The EIA just released its weekly inventories data for natural gas, reporting that the build in inventories was again below average at 90 billion cubic feet (bcf) to the level of 2,208 bcf (or 15% below last year and 3.1% below the five-year average). With reduced supplies and demand over 2% above last year, these are strong fundamentals for the doubling of natural gas’s price over the last year. Whether the price continues to rise toward records depends on the tightness of LNG markets in the international market, the ability of Canada (our largest source of imports) to prevent large declines in their production, and of course our ability to use electricity more efficiently.
In oil, OPEC released its market projections to 2030 and the IEA released its monthly report on markets through 2009. The IEA adjusted its global oil demand estimate for 2008 up for the first time in five months on resilient demand in China. This means importers will be more dependent on OPEC since non-OPEC production has largely stagnated. And OPEC’s report adjusted its estimate of 2030 global oil supply and demand down by 4 million barrels from last year’s report, a sign that the current high price and constrained supply are here to stay.
The EIA recently released its International Energy Outlook to 2030, in which it estimated the real oil price would fall throughout the period. They seem to be holding on to old projections that each of the last four years have proved woefully incorrect on the low end. In fact, their reference scenario is already 25% off for the 2008 price (even though the year is halfway done)! While I appreciate the availability of EIA’s data, their record in projecting oil prices has been dismal. It could be called a disservice as Ford and GM would be doing fine if EIA predictions of oil prices from as recently as 2004 were correct. And the millions of Americans who bought SUVs these past few years may not have done so if the EIA had warned them that prices may increase dramatically as they have. I’m not saying that the oil price shock was completely their fault, but their inability to foresee the potentiality of current prices is a shortfall that they need to fix.
But unfortunately, this year’s outlook continues a seemingly blind faith that prices will fall. As the world’s population increases and roaring economies drive huge demand growth in places like China and India, how could their high price scenario to 2030 be lower than the real oil price today? My explorations of price in the future come up with numbers north of $250 per barrel, and are mainly held back by the emergence of renewables wind and solar power to take up the slack. I will go into my vision of prices in more detail in the weeks ahead, and hope that the EIA at least has an open mind to a much higher price for oil as supply struggles to satiate demand going forward.
As my refrain goes, I am glad EIA projections appear to be woefully incorrect — because if they were right our climate would certainly pass the tipping point for major sea level rise. But the transition to a sustainable energy system will be a difficult path, and government policies to help people and institutions manage it will be crucial. SET aims to be a helpful resource for the public, government and businesses throughout the process.
Tags: climate change, EIA, Natural Gas, Oil
What reasons if any does EIA give for projecting falling real price of oil out to 2030? how/where does your analysis of prices differ with theirs? supply or demand side?
keep up the good work. great that you’re getting this info together.
Vince,
The EIA believes ample supply will be brought to market to bring prices down. And they believe the marginal cost of new oil production will be the determinant of price and that it will be in the $60s and rising slowly.
I think they are optimistic in the ability of producers to increase their flows or maintain their flows in the case of places like Mexico, Norway, the UK and our own US of A. Indeed, their record over the past year has shown them to be overly optimistic. In its February monthly report, the EIA projected non-OPEC oil supply to increase 900,000 barrels per day in 2008. It has been reduced almost every month since — now to a projected 230,000 barrels per day increase for the year. One of the biggest surprises is the fall in Russian production, the country that was the main source of non-OPEC production growth over the past decade. This leaves OPEC as the sole source of oil supply growth in my opinion, a precarious situation for net importers like the US, China, India, and most of the world. The EIA believes non-OPEC producers will actually be able to ramp up supply but, while they may be correct, the evidence of the last few years has flown in the face of this belief. I believe the recent project delays are a prelude to continued difficulty of future oil discovery and production. The high inelasticity of demand has turned this stagnation of supply (especially of oil traded internationally) into an extreme escalation in price that has lasted five years without a sign of stopping.
Until we have ready substitutes for oil in transportation (2015?), price increases may be inevitable for this convenient, dense fuel that has given our world so much. I will write more about my projections compared to others with the unfolding market developments in the weeks ahead.