Petroleum and Natural Gas Outlook

Briefing for the

National Association of State Energy Officials

2005 Energy Outlook Conference

Washington, DC

Mike Burdette

Petroleum Division, Energy Information Administration

February 17, 2005

EIA’s Petroleum and Natural Gas Outlook

• Crude oil price outlook• Global oil supply/demand fundamentals• Global and U.S. petroleum stocks• U.S. refinery capacity and utilization• U.S. petroleum product supply, demand,

and prices• Natural gas price and supply outlook• Residential heating fuel costs

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Forecast

WTI Crude Oil Price: Potential for Volatility Around Base Case

Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Weighing the Market

BullsBulls•Continued strong economic and oil demand growth

•Little spare capacity available

•Relatively low inventories

•Possible supply disruptions, including Iraq, Russia, Venezuela, Saudi Arabia, and Nigeria

BearsBears•Slowing economic and oil demand growth

•More supply

•Inventory recovery

•More capacity growth

•Milder winter weather

•Easing supply risks

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Mill

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WTI Spot Price (2004 $)OECD Days SupplyWorld Excess Production Capacity (right axis)

Low Excess Capacity and Low Days of Supply Are Fundamentals Supporting High Crude Prices

Sources: WTI: Reuters; OECD Days Supply: International Energy Agency; World Excess Production Capacity: U.S. Energy Information Administration estimates.

OPEC Spare Capacity Is Extremely Tight Right Now

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OPEC Crude Oil Production

Spare Capacity

Current Excess Capacity

Saudi Arabia 1.5 – 2.0

Other Persian Gulf 0.1

Other OPEC 1.6-2.1

Source: U.S. Energy Information Administration estimates.

Annual World Oil Demand Growth Was Unexpectedly Strong in 2004

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1991-1999

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2000 2001 2002 2003 2004 2005 2006

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US

China

Rest of the World

ForecastHistory

Source: EIA, Short-Term Energy Outlook, February 2005.

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3.0

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Bil

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ls

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NOTE: Colored Band is Normal Stock Range

OECD Commercial Inventories

Days Supply (right axis)

Inventories (left axis)

OECD Commercial Oil Inventories(Using 5-Year Average and +/- 1 STD)

Source: History – IEA; Forecast – EIA Short-Term Energy Outlook, February 2005.

U.S. Crude Inventories Projected to Remain in Normal Range

250

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NOTE: Colored band is the normal inventory range.

U.S. Crude Oil InventoryForecastHistory

Sources: EIA, Short-Term Energy Outlook, February 2005.

Mill

ion

Ba

rre

ls

U.S. Gasoline and Distillate Inventories

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Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

Mil

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n B

arre

ls

NOTE: Colored Bands are Normal Stock Ranges

History Forecast

Distillate

Gasoline

Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Capacity Surplus Disappearing, Creating Short-Term Challenge

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U.S. Refining Capacity & Inputs

Gross Inputs

Operable Capacity

Forecast

Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

U.S. Gasoline Supply and Demand

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Net Imports

Production

Demand

Actual Forecast

Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Gasoline Supply/Demand BalanceReflected in Spreads

0102030405060708090

100110120130140150

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97

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98

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99

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Cen

ts P

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n

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U.S. Average Spot Regular Gasoline and WTI Crude Oil Price

Source: Reuters.

Spot Gasoline Price

WTI Price

Crude Oil, Gasoline, and Diesel Fuel Prices

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Forecast

Sources: EIA Short-Term Energy Outlook, February 2005.

Retail Diesel Fuel

Retail Regular Gasoline

Crude Oil (WTI)

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t Forecast

U.S. Natural Gas Spot Prices – Henry Hub

Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Working Gas in Underground Storage

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NOTE: Colored band is the normal inventory range.

ForecastHistory

Sources: EIA, Short-Term Energy Outlook, February 2005.

Residential Heating Fuel Costs

Selected Average Consumer Prices and Expenditures for Heating Fuels During the Winter

Average Actual Actual Actual Projections % Change1999-2001 2001-2002 2002-2003 2003-2004 2004-2005 from 2003-2004

Natural Gas (Midwest) Consumption (mcf*) 88.8 81.3 94.9 89.1 89.0 0.0 Avg. Price ($/mcf) 7.61 7.40 8.41 9.76 10.72 9.8 Expenditures ($) 676 602 798 870 954 9.7 Heating Oil (Northeast) Consumption (gallons) 673 577 743 700 694 -0.9 Avg. Price ($/gallon) 1.12 1.10 1.34 1.36 1.82 33.6 Expenditures ($) 754 637 995 953 1261 32.3 Propane (Midwest) Consumption (gallons) 877 803 940 882 882 0.0 Avg. Price ($/gallon) 1.10 1.11 1.20 1.30 1.56 20.1 Expenditures ($) 965 888 1124 1147 1377 20.0

Consumption based on typical household use for regions noted. Prices are retail national averages.*thousand cubic feet.

Source: Short-Term Energy Outlook, February 2005.

Petroleum and Natural Gas OutlookConclusion

• EIA expects global crude oil prices to decline modestly this year and next, but remain over $40 per barrel (WTI)

• Growth in global oil demand has outstripped that in supply in recent years, decreasing spare production capacity

• Global production capacity expansion will begin to catch up, re-establishing some increment of spare capacity

• Global and U.S. petroleum inventories will return to/remain near average levels through next year

• U.S. gasoline supplies appear solid to date ahead of the driving season, but strong demand, limited U.S. refinery capacity, and competition for imports could tighten the balance

• U.S. retail gasoline prices will peak near last year’s highs• Natural gas prices are expected to soften due to adequate supplies• LNG will grow in importance in the U.S. natural gas supply picture• Residential heating fuel costs for this winter will total 10-30% more

than last year