U.S. Energy Outlook Sees Fossil Fuels on Rise

U.S. Energy Outlook Sees Fossil Fuels on Rise

As energy use surges with a rebounding economy, coal is making a nominal comeback in electricity generation as utilities adjust to costlier natural gas, the U.S. Energy Information Administration reported Tuesday from Washington.

Crude oil prices stayed at a relatively high $65 a barrel as demand rose in areas where COVID-19 is retreating, like the United States, and yet falling in areas like India, where the virus is now rampant.

The EIA's short-term energy outlook for May says that America's gross domestic product, down 3.5% in 2020 compared with the year before, will surge 6.2% this year and 4.3% in 2022. The EIA's forecast assumes continuing economic growth and continued easing of pandemic restrictions on commerce.

"We estimate that the world consumed 96.2 million barrels per day (b/d) of petroleum and liquid fuels in April, an increase of 15.8 million b/d from April 2020 but 4.0 million b/d less than April 2019 levels," the outlook said.

"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," it said. "We forecast that consumption of petroleum and liquid fuels will increase by 3.7 million b/d in 2022 to average 101.4 million b/d."

The oil forecast does not include the effects of the temporary closure of the Colonial Pipeline on May 7 after a cyber extortion attack. 

"Although effects of the outage are not reflected in this report, we are closely following supply and price developments related to the outage," the agency said, promising updates in its Today in Energy, This Week in Petroleum, and the Weekly Petroleum Status reports as they become available.

Crude Oil, Gasoline and Natural Gas

Brent crude oil spot prices averaged $65 per barrel in April, unchanged from the average in March. The agency expects Brent crude prices to remain at about the same level through the second quarter, falling to about $61 in the second half of this year and all of next year.

U.S. gasoline consumption has surged and is expected to be in high demand through summer despite rising prices that could tip the national average to more than $3 a gallon at the pump.

Natural gas prices averaged $2.66 per million British thermal units in April, slightly higher than the March average, with prices expected to rise throughout the year due to two factors. 

"We expect the Henry Hub spot price to average $2.78/MMBtu in the second quarter of 2021 and average $3.05/MMBtu" for all of the current year, the forecast said. "We expect prices will rise this year primarily as a result of two factors: growth in liquefied natural gas exports and rising domestic natural gas consumption in the residential, commercial, and industrial sectors."

Next year's Henry Hub price will fall to an average $3.02/MMBtu "amid slowing growth in LNG exports and rising production," the report said.

Nationwide natural gas consumption is expected to decline, in part "because electric power generators switch to coal as a result of rising natural gas prices."

Electricity, Renewables and Coal

Electricity consumption is expected to increase by 2.2% this year after falling nearly 4% last year nationwide. Electricity sales to the industrial sector could be up by 3.3% this year, the EIA said.

"We forecast that retail electricity sales to the residential sector will grow by 2.9% in 2021, which is primarily a result of colder temperatures in the first quarter of 2021 compared with the same period in 2020," the forecast said. The share of power generated domestically from natural gas will average 35% in both 2021 and 2022, down from 39% in 2020.

"The forecast share for natural gas as a generation fuel declines in response to an 85% increase in the average delivered natural gas price for electricity generators, from an average $2.39/MMBtu in 2020 to an average $4.41/MMBtu in 2021," the report said. "As a result of the higher expected natural gas prices, the forecast share of generation from coal rises from 20% in 2020 to 24% this year and to 23% next year."

New solar and wind generating capacity suggests that renewables will rise from 20% of U.S. generation to 21% in 2021 and 22% again in 2022.

"The nuclear share of U.S. 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," according to the report.

Meanwhile, domestic coal production is forecast to be up and electric plants switch at least temporarily away from costlier gas burning. At 582 million short tons this year, the coal production estimate is 8% above 2020 in spite of recent strikes at mines in Appalachia.

With the new coal production and increased automobile traffic, U.S. energy related carbon dioxide emissions, which were down a striking 11% last year, are expected to rise about 6% from last year’s depressed levels. Coal-related CO2 emissions, down 19% last year, are foreseen as rising 17% in 2021 and to slightly fall in 2022.