March 8, 2022
Global liquid fuels
- The March Short-Term Energy Outlook (STEO) is subject to heightened levels of uncertainty resulting from a variety of factors, including Russia’s further invasion of Ukraine. This STEO assumes U.S. GDP will grow by 3.6% in 2022 and by 2.7% in 2023, after growing by 5.7% in 2021. We use the S&P Global (formerly IHS Markit) macroeconomic model to generate our U.S. economic assumptions. Global macroeconomic assumptions in our forecast are from Oxford Economics and include global GDP growth of 4.3% in 2022 and 4.0% in 2023, compared with growth of 5.9% in 2021. These GDP forecasts were completed in mid-February. The rest of the forecast was completed on March 3 and accounts for available information to that point. A wide range of potential macroeconomic outcomes could significantly affect energy markets during the forecast period. Supply uncertainty results from the conflict in Ukraine, the production decisions of OPEC+, and the rate at which U.S. oil and natural gas producers increase drilling.
- Brent crude oil spot prices averaged $97 per barrel (b) in February, an $11/b increase from January. Daily spot prices for Brent closed at almost $124/b in the first week of March as the further invasion of Ukraine by Russia and subsequent sanctions on Russia and other actions created significant market uncertainties about the potential for oil supply disruptions. These events are occurring against a backdrop of low oil inventories and persistent upward oil price pressures. Global oil inventories have fallen steadily since mid-2020, and inventory draws averaged 1.8 million barrels per day (b/d) from the third quarter of 2020 (3Q20) through the end of 2021. We estimate that oil inventories fell further in the first two months of 2022 and that commercial inventories in the OECD ended February at 2.64 billion barrels, which is the lowest level since mid-2014.
- We expect the Brent price will average $117/b in March, $116/b in 2Q22, and $102/b in the second half of 2022 (2H22). We expect the average price to fall to $89/b in 2023. However, this price forecast is highly uncertain. Actual price outcomes will be dependent on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market. In addition, the degree to which other oil producers respond to current oil prices, as well as the effects macroeconomic developments might have on global oil demand, will be important for oil price formation in the coming months. Although we reduced Russia’s oil production in our forecast, we still expect that global oil inventories will build at an average rate of 0.5 million b/d from 2Q22 through the end of 2023, which we expect will put downward pressure on crude oil prices. However, if production disruptions—in Russia or elsewhere—are more than we forecast, resulting crude oil prices would be higher than our forecast.
- We forecast that global consumption of petroleum and liquid fuels will average 100.6 million b/d for all of 2022, up 3.1 million b/d from 2021. We forecast that consumption will increase by 1.9 million b/d in 2023 to average 102.6 million b/d. Economic forecasts in this outlook were completed before Russia’s further invasion of Ukraine. The outlook for economic growth and oil consumption in Russia and surrounding countries is highly uncertain. Oil consumption will depend on how economic activity and travel respond to recent and any potential future events and sanctions.
- U.S. regular gasoline retail prices averaged $3.52 per gallon (gal) in February, up 20 cents/gal from January and up $1.02/gal from February 2021. Retail diesel prices averaged $4.03/gal in February—the highest average price (not adjusted for inflation) for any month since March 2013. Product prices have risen compared with year-ago levels because of rising crude oil prices and high refining margins. We expect crude oil price increases will push the U.S. average gasoline price to $4.10/gal on average in 2Q22, which would be the first time that gasoline prices (not adjusted for inflation) have reached at least $4/gal in any month since July 2008. We expect diesel prices will average $4.43/gal during 2Q22. Gasoline and diesel prices are closely tied to crude oil prices. We forecast gasoline prices will average $3.71/gal in 2H22, and we forecast diesel prices will average $4.04/gal over the same period. However, actual prices could be significantly affected by the same factors that affect crude oil prices.
- U.S. crude oil production fell below 11.6 million b/d in December 2021 (the most recent monthly historical data point), a decline of 0.2 million b/d from November 2021. We forecast that production will rise to average 12.0 million b/d in 2022 and then to record-high production on an annual-average basis of 13.0 million b/d in 2023. The previous annual-average record of 12.3 million b/d was set in 2019.
- In February, the Henry Hub natural gas spot price averaged $4.69 per million British thermal units (MMBtu), which was up from the January average of $4.38/MMBtu. Although temperatures across the eastern part of the United States were close to normal in February, reducing natural gas consumption from January levels, natural gas production fell slightly last month relative to January, in part as a result of temporary freeze-offs in producing regions. The drop in production partly contributed to inventory draws outpacing the five-year (2017–2021) average in February. This outlook assumes that temperatures in March will be milder than February and near the 10-year average for March. We expect production will rise from February levels, contributing to a lower average Henry Hub price of $4.10/MMBtu for March. We expect the Henry Hub price will average $3.83/MMBtu in 2Q22 and $3.95/MMBtu for all of 2022. We expect the Henry Hub spot price will average $3.59/MMBtu in 2023.
- We estimate that inventory withdrawals in February were 627 billion cubic feet (Bcf) and that natural gas inventories ended the month at 1.6 trillion cubic feet (Tcf). We expect natural gas inventories to fall by about 95 Bcf in March, ending the withdrawal season at about 1.5 Tcf, which would be 10% less than the five-year average for this time of year. We forecast that natural gas inventories will end the 2022 injection season (end of October) at 3.5 Tcf, which would be 4% less than the five-year average.
