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Federal energy outlook: Crude prices soft but propping up shale gas

Alaska Dispatch

As the Legislature resumes debate over how to sustain Alaska’s oil industry into the future, the U.S. Energy Information Administration (EIA) has just come out with a preview of its Annual Energy Outlook Report, which offers economists and policymakers an educated guess at what to expect in energy markets over the coming decades.

Of particular interest to Alaskans: Oil prices are expected to stay low, below $100 a barrel through 2015. After that, the government foresees prices marching steadily higher until a barrel of crude averages $234 (at today's dollar value) by 2040.

Global oil prices under $100 a barrel through 2015

The Energy Information Administration foresees oil prices falling from an average of $111 per barrel in 2011 to around $96 in 2015. This year’s projections are based on the Brent crude oil spot price, an international global market, instead of West Texas Intermediate prices.

Why the change? “To better reflect the price refineries pay for imported light, sweet crude oil,” Energy Information Administrator Adam Sieminski said. It’s also acknowledgment that the WTI price has diverged from globally traded crude markets like the Brent as North American oil production has surged, overwhelming pipeline capacity and artificially inflating prices.

Awash in shale natural gas, not Alaska’s

Natural gas production will continue to outpace demand, thanks to hydrofracking and high crude oil prices, Sieminski said. Shale gas plays will continue to prove economic despite prices stuck at about $4 per million Btu through 2018 thanks to the amount of crude oil, condensates and natural gas liquids – all of which are much more valuable – extracted from shale formations.

Demand for natural gas will ramp up domestically by the end of the decade, though, and that could help with a modest rally in prices, to $5.40 per million Btu by 2030 and $7.83 per million Btu by 2040.

The report does not foresee an Alaska natural gas pipeline anywhere in the foreseeable future (before 2040).

Forecasting fallacy

Sieminski cautioned that economists not interpret the 2013 annual outlook as an “energy forecast.” Rather, it’s a best guess of sorts, by the federal government’s experts, of what’s likely to happen in domestic energy markets over the coming decades.

The outlook is based on current energy policy, which could theoretically change with each election, as Alaskans know all too well. It also takes into consideration projected population growth and gross domestic product over the next 25 years, and how all three factors impact supply, demand and value of domestic crude oil, natural gas, coal, electricity and transportation fuels like unleaded and diesel gasoline.

Read the full outlook preview here (PDF) or watch the EIA's presentation to the International Monetary Fund. It's accompanied by a Power Point and uses Microsoft Silverlight functionality -- if you have an hour and a half to kill.

Sieminski said to expect the complete report later this spring.