/d in July. EIA forecasts that consumption of petroleum and liquid fuels globally will average 93.1 million b/d for all of 2020, down 8.3 million b/d from 2019, before increasing by 6.5 million b/d in 2021. EIA’s forecast for growth in 2021 is 0.5 million b/d less than in the August STEO. The downward revision is largely a result of lower expected consumption growth in China, which EIA now forecasts to grow by 1.0 million b/d in 2021.
- EIA estimates that global liquid fuels production averaged 91.5 million b/d in August, down 9.7 million b/d year over year. The decline largely reflects voluntary production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+), along with reductions in drilling activity and production curtailments in the United States because of low oil prices. EIA expects global liquid fuels production will rise to an annual average of 99.3 million b/d in 2021.
- Crude oil production in the United States has risen in recent months after declining from 12.7 million b/d in the first quarter of 2020 to a recent low of 10.0 million b/d in May. EIA estimates U.S. crude oil production increased to 10.8 million b/d in August. Production has risen as tight oil operators have brought wells back online in response to rising prices after curtailing production amid low oil prices in the second quarter. The increase in total U.S. production occurred despite shut-in production in the Gulf of Mexico as a result of Hurricane Laura. EIA expects production to rise to 11.2 million b/d in September as production in the Gulf of Mexico returns. However, after September, EIA expects U.S. crude oil production to decline slightly, averaging just under 11.0 million b/d during the first half of 2021 because EIA expects that new drilling activity will not generate enough production to offset declines from existing wells. EIA expects drilling activity to rise later in 2021, contributing to U.S. crude oil production reaching an average of 11.3 million b/d in the fourth quarter of 2021. On an annual average basis, EIA expects U.S. crude oil production to fall from an average of 12.2 million b/d in 2019 to 11.4 million b/d in 2020 and 11.1 million b/d in 2021.
- U.S. regular gasoline retail prices averaged $2.18 per gallon (gal) in August, largely unchanged from the average in July but 44 cents/gal lower than at the same time last year. EIA expects that gasoline prices will decrease through the rest of the year, falling to an average of $2.03/gal in December. Forecast U.S. regular gasoline retail prices average $2.16/gal in 2020 and $2.28/gal in 2021.
- In August, the Henry Hub natural gas spot price averaged $2.30 per million British thermal units (MMBtu), up from an average of $1.77/MMBtu in July. Higher natural gas spot prices reflect rising demand for natural gas from the U.S. electric power sector as a result of warmer-than-normal temperatures during August and rising demand for U.S. liquefied natural gas (LNG) exports amid declining U.S. natural gas production. EIA expects that rising domestic demand and demand for LNG exports heading into winter, combined with reduced production, will cause Henry Hub spot prices to rise to a monthly average of $3.40/MMBtu in January 2021. EIA expects that monthly average spot prices will remain higher than $3.00/MMBtu for all of 2021, averaging $3.19/MMBtu for the year, up from a forecast average of $2.16/MMBtu in 2020.
- EIA estimates that total U.S. working natural gas in storage ended August at 3.5 trillion cubic feet (Tcf), 13% more than the five-year (2015–19) average. In the forecast, EIA expects inventories to reach almost 4.0 Tcf on October 31, which would be 6% more than the five-year average.
- EIA expects that total U.S. consumption of natural gas will average 82.7 billion cubic feet per day (Bcf/d) in 2020, down 2.7% from 2019. The largest decline in consumption occurs in the industrial sector. EIA forecasts industrial consumption will average 21.9 Bcf/d in 2020, down 1.0 Bcf/d from 2019 as a result of reduced manufacturing activity. The decline in total U.S. consumption also reflects lower heating demand in early 2020, contributing to residential and commercial demand in 2020 averaging 12.9 Bcf/d (down 0.8 Bcf/d from 2019) and 8.8 Bcf/d (down 0.8 Bcf/d from 2019), respectively. EIA expects U.S. natural gas consumption will average 79.1 Bcf/d in 2021, a 4.3% decline from 2020. The expected decline is the result of rising natural gas prices that will reduce demand for natural gas in the electric power sector.