- In February, U.S. liquefied natural gas (LNG) exports averaged 10.9 billion cubic feet per day (Bcf/d), down from 11.2 Bcf/d in January. Similar to last year, U.S. LNG exports in February were limited by fog in the Gulf of Mexico that affected vessel traffic and led to piloting services being suspended for several days on the Sabine Pass, Lake Charles (location of Cameron LNG), and Corpus Christi waterways. Although exports fell in February, they were higher than in any month prior to December 2021. Many U.S. LNG cargoes were delivered to Europe last month, where inventories are lower than the five-year average and potential supply disruptions related to the conflict in Ukraine are a concern. Although Europe’s inventories are low, the additional LNG imports, as well as a mild winter, are helping bring inventories closer to the five-year average than they were at the beginning of the winter. We expect high levels of U.S. LNG exports to continue in 2022, averaging 11.3 Bcf/d for the year, a 16% increase from 2021.
- We expect that U.S. consumption of natural gas will average 84.6 Bcf/d in 2022, up 2% from 2021. The increase in U.S. natural gas consumption reflects rising demand in the industrial sector as a result of increased manufacturing activity. In addition, the increase in natural gas consumption reflects higher consumption in the residential and commercial sectors as a result of colder temperatures this year compared with 2021. Higher consumption in these sectors is partly offset by lower consumption in the electric power sector due to a forecast increase in generation from renewable energy sources.
- We estimate dry natural gas production averaged 95.3 Bcf/d in the United States in February, down 0.6 Bcf/d from January. Production in January and February was lower than in December because of freezing temperatures in certain production regions. We forecast natural gas production to average 95.7 Bcf/d in March. For 2022, we expect that natural gas production will average 96.7 Bcf/d, which is 3.1 Bcf/d more than in 2021. We expect dry natural gas production to rise to an average of 99.1 Bcf/d in 2023.
Electricity, coal, renewables, and emissions
- U.S. electric power sector generation in February 2022 was 1.3% lower than generation in February 2021, when generation was high because of extreme cold weather. We forecast that the annual share of U.S. electricity generation from renewable energy sources will rise from 20% in 2021, to 22% in 2022, and to 24% in 2023, as a result of continuing increases in solar and wind generating capacity. This increase in renewables generation leads to an expected decline in natural gas generation, which falls from a 37% share in 2021, to 36% in 2022, and to 35% in 2023. Natural gas generation falls in the forecast even though we expect the cost of natural gas for power generation to fall from $4.97/MMBtu in 2021, to $4.16/MMBtu in 2022, and to $3.80/MMBtu in 2023. Increasing renewable generation also contributes to our forecast that the share of generation from coal will fall from 23% in 2021 to 22% in 2022 and 21% in 2023. Nuclear generation remains relatively constant in the forecast at an average share of 20%.
- Planned additions to U.S. wind and solar capacity in 2022 and 2023 increase electricity generation from those sources in our forecast. The U.S. electric power sector added 14 gigawatts (GW) of new wind capacity in 2021. We expect 10 GW of new wind capacity will come online in 2022 and 5 GW in 2023. Utility-scale solar capacity rose by 13 GW in 2021. Our forecast for added utility-scale solar capacity is 22 GW for 2022 and 24 GW for 2023. We expect solar additions to account for nearly half of new electric generating capacity in 2022. In addition, in 2021, small-scale solar capacity (systems less than 1 megawatt) increased by 5.4 GW to 33 GW. We project that small-scale solar capacity will grow by 4.0 GW in 2022 and 4.3 GW in 2023.
- We expect U.S. coal production to increase by more than 25 million short tons (MMst) (4%) in 2022 to 604 MMst and then rise by 9 MMst (1%) in 2023. Although labor strikes at some metallurgical mines in Appalachia continue to affect production, we expect producers to regain a portion of that production later during 1H22. Increased production of coal will help support rising export demand as well as help replenish coal inventories at power plants that were depleted during 2021.
- We expect U.S. coal consumption to decrease by 7 MMst in 2022 and by 15 MMst in 2023. In both forecast years, declining consumption from the electric power sector is somewhat offset by rising consumption at coke plants.
- Coal exports in our forecast total 88 MMst in 2022, up 3% from 2021, and 91 MMst in 2023. We assume international prices will remain supportive of U.S. coal exports as the conflict in Ukraine creates the potential to disrupt supplies from that region.
- U.S. energy-related carbon dioxide (CO2) emissions increased by nearly 7% in 2021 as economic activity increased and contributed to rising energy use. We expect a 2% increase in energy-related CO2 emissions in 2022, primarily from growing transportation-related petroleum consumption. Forecast energy-related CO2 emissions remain almost unchanged in 2023. We expect petroleum emissions to increase by 4% in 2022 compared with 2021, and this growth rate slows to less than 1% in 2023. Natural gas emissions increase by 2% in 2022 and then decrease slightly in our forecast for 2023. We forecast that coal-related CO2 emissions will fall by 3% in 2022 and by 2% in 2023.
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