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Reports & Statistics ยป Supply & Demand Committee Forecasts

Report of the IPAA Supply and Demand Committee

Long-