- EIA forecasts U.S. dry natural gas production will average 89.9 Bcf/d in 2020 and monthly average production will fall from a record 96.2 Bcf/d in November 2019 to 85.5 Bcf/d in February 2021, before increasing slightly. Natural gas production declines the most in the Permian region, where EIA expects low crude oil prices will reduce associated natural gas output from oil-directed rigs. EIA’s forecast of dry natural gas production in the United States averages 86.6 Bcf/d in 2021. EIA expects production to begin rising in the second quarter of 2021 in response to higher natural gas and crude oil prices.
- EIA estimates that U.S. LNG exports averaged 3.7 Bcf/d in August, a 19% increase from July. This increase occurred amid rising spot and forward natural gas prices in Europe and Asia, which had fallen to record lows in late May and June as COVID-19 mitigation efforts reduced global natural gas consumption. Higher global forward prices indicate improving netbacks for buyers of U.S. LNG in European and Asian markets for the upcoming fall and winter seasons amid expectations of natural gas demand recovery and potential LNG supply reduction because of maintenance at the Gorgon LNG plant in Australia. EIA forecasts that U.S. LNG exports will return to pre-COVID levels by November 2020 and will average more than 9 Bcf/d from December 2020 through February 2021.
Electricity, coal, renewables, and emissions
- EIA forecasts 2.4% less electricity consumption in the United States in 2020 compared with 2019. EIA expects retail sales of electricity to fall by 6.4% this year in the commercial sector and by 6.0% in the industrial sector. EIA forecasts residential sector retail sales will increase by 3.5% in 2020. Milder winter temperatures earlier in the year led to lower consumption for space heating, but that factor is offset by increased summer cooling demand and an increase in electricity use by more people working from home. In 2021, EIA forecasts total U.S. electricity consumption will be similar to the 2020 level of consumption.
- EIA expects the share of U.S. electric power sector generation from natural gas-fired power plants will increase from 37% in 2019 to 39% this year. In 2021, the forecast natural gas share declines to 34% in response to higher natural gas prices. Coal’s forecast share of electricity generation falls from 24% in 2019 to 20% in 2020 and then increases to 22% in 2021. Electricity generation from renewable energy sources rises from 17% in 2019 to 20% in 2020 and to 22% in 2021. The increase in the share from renewables is the result of planned additions to wind and solar generating capacity. EIA expects a decline in nuclear generation in both 2020 and 2021, reflecting recent and planned retirements of nuclear generating capacity.
- EIA forecasts that renewable energy will be the fastest-growing source of electricity generation in 2020. EIA expects the electric power sector will add 23.3 gigawatts (GW) of new wind capacity and 13.7 GW of utility-scale solar capacity in 2020.
- EIA expects total U.S. coal production in 2020 to be 511 million short tons (MMst), 194 MMst (28%) lower than in 2019. Mitigation efforts related to COVID-19 and reduced demand from the U.S. electric power sector amid low natural gas prices have both contributed to mine idling and mine closures. EIA expects production to rise to 600 MMst in 2021, up 89 MMst (17%) from 2020. This forecast increase reflects rising demand for coal from U.S. electricity generators because of higher natural gas prices compared with 2020.
- EIA forecasts that U.S. energy-related carbon dioxide (CO2) emissions, after decreasing by 2.8% in 2019, will decrease by 10.0% (512 million metric tons) in 2020 with reduced consumption of all fossil fuels, particularly coal (18.3%) and petroleum (11.7%). This decline in emissions is the result of less energy consumption related to restrictions on business and travel activity and slowing economic growth related to COVID-19 mitigation efforts. In 2021, EIA forecasts that energy-related CO2 emissions will increase by 4.8% as the economy recovers and energy use increases.
To read the EIA's detailed report, click here.