US Short-Term Energy Outlook – Analysis

Global liquid fuels

The June Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty related to the ongoing economic recovery from the COVID-19 pandemic. The U.S. economy continues to rise after reaching multiyear lows in the second quarter of 2020 (2Q20). The increase in economic activity and easing of the COVID-19 pandemic have contributed to rising energy use. U.S. gross domestic product (GDP) declined by 3.5% in 2020 from 2019 levels. This STEO assumes U.S. GDP will grow by 6.7% in 2021 and by 4.9% in 2022. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit. Our forecast assumes continuing economic growth and increasing mobility as a result of the easing of the COVID-19 pandemic. Any developments that would cause deviations from these assumptions would likely cause energy consumption and prices to deviate from our forecast.

Brent crude oil spot prices averaged $68 per barrel (b) in May, up $4/b from April. Brent prices were higher in May as global oil inventories continued to decline, albeit at a slower pace than in the first four months of the year. In the coming months, we expect that global oil production will increase to match rising levels of global oil consumption. The rising oil production in the forecast is largely a result of the OPEC+ decision to raise production. We expect rising production will end the persistent global oil inventory draws that have occurred for much of the past year and lead to relatively balanced global oil markets in the second half of 2021 (2H21). We expect Brent prices will remain near current levels in 3Q21, averaging $68/b. However, in 2022, we expect that continuing growth in production from OPEC+ and accelerating growth in U.S. tight oil production—along with other supply growth—will outpace decelerating growth in global oil consumption and contribute to declining oil prices. Based on these factors, we expect Brent to average $60/b in 2022.

We expect U.S. gasoline consumption will average 9.1 million barrels per day (b/d) this summer (April–September), which is 1.3 million b/d more than last summer but still more than 0.4 million b/d less than summer 2019. Weekly consumption data reflect the Colonial Pipeline outage and subsequent increase in gasoline demand, but consumption both before and after this event indicate more gasoline demand than we had previously forecast. Our latest forecast also reflects IHS Markit’s increased employment forecast. We expect U.S. gasoline consumption to average 8.7 million b/d in for all of 2021 and 9.0 million b/d in 2022.

For the 2021 April–September summer driving season, we forecast U.S. regular gasoline retail prices will average $2.92 per gallon (gal), up from an average of $2.07/gal last summer. The higher forecast gasoline prices reflect higher crude oil prices and higher wholesale gasoline margins. Wholesale gasoline margins have risen as a result of relatively low inventories and rising gasoline demand. Margins also temporarily widened because of outages on the Colonial Pipeline. These developments caused U.S. average regular gasoline retail prices to reach a monthly average of $2.99/gal in May, peaking at $3.03/gal on May 17, which were the highest monthly and weekly prices since 2014. We expect that prices will average $3.03/gal in June before falling to $2.76/gal by September. The drop in forecast retail gasoline prices reflects our forecast that gasoline margins will fall this summer in response to rising refinery utilization. For all of 2021, we expect U.S. regular gasoline retail prices to average $2.77/gal and gasoline retail prices for all grades to average $2.87/gal. Higher prices and more gasoline consumption would result in the average U.S. household spending about $570 (38%) more on motor fuel in 2021 compared with 2020.

We estimate that 96.2 million b/d of petroleum and liquid fuels was consumed globally in May, an increase of 11.9 million b/d from May 2020 but 3.7 million b/d less than in May 2019. We forecast that global consumption of petroleum and liquid fuels will average 97.7 million b/d for all of 2021, which is a 5.4 million b/d increase from 2020. We forecast that global consumption of petroleum and liquid fuels will increase by 3.6 million b/d in 2022 to average 101.3 million b/d.

We forecast OPEC crude oil production will average 26.9 million b/d in 2021 and 28.7 million b/d in 2022. OPEC crude oil production in the forecast rises from 25.0 million b/d in April to an average of 28.0 million b/d in 3Q21. Our expectation of rising OPEC production is primarily based on our assumption that OPEC will raise production by about 1 million b/d in both June and in July in response to rising global oil demand and seasonal increases in oil consumption for power generation for some OPEC members. It also reflects an assumption that Iran’s crude oil production will continue to increase this year. Although sanctions that target Iran’s crude oil exports remain in place, crude oil exports—according to ClipperData, LLC.—and production from Iran are up from most of 2020.

According to our most recent data, U.S. crude oil production averaged 11.2 million b/d in March 2021, an increase of 1.4 million b/d from February. The March rise indicates that the production outages caused by the February winter freeze were temporary and that production came back online quickly. Because prices of West Texas Intermediate crude oil remain above $60/b during 2021 in the current forecast, we expect that producers will drill and complete enough wells to raise 2022 production from 2021 levels. We estimate that 2022 production will average 11.8 million b/d, up from a forecast average of 11.1 million b/d in 2021.

Natural Gas

In May, the natural gas spot price at Henry Hub averaged $2.91 per million British thermal units (MMBtu), which is up from the April average of $2.66/MMBtu. We expect the Henry Hub spot price will average $2.92/MMBtu in 3Q21 and $3.07/MMBtu for all of 2021, which is up from the 2020 average of $2.03/MMBtu. Higher natural gas prices this year primarily reflect two factors: growth in liquefied natural gas (LNG) exports and rising domestic natural gas consumption outside of the power sector. In 2022, we expect the Henry Hub price will average $2.93/MMBtu amid slowing growth in LNG exports and rising U.S. natural gas production.

We expect that U.S. consumption of natural gas will average 82.9 billion cubic feet per day (Bcf/d) in 2021, down 0.5% from 2020. U.S. natural gas consumption declines in the forecast, in part, because electric power generators switch to coal from natural gas as a result of rising natural gas prices. In 2021, we expect residential and commercial natural gas consumption combined will rise by 1.2 Bcf/d from 2020 and industrial consumption will rise by 0.7 Bcf/d from 2020. Rising consumption outside of the power sector results from expanding economic activity and colder winter temperatures in 2021 compared with 2020. We expect U.S. natural gas consumption will average 82.8 Bcf/d in 2022.

We estimate that natural gas inventories ended May 2021 at almost 2.4 trillion cubic feet (Tcf), which is 3% lower than the five-year (2016–20) average. More natural gas was withdrawn from storage during the winter of 2020–21 than the previous five-year average, largely as a result of the colder-than-average February temperatures that contributed to a drop in natural gas production. We forecast that inventories will end the 2021 injection season (end of October) at 3.6 Tcf, which would be 4% below the five-year average.

Following a significant weather-related decline in U.S. natural gas production in February, U.S. dry natural gas production rose by 6.0 Bcf/d in March to 92.3 Bcf/d. We expect dry natural gas production will average 92.9 Bcf/d in 2H21 and then rise to 93.9 Bcf/d in 2022.

Electricity, coal, renewables, and emissions

We forecast that retail sales of electricity in the United States will increase by 2.3% in 2021 after falling by 3.9% in 2020. The largest increase in consumption will occur in the residential sector, where we forecast retail sales of electricity will grow by 2.8% this year. This growth is primarily a result of colder temperatures in the first quarter of 2021 compared with the same period in 2020. Much of the forecast increase in electricity consumption in the commercial and industrial sectors reflects improving economic conditions in 2021. We expect retail electricity sales to these two sectors combined will increase by 2.0% in 2021. For 2022, we forecast that U.S. retail sales of electricity will grow by another 1.4%.

We expect the share of electric power generation produced by natural gas in the United States will average 36% in 2021 and 35% in 2022, down from 39% in 2020. The forecast share for natural gas as a generation fuel declines in response to our expectation of a higher delivered natural gas price for electricity generators, which we forecast will average $4.09/MMBtu in 2021 compared with an average of $2.39/MMBtu in 2020. As a result of the higher expected natural gas prices, the forecast share of generation from coal rises from 20% in 2020 to 23% this year but falls to 22% next year. New additions of solar and wind generating capacity support our expectation that the renewables share of U.S. generation will rise from 20% in 2020 to 21% in 2021 and to 23% in 2022. The nuclear share of U.S. electricity generation declines from 21% in 2020 to 20% in 2021 and to 19% in 2022 as a result of retiring capacity at some nuclear power plants.

We forecast that planned additions to U.S. wind and solar generating capacity in 2021 and 2022 will contribute to rising electricity generation from those sources. We estimate that the U.S. electric power sector added 14.8 gigawatts (GW) of new wind capacity in 2020. We expect 16.0 GW of new wind capacity will come online in 2021 and 5.3 GW in 2022. Utility-scale solar capacity rose by an estimated 10.5 GW in 2020. Our forecast for added utility-scale solar capacity is 15.5 GW 2021 and 16.6 GW for 2022. We expect significant solar capacity additions in Texas during the forecast period. In addition, 4 GW to 5 GW of small-scale solar capacity (systems less than 1 megawatt) will come online each year during the 2021–22 STEO forecast.

We expect U.S. coal production to total 600 million short tons (MMst) in 2021, which is 61 MMst (11%) more than in 2020. The increase is driven primarily by rising electricity demand. In 2022, we expect coal production to grow by an additional 5 MMst (1%).

We expect U.S. coal exports to be about 81 MMst in 2021, 12 MMst (17%) more than in 2020. We expect most of this growth to come from rising demand for steam coal in Europe and Asia as increased steel prices during 2021 and 2022 drive exports. Forecast U.S. coal exports in 2022 rise by an additional 12 MMst (14%).

We estimate that U.S. energy-related carbon dioxide (CO2) emissions decreased by 11% in 2020 as a result of less energy consumption related to reduced economic activity and responses to COVID-19. In 2021, we forecast energy-related CO2 emissions will increase about 6% from the 2020 level as economic activity increases and leads to rising energy use. We also expect energy-related CO2 emissions to rise in 2022, but by a slower rate of 2%. We forecast that after declining by 19% in 2020, coal-related CO2 emissions will rise by 15% in 2021 and then decrease by 1% in 2022.