Short-Term Energy Outlook, June 2024
A guest post by D Coyne
The EIA STEO was published recently, the estimate below is based on data from that report and statistics from the EIA International Energy Statistics. The EIA expects the 2018 peak for annual average World C+C output will be surpassed in 2025.
Beyond 2024 the EIA forecast looks optimistic to me, my expectation is slightly higher output in 2024 (annual average World C+C output) of about 82100 kb/d (about 250 kb/d higher than the EIA forecast) and about 82400 kb/d in 2025 (roughly 1250 kb/d less than the EIA forecast).
There have been a number of revisions since last month, which are detailed below.
Oil, diesel and gasoline prices are lower and natural gas prices higher than forecast last month.
It is not clear why these relatively flat Brent prices would result in the strong increase in production in World C+C output from May 2024 to December 2025 that has been forecast by the EIA, in my view flat output would be more in line with this oil price forecast.
The EIA expects slightly less output from OPEC+ than the targets announced by OPEC+ (shown in gray in the chart above).
The chart above contrasts the strong increases in output from non-OPEC+ producers relative to OPEC+, especially since 2022 and the strong increase is forecast to continue in 2024 and 2025.
Rising natural gas prices might help profitability in the Permian Basin, but note that typically Waha Hub prices, which reflect the natural gas price that Permian producers may see, are often $1 or more lower than the Henry Hub price. Note also the huge fluctuation in natural gas prices from almost $9/ MMbtu in 2022 to under $2/ MMbtu in 2024, 4.5 times lower. For oil at $40/b a similar level of change would mean an increase to $180/b, natural gas prices are much more volatile than oil prices.
Stock draws are expected in 2024 followed by stock builds in 2025 based on the EIA forecast in June.
OECD commercial liquids inventory is expected to be close to the 5-year low over the forecast period.
Note the difference in symmetry between the 95% confidence intervals in oil price vs natural gas price. For oil the range for December 2025 is 40 to 120 per barrel with the STEO best guess at about 80/b. For natural gas the range is 2/MMbtu to 9/MMbtu with the STEO best guess at about $3.50/MMbtu. There is much higher upside variability for natural gas compared to oil (the equivalent for the high estimate for oil would be about $206/b).
In the US, energy expenditures as a share of GDP have been generally decreasing over the 2005 to 2024 period.
This chart indicates the dominance of the Permian Basin, especially since 2021, with most of the tight oil increase from 2021 to 2024 coming from the Permian.
The Permian also played an important role in keeping overall shale gas output pretty flat since the end of 2022 (with other basins as a group showing decreasing shale gas output since the end of 2022.)
The chart above includes NGL output with dry shale gas output, and also includes conventional natural gas from each region.
The chart above shows that for the US C+C output since 2021, most of the increase has been from the Permian Basin, it also shows that the future annual rate of increase from April 2024 to December 2025 is expected to be smaller than the Jan 2021 to April 2024 period. I believe the EIA forecast for the Permian Basin may be a bit optimistic. The chart above includes both tight oil and conventional C+C from each region.
The scenario above assumes the EIA forecast for oil and natural gas prices from April 2024 to December 2025 is correct, it is for Permian tight oil output only rather than regional Permian C+C output (C+C output would be roughly 400 kb/d higher than tight oil output from 2023 to 2025 in the Permian Basin.) Compared to the EIA forecast for the Permian Basin, this scenario’s centered 12-month average is about 247 kb/d lower in 2024 and 632 kb/d lower in 2025 than the EIA’s forecast for Permian tight oil output in 2024 and 2025.