Sometimes when you want to get a sense of someone’s agenda, just follow the lead, states Phil Flynn of PRICE Futures Group.
While the risk to global energy supply remains high and a potential winter blast that could challenge the US power grid as well as impact oil production and refining capacity, the Energy Information Administration (EIA) led its “Short Term Energy Outlook” with solar power. While Houthi rebels launched their most massive missile attack in the Red Sea that was thwarted by US and UK forces and natural gas prices spiked as much as 13% on a potential slap from a winter storm that could bring record-breaking low temperatures, the EIA wanted to tell us right up front that solar power will be the leading source of growth in electricity generation in both 2024 and 2025 as 36 gigawatts (GW) and 43 GW of new solar capacity come online.
While that may be nice, concerns about uninterruptible power sources may become front and center as we face a potential monster winter storm. Snow-covered solar panels are not all that reliable and while they do power batteries that try to store that energy, the reality is that solar panels are toxic and take up a large amount of land that might be put to better use. And while the EIA is excited about this solar growth the new capacity will boost the solar share of total electricity generation to 6% in 2024 and 7% in 2025, up from 4% in 2023. They do not tell you how many acres of land it will take to achieve those numbers.
The EIA’s top story was solar but in second place they gave a nod to the reliance on the much-maligned US oil producer or as Biden refers to them price gougers and war profiteers who they say will achieve even more records in production despite the Biden administration’s desire to put them out of business. The EIA says that US crude oil production United States has reached 13.2 million barrels per day (b/d) in 2024 and more than 13.4 million b/d in 2025, both of which would be new records not only in the US but in the entire world. The EIA says that production growth will continue over the next two years driven by increases in oil and gas well efficiency, not because the Biden administration has worked with the industry to enhance US energy security.
However, the EIA warns that US production growth will slow because of fewer active drilling rigs. Part of that is due to the Biden administration’s restrictions on oil drilling on Federal lands and shutting down Gulf of Mexico leases that are the cleanest way to produce oil. And despite all that record production, the EIA is still saying that the globe is in a supply and demand deficit because of OPEC cuts they estimate to be near 5000.000 barrels a day. That means as we head into the depths of winter, we could see significant reductions in global crude oil supply. The Biden administration I assure you will blame OPEC for this problem, but they have no one to blame but themselves.
The self-righteous climate warriors in the Biden administration think that because of these supposed virtuous acts to make the American people sacrifice, somehow, they will save the planet from climate catastrophe and the rest of the world will be inspired by these actions and will step up and also sacrifice to reduce fossil fuel consumption. Spoiler alert – It’s not happening. While the EIA hopes and expects growth in global liquid fuel consumption will be lower over the next two years, the reality is they are still predicting that demand will hit new records of demand over 103.5 million b/d in 2025.
They even admit that It is not the climate policies that are causing them to reduce their consumption but mainly to attribute the reduction in growth to slowing oil demand growth in China due to stalling GDP growth while giving a slight nod to increasing vehicle fleet efficiency and ending pandemic recovery-related growth in 2023.
Bloomberg News wrote that “India was facing another energy conundrum: It needed to build more power capacity, fast. “To meet growing demand,” the Indian government said on Dec. 11 it expects to roughly double coal production, reaching 1.5 billion tons by 2030. Later, the power minister Raj Kumar Singh set out plans on Dec. 22 to add 88 gigawatts of thermal power plants by 2032. The vast majority of which will burn coal.
And while India burns more than the US because of natural gas burning instead of coal, their greenhouse gas emissions fell 1.9% in 2023. Sharply lower prices for natural gas made it more attractive for power plants and factories to burn cleaner burning fuel. Let’s give a big round of applause to the US energy industry for their part in a major drop in US greenhouse gas emissions. Way to go!
The EIA reported that the US benchmark Henry Hub natural gas price averaged $2.57 per million British thermal units (MMBtu) in 2023, about a 62% drop from the 2022 average annual price, according to data from Refinitiv Eikon. Record-high natural gas production, flat consumption, and rising natural gas inventories contributed to lower prices in 2023 compared with 2022. The monthly average Henry Hub price was below $3.00/MMBtu in every month except January, with the lowest monthly average in May at $2.19/MMBtu.
The EIA says that the US average retail gasoline price declines in our forecast as gasoline inventories increase and gasoline crack spreads fall. We expect US gasoline prices to average around $3.40 per gallon (gal) in 2024 and $3.20/gal in 2025, compared with an average of more than $3.50/gal in 2023.
Natural gas production in the US of dry natural gas in our forecast grows between 1% and 2%, or about 1.5 billion cubic feet per day (Bcf/d) in 2024 and 1.3 Bcf/d in 2025, down from growth of 4.0 Bcf/d in 2023. The slowing growth reflects a drop in natural gas production associated with oil drilling in the Permian Basin. US dry natural gas production of 105 Bcf/d in 2024 and 106 Bcf/d in 2025 would both be records.
Natural gas prices. We expect the spot price of natural gas to average $2.70 per million British thermal units (MMBtu) in 2024 and rise to an average of about $3.00/MMBtu in 2025, up from an average of $2.54/MMBtu in 2023. Prices increase because of slowing growth in natural gas production and increasing US liquefied natural gas exports, particularly in 2025 following the addition of new export capacity in late 2024. However, we expect upward price pressures will be limited by relatively flat consumption of natural gas in the electric power sector and persistently high inventories.
Coal production. Faced with continuing declines in coal consumption in the electric power sector, we expect US coal production will decline by more than 90 million short tons (MMst) to less than 490 MMst in 2024 and then fall below 430 MMst in 2025, the least coal produced in the United States since the early 1960s. Again, thanks to the US oil and gas producers.
Wicked winter temperatures could impact as much as four million barrels a day of refining capacity. We could also see well-shut-downs. Natural gas prices spiked and we’re very fortunate to have supplies above normal. We still have to be careful. This cold could stick around. It should impact production. We could see some significant drawdowns in inventories.
Reports are saying that shipping rates have gone through the roof. Talk that South Korea canvas booked a record amount of very large crude carriers that could store or transport as much as 2,000,000 barrels of oil a day is raising eyebrows. Suddenly, the market doesn’t look as oversupplied as that would indicate surging demand. Today we get the Energy Information Administration report on weekly supplies and demand. The API once again shocked with big builds and products, but big draws and the crude market didn’t seem to be knocked off too much by the report. Crude oil inventories in the United States fell this week by 5.215 million barrels analysts predicted a draw of 1.2 million barrels.
Gasoline inventories saw another huge 4.896 million barrels build and distillate inventories also rose 6.873 million barrels, after rising by 6.686 million barrels last week but amazingly are still 6% below the five-year average.
Oil and gas prices could be at a critical turning point. Make sure you stay tuned to the Fox Business Network and keep flipping back and forth to the Fox Weather Channel as this winter storm could have a major impact on prices.
Learn more about Phil Flynn by visiting Price Futures Group.