Release Date: December 8, 2020
Global liquid fuels
- The December Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty because responses to 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 and will continue to affect these patterns in the future. U.S. gross domestic product (GDP) declined by 4.4% in the first half of 2020 from the same period a year ago. GDP began rising in the third quarter of 2020, and this STEO assumes it will grow by 3.1% annually in 2021 from 2020. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit completed in early November.
- Brent crude oil spot prices averaged $43 per barrel (b) in November, up $3/b from the average in October. Brent prices increased in November in part because of news about the viability of multiple COVID-19 vaccines, along with market expectations that the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) would delay or limit production increases planned for January 2021.
- The U.S. Energy Information Administration (EIA) expects that Brent prices will average $49/b in 2021, up from an expected average of $43/b in the fourth quarter of 2020. The forecast for higher crude oil prices next year reflects EIA’s expectation that while inventories will remain high, they will decline with rising global oil demand and restrained OPEC+ oil production. EIA forecasts Brent prices will average $47/b in the first quarter of 2021 and rise to an average of $50/b by the fourth quarter. The first quarter 2021 average is $5/b more than forecast in last month’s STEO, and the fourth quarter average is $1/b more. The higher expected first quarter prices reflect steeper expected global oil inventory draws as a result of the December 3 OPEC+ decision to limit its previously planned production increases in January 2021. EIA expects high global oil inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices through much of 2021.
- EIA forecasts OPEC crude oil production will average 27.5 million barrels per day (b/d) in 2021, up from an estimated 25.6 million b/d in 2020. The increase reflects OPEC’s announced potential increases to production targets and production increases in Libya. At the December 3 meeting, OPEC and OPEC+ participants decided to limit oil production increases planned for January 2021. OPEC+ announced it will increase its production target by 0.5 million b/d in January 2021. The group had initially planned to increase its target by 2.0 million b/d. The group will also assess the state of global oil markets and petroleum demand monthly, adjusting targets based on market conditions. EIA now forecasts OPEC crude oil production will average 25.7 million b/d in the first quarter of 2021, which is 1.7 million b/d lower than forecast in the November STEO and reflects the announced changes to OPEC+ targets and more effective assumed compliance with targets.
- EIA estimates that the world consumed 95.6 million b/d of petroleum and liquid fuels in November, which is down 6.3 million b/d from November 2019 but up from the third-quarter 2020 average of 93.5 million b/d. EIA forecasts that global consumption of petroleum and liquid fuels will average 92.4 million b/d for all of 2020, which is down by 8.8 million b/d from 2019, before increasing by 5.8 million b/d in 2021.
- EIA estimates that U.S. crude oil production was 11.2 million b/d in November, which is up from 10.9 million b/d in September (the most recent month for which historical data are available). The increase mostly reflects greater production in the U.S. Federal Gulf of Mexico after hurricane-related disruptions. EIA expects that U.S. crude oil production will decline to less than 11.0 million b/d in March 2021 mostly because of falling production in the Lower 48 states, where EIA expects declining production rates at existing wells will outpace production from newly drilled wells in the coming months. EIA expects crude oil production in the Lower 48 states will increase from 8.7 million b/d in February 2021 to 9.1 million b/d in December 2021, as drilling increases in response to rising oil prices. This increase contributes to total U.S. crude oil production reaching 11.4 million b/d in December 2021. On an annual average basis, EIA expects U.S. crude oil production to fall from 12.2 million b/d in 2019 to 11.3 million b/d in 2020 and 11.1 million b/d in 2021.
- In November, the Henry Hub natural gas spot price averaged $2.61 per million British thermal units (MMBtu), up from the October average of $2.39/MMBtu. Price increases last month were moderated by significantly warmer-than-normal temperatures, which reduced residential space heating demand for natural gas despite many remaining at home in response to the pandemic. EIA expects Henry Hub spot prices to reach a monthly average of $3.10/MMBtu in January 2021, which is down from the forecast January average price of $3.42/MMBtu in last month’s STEO. Although EIA still expects prices to increase in the coming months because of rising space heating demand and rising U.S. liquefied natural gas (LNG) exports amid declining U.S. natural gas production, the lower January price forecast reflects higher forecast storage levels this winter compared with last month’s forecast. EIA expects that monthly average spot prices will average $3.01/MMBtu in 2021, which is up from the forecast average of $2.07/MMBtu for 2020.
- U.S. working natural gas in storage ended October at almost 4.0 trillion cubic feet (Tcf), 5% more than the five-year (2015–19) average and the second-highest end-of-October level on record. EIA estimates that inventories fell by 20 billion cubic feet (Bcf) in November, compared with a five-year average November withdrawal of 103 Bcf and a forecast withdrawal of 222 Bcf in last month’s STEO. The lower-than-expected withdrawal is the result of warmer-than-normal November temperatures that reduced natural gas use for space heating. However, EIA forecasts that declines in U.S. natural gas production this winter compared with last winter will more than offset the declines in natural gas consumption, which will contribute to inventory withdrawals outpacing the five-year average during the remainder of the winter season that ends in March. Forecast natural gas inventories end March 2021 at 1.6 Tcf, 15% lower than the 2016–20 average.
- EIA expects that total U.S. consumption of natural gas will average 83.4 billion cubic feet per day (Bcf/d) in 2020, down 2.0% from 2019. The decline in total U.S. consumption reflects warmer temperatures in 2020 compared with 2019 that lowered residential space heating demand for natural gas despite many staying home in response to the pandemic. EIA expects residential demand in 2020 to average 12.9 Bcf/d (down 0.8 Bcf/d from 2019) and commercial demand in 2020 to average 8.6 Bcf/d (down 1.0 Bcf/d from 2019). EIA forecasts industrial consumption will average 22.5 Bcf/d in 2020 (down 0.5 Bcf/d from 2019) as a result of reduced manufacturing activity. EIA expects total U.S. natural gas consumption will average 79.4 Bcf/d in 2021, a 4.8% decline from 2020. The forecast decline in 2021 results from rising natural gas prices that lower forecast natural gas demand in the electric power sector.
- EIA forecasts U.S. dry natural gas production will average 90.9 Bcf/d in 2020, which is down from an average of 93.1 Bcf/d in 2019. In the forecast, monthly average production falls from a record 97.0 Bcf/d in December 2019 to 87.1 Bcf/d in April 2021 before increasing slightly. EIA forecasts dry natural gas production in the United States to average 87.9 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. The increase in crude oil prices is expected to raise associated gas production from oil-directed wells in late-2021, especially in the Permian region.
- EIA estimates that the United States exported 9.4 Bcf/d of LNG in November—the most for any month on record. International spot and forward LNG prices continued to increase in late November, supported by reduced global LNG supply because of outages at LNG export plants in several countries and reported congestion at the Panama Canal, which affected westbound U.S. LNG exports to Asia. EIA expects LNG demand to continue increasing. The primary drivers of this increase are forecasts of colder-than-normal winter weather in Northern Asia and Europe and coal plant closures in South Korea that could increase demand for natural gas for power generation. EIA forecasts that U.S. LNG exports will exceed 9.5 Bcf/d from December through February and will average 8.5 Bcf/d in 2021, a 30% increase from 2020.