Syed Rashid Husain Courtesy the US energy output growth and only modest increment in demand, Washington's reliance on imported energy supplies is going down and would continue to do so for decades, underlines the just released AEO2015, the shorter edition of the US Energy Information Administration's much awaited Annual Energy Outlook. Energy imports and exports finally come into balance in the United States starting in 2028 in the AEO2015 Reference case and in 2019 in the High Oil Price and High Oil and Gas Resource cases, the Outlook projects. In addition to the Reference case, the just released Outlook also includes five alternative cases (Low and High Economic Growth, Low and High Oil Price, and High Oil and Gas Resource), underlining how different assumptions regarding market, policy and technology drivers affect projections of energy production, consumption, technology, market trends and the direction they may take in the future. To understand the predicament of analysts, one thus needs to comprehend the complexity of the overall equation and the number of variables impacting the markets at the same time. The only constant in the entire equation is the constantly changing weight of each variable. The AEO2015 focuses on the factors expected to shape US energy markets through 2040, providing a basis for examination and discussion of energy market trends, serving as a starting point for analysis of potential changes in US energy policies, rules, and regulations, as well as the potential role of advanced technologies. And all this would distinctly impact the global energy markets in the coming years and decades. Delineating the future of the domestic energy markets, the Outlook goes on to add that through 2020, strong growth in domestic crude oil production from tight formations would lead to a decline in net petroleum imports and growth in net petroleum product exports. In the High Oil and Gas Resource case, increased crude production before 2020 results in increased processed condensate exports. Slowing growth in domestic production after 2020 is offset by increased vehicle fuel economy standards, limiting growth in domestic demand, AEO2015 underlines. And then highlighting the interesting point, with considerable geopolitical consequences too, the AEO2015 says that the net US import share of crude oil and petroleum products falls from 33% of in 2013 to 17% of total supply in 2040 in the Reference case. In fact the Outlook says that the United States would become a net exporter of petroleum and other liquids after 2020 in the High Oil Price and High Oil and Gas Resource cases as the US crude oil production would go up at the same time. The elevated production levels is also aided by the modest consumption growth over the AEO2015 projection period, averaging 0.3%/year from 2013 through 2040 in the Reference case. A marginal decrease in transportation sector energy consumption contrasts with growth in most other sectors. Natural gas is the dominant US energy export. The United States transitions from being a modest net importer of natural gas to a net exporter by 2017. US export growth continues after 2017, with net exports in 2040 ranging from 3.0 trillion cubic feet (Tcf) in the Low Oil Price case to 13.1 Tcf in the High Oil and Gas Resource case. The AEO2015 also points out the fact that the growth in production of dry natural gas and natural gas plant liquids (NGPL) contributes to the expansion of several manufacturing industries (such as bulk chemicals and primary metals) and the increased use of NGPL feed stocks in place of petroleum-based naphtha feed stocks. And this has changed the global petrochemical kaleidoscope too, with the Middle Eastern producers losing their feedstock competitive advantage considerably, giving a new lease of life to the petrochemical industry in the Americas too. Commenting on the future path of crude oil and natural gas prices, the AEO2015 highlights it could vary substantially, depending on assumptions about the size of the resource and growth in demand, particularly in non-OECD countries, levels of production, and supplies of other fuels. The AEO2015 takes into account a number of factors related to the uncertainty of future crude oil prices, including changes in worldwide demand for petroleum products, crude oil production, and supplies of other liquid fuels. In the AEO2015 Reference case, the continued growth in US crude oil production is projected to contribute to a 43% decrease in the Brent crude oil price - to $56/bbl in 2015. Prices are then anticipated to rise steadily after 2015 in response to growth in demand from countries outside the OECD. However, downward pressure from continued increase in US crude oil production is projected to keep the Brent below $80/bbl through 2020. And then it goes on to add that though the US crude oil production starts to decline after 2020, yet increased production from OPEC and non-OECD countries ensures the Brent prices to remain below $100/bbl through 2028, limiting the rise of Brent to $141/bbl in 2040. There is but a significant price variation in the alternative cases using different assumptions. In the Low Oil Price case, the Brent price drops to $52/bbl in 2015, 7% lower than in the Reference case, and reaches $76/bbl in 2040, 47% lower than in the Reference case, largely the result of lower non-OECD demand and higher upstream investment by OPEC. In the High Oil Price case, the Brent price increases to $122/bbl in 2015 and to $252/bbl in 2040, largely in response to significantly lower OPEC production and higher non-OECD demand. In the High Oil and Gas Resource case, assumptions about overseas demand and supply decisions do not vary from those in the Reference case, but US crude oil production growth is significantly greater, resulting in lower US net imports of crude oil - causing the Brent spot price to average $129/bbl in 2040 - 8% lower than in the Reference case. The AEO2015 once again makes interesting reading, pointing to the changing horizon of the world of energy. The emergence of shale and tight oil have totally transformed the energy world. The outlook confirms the trend is to continue - and for decades - if not more!
