NTG - EIA Short-Term Energy Outlook And Tight Oil Update December 2023
2023-12-31 07:00:00 ET
Summary
- The EIA's Short Term Energy Outlook (STEO) predicts an increase in World C+C output in the 4th quarter of 2023, followed by a decrease in 2024 Q1.
- OPEC's forecast for World liquids demand in 2023 and 2024 is significantly higher than the EIA's forecast.
- The US tight oil scenario predicts a peak in 2023 at 8500 kb/d, 550 kb/d lower than the previous scenario, due to lower oil and natural gas prices.
A guest post by Dennis Coyne
Short Term Energy Outlook (STEO)
The EIA’s Short Term Energy Outlook (STEO) was published in early December. The chart below estimates World C+C by using the STEO forecast combined with past data from the EIA on World Output.
The EIA’s Short Term Energy Outlook (STEO) was revised higher for 2023 compared to last month and lower for 2024. World C+C output is expected to increase in the 4th quarter of 2023 and then decrease 2024 Q1 followed by increases in quarterly output. Annual average World C+C output increases by about 1117 kb/d in 2023 to 81951 kb/d and then to 82325 kb/d in 2024, about 675 kb/d below the centered 12-month average peak in 2018. This month’s World C+C estimates are about 147 kb/d higher than November’s estimate for 2023 and 230 kb/d lower for 2024 due to the revisions in the STEO forecast since last month.
The chart above compares the EIA estimates and 2023 and 2024 forecasts of World liquids supply with the estimates and forecasts by OPEC, for most years the estimates are similar and the biggest difference is in the 2024 forecast where the OPEC forecast is 1.3 Mb/d higher than the EIA forecast.
Above we compare estimates for World liquids demand from 2013 to 2022 from the Statistical Review of World Energy (SRWE) 2023, EIA and OPEC, also compared are the EIA and OPEC forecasts for 2023 and 2024 annual average World liquids demand. In this case there is a significant difference in estimates from 2013 to 2019 and in 2022. The forecasts for World liquids demand in 2023 and 2024 are also very different between OPEC’s MOMR and the EIA’s STEO, in 2023 OPEC’s forecast is 1.1 Mb/d higher than the EIA forecast and in 2024 OPEC’s forecast is 2.02 Mb/d higher.
The chart above averages the estimates and forecasts presented in the supply and demand charts above, the estimate for 2025 is my guess based on recent forecasts by OPEC and the EIA in 2023 and 2024.
The chart above uses the average supply and demand estimates and forecasts to find World liquids stock levels. It is assumed at year end 2013 there are 90 days of forward (2014) consumption held in World liquid stocks, then supply is added and demand is subtracted from stocks each year with the absolute level shown in millions of barrels on the right vertical axis. The days of forward consumption at the end of each year are shown on the left vertical axis, with amounts that are above 92 days being oversupply and leading to falling oil prices and days of supply under 92 days suggesting undersupply and should lead to rising prices. Note that in 2023 and 2024 the chart suggests oil prices should rise, but this will only be the case if the supply and demand forecasts are accurate. The fact that oil prices have been relatively low in 2023 and are likely to continue to be low in 2024 suggests that either demand forecasts are too high, supply forecasts are too low or a bit of both.
Tight Oil
The scenario above is a departure from most of my previous scenarios where it was assumed that Permian output would continue to grow through at least 2028, before plateauing and then declining. This scenario has a 13-well drop in completions in November 2023 followed by gradual decline in completions by one well per month to Jan 2027, by 2 wells per month up to November 2029, by 5 wells per month up to Nov 2023 and by 10 wells per month up to Feb 2033 when no more wells are completed. It is also assumed the new well productivity falls by about 3.9% per year initially in 2023, with rates of decrease slowing over time as fewer wells are completed per year over the course of the scenario. My expectation of relatively low oil and natural gas prices and lower profits for Permian producers as a result lead me to this new scenario. I have left the scenario for other tight oil basins unchanged (which is likely too optimistic) so the US scenario only changes due to this new Permian scenario.
The US tight oil scenario peaks in 2023 at 8500 kb/d, about 550 kb/d lower than the scenario presented in November and about 4 years earlier. The URR is about 4 Gb less than last month’s scenario.
The chart above is in Mb/d (vertical axis) the Dec-23 scenario has a 59 Gb URR, the Oct-23 scenario a URR of 72 Gb and the Nov-23 scenario has a URR of 63 Gb.
The estimates above use data from Novi Labs, Texas RRC, New Mexico OCD, and EIA PSM and official tight oil estimates. Most of the increase in US tight oil output from March 2021 to September 2023 comes from the Permian basin. In the past 7 months the rate of increase has slowed to about an annual rate of increase of 320 kb/d for US tight oil and to an annual rate of increase of 205 kb/d for the Permian basin.
World Oil Shock Model
The World Oil Shock Model above reflects the new tight oil scenario with no other changes, I have changed the URR to 2700 Gb as only two digits are significant for a model with this much uncertainty. The peak is 82.4 Mb/d in 2025, the STEO estimates for 2023 and 2024 are shown from the December STEO.
The chart above shows the evolution of the World Oil Shock model over the past 3 months, mostly due to changes in my expectation for further growth in the Permian Basin along with my expectation that oil and natural gas prices may remain lower than I had previously guessed. Roughly the Dec 2023 scenario envisions oil price at under $75/b and natural gas prices under $2.50/MCF, the October 2023 scenario expected oil prices over $85/b and natural gas prices above $3/MCF. I cannot predict future prices, but I think demand may be lower than I had expected in the past.
The chart above shows transport fuel intensity per one thousand dollars of real GDP for the World in 2017 international dollars which use the purchasing power parity methodology for assessing real GDP. Transport fuel is defined as gasoline, distillate/diesel, kerosene, and residual fuel found at this link . The GDP data can be found at this link . In 2022 transport fuel was about 83.5% of World C + C output by volume so I estimate World C + C demand by dividing my transport fuel estimate by 0.835. I assume World real GDP grows by about 2.5% per year due to slowing population growth in the future, where I assume the real GDP per capita growth rate of 2.2% from 1993 to 2019 continues in the future. Spreadsheet with data at this link . I use a decrease in oil intensity of 0.0055 per year after 2022 to account for the kink in the data around 2007, this may be too high a decrease in crude oil demand to be realistic, but might be considered a best-case scenario for the environment and climate change.
For the chart above the supply scenario is the most recent World Oil Shock Model and demand multiplies oil intensity decreasing by 0.005 barrels per thousand of real GDP each year by real GDP to get transport fuel demand. Then transport fuel demand is divided by 0.835 to get World C + C demand. A scenario with very fast uptake of plugin vehicles and commercial vehicles (assumed to lag personal vehicles by 5 years) is similar to the supply scenario through 2036, some factors not accounted for are the rapid uptake of EV 2 and 3 wheel vehicles, the improved efficiency of the ICEV fleet as more hybrids are used, and the potential of EV taxis and Uber/Lyft vehicles to replace a lot of oil use, also there is the potential for full self-driving in the future, though I doubt that occurs prior to 2030 and perhaps never. In any case it is the potential for this downward pressure on oil prices due to lack of demand that has led to the revision of my scenarios. If I am wrong, then the earlier, higher scenarios are more likely to be correct.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
EIA Short-Term Energy Outlook And Tight Oil Update, December 2023