The U.S. Energy Information Administration released its “Short-Term Energy Outlook” on Feb. 9, citing heightened levels of uncertainty as responses to COVID-19 continue to evolve. Reduced economic activity related to the COVID-19 pandemic has caused changes in energy demand and supply over the past year and will continue to affect these patterns in the future.
U.S. gross domestic product (GDP) declined by 3.6% in 2020 from 2019 levels, the report said. The STEO assumes U.S. GDP will grow by 3.8% in 2021 and by 4.2% in 2022. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit.
“Consumers can expect to see retail gasoline prices average $2.44 per gallon in 2021, up 26 cents from 2020 but down 16 cents from 2019,” said EIA Acting Administrator Steve Nalley.
Continued restraint in production by OPEC and its partner countries contributed to a $5 increase in crude oil spot prices in January, averaging $55 per barrel for the month.
“EIA expects Brent crude oil prices to fall from an expected $56 per barrel in the first quarter of 2021 to an average of $52 per barrel over the rest of the year,” added Nalley. “The price drop reflects a rise in global oil supply that will slow the pace of global oil inventory withdrawals.”
EIA forecasts U.S. crude oil production to continue decreasing slightly in the first half of 2021 as declining production rates at existing oil wells offset production from newly drilled wells. Nally said the EIA expects U.S. crude oil production will increase in the second half of 2021 and in 2022.
EIA expects that total U.S. consumption of natural gas will average 81.7 billion cubic feet per day (Bcf/d) in 2021, down 1.9% from 2020. The decline in total U.S. consumption reflects less natural gas consumed for electric power as a result of higher natural gas prices compared with last year.
“The U.S. benchmark Henry Hub natural gas spot price continues to increase after reaching its lowest annual average price in decades during 2020,” Nalley explained. “EIA expects Henry Hub spot prices will average $2.95 per million British thermal units in 2021 and increase further to $3.27 per million British thermal units in 2022.”
Nalley pointed out that increased use of natural gas for space heating this winter and strong liquefied natural gas exports at a time when U.S. natural gas production is relatively low will cause natural gas inventories—currently running above five-year average levels—to return to average levels by the end of March.
EIA uses weather forecasts from the National Oceanic and Atmospheric Administration (NOAA) as an input into the STEO, and the NOAA forecast in this STEO is from late January. More recent forecasts for mid-February weather show cold temperatures could extend across much of the United States, which creates an upside risk to near-term prices in this outlook.
EIA forecasts that consumption of electricity in the United States will increase by 1.6% in 2021 after falling 3.8% in 2020. EIA forecasts residential sector retail sales will grow by 2.2% in 2021. The increase is primarily a result of those colder forecast temperatures in the first quarter of 2021 compared with the same period in 2020, which EIA expects will raise demand for space heating, along with EIA’s assumption that more people will be working from home than in the first quarter of 2020.
EIA expects retail sales of electricity in the commercial and industrial sectors will increase by 1.2% and 2.3%, respectively. For 2022, EIA forecasts total electricity consumption will grow by another 1.7%.
“We currently project that the share of U.S. electric power generated from natural gas will fall from 39% in 2020 to 35% by 2022 as a result of higher natural gas prices,” Nalley said.
Nalley added that EIA expects that renewables will continue to be the fastest-growing source of electricity generation in the United States through 2022 as the share of U.S. electricity generation coming from renewables rises to 23% of generation in 2022 from 20% in 2020.
EIA expects rising global economic activity will contribute to rising steel production and power demand, which will lead to increased U.S. exports of both metallurgical and steam coal.
“EIA expects U.S. coal exports to increase 24% in 2021 as the global economy recovers and the demand for power and steel production increases demand for coal,” said Nalley.
EIA estimates that U.S. energy-related carbon dioxide (CO2) emissions decreased by 11% in 2020. This decline in emissions is the result of less energy consumption related to economic contraction in response to the COVID-19 pandemic.
In 2021, EIA forecasts that energy-related CO2 emissions will increase by about 4% from the 2020 level as economic activity increases leading to rising energy use. Energy-related CO2 emissions are also expected to rise by 3% in 2022 as economic growth continues.
The U.S. Energy Information Administration (EIA) collects, analyzes and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment.