Assuming a 1.9 percent growth spurt in U.S. real gross domestic product this year, the Energy Information Administration said in early December that it expects 2010 will see rising prices for a range of fossil fuels, with a bump in Henry Hub natural gas prices expected to spur “some reversal” of the recent trend of coal-to-natural-gas switching in the power sector.
EIA, the independent analytical arm of the Energy Department, said as the economy gathers steam this year, rising demand for gasoline, crude oil, coal, and natural gas is expected to push up energy prices, aided by a projected boost in crude oil production.
The agency said a surge in the production of crude oil is already afoot, forecasting in its latest short-term energy outlook that U.S. production is expected to average 5.34 million barrels per day (bpd) in 2009, the first production increase since 1991.
“[A]ssuming that U.S. and world economic conditions continue to improve,” EIA said it expects world oil consumption to grow this year by 1.1 million bpd to 85.2 million bpd, down slightly from November’s projection of 85.4 million bpd.
And with U.S. crude oil production growing for the first time in almost 20 years as a result of booming federal offshore oil fields in the Gulf of Mexico, EIA predicted prices for West Texas Intermediate crude will reach $82 per barrel by December 2010, while continuing to average about $76 per barrel through March.
The rise in crude oil prices, added EIA, will contribute to an increase in the annual average regular-grade gasoline retail price from $2.35 per gallon in 2009 to $2.83 in 2010, with pump prices expected to approach $3 per gallon this summer.
While forecasting a 3.7 percent increase in production of natural gas last year, EIA said those gains, resulting mostly from surging shale supplies, will be followed by an estimated decline of 3.1 percent in 2010 to handle the continuing gas market glut.
Despite that, EIA said it expects the annual average natural gas Henry Hub spot price for 2010 to be $4.62 per thousand cubic feet (mcf), representing a $0.67-per-mcf increase from the estimated 2009 price of $3.95 per mcf.
However, the agency said it expects sustained price movements will be limited this year, citing “strong domestic production, a retrenchment of electric-power-sector natural gas demand, and uncertainty about the extent of recovery in the industrial sector.”
While forecasting an economy-driven increase in residential, commercial, and industrial gas consumption in 2010, EIA said it “still expects total consumption to fall as higher natural gas prices contribute to some reversal of the coal-to-natural-gas switching that took place in the electric power sector during 2009.”
EIA also noted that natural gas working inventories reached a new record-high of 3.8 trillion cubic feet on November 27, saying mild weather throughout the country contributed to “uncommon storage builds” that month. EIA projects average household expenditures on natural gas will total $778 this winter, compared with $889 last winter.
Noting lower total electricity generation and growing generation from renewable sources in 2009, EIA said coal consumption by the electric power sector fell between 10 and 12 percent last year. However, said EIA, “[p]rojected increases in electricity demand and higher natural gas prices will contribute to growth in coal-fired generation in 2010.
“Forecast coal consumption in the electric power sector increases by nearly 4 percent in 2010 but remains below 1 billion short tons for the second consecutive year,” said EIA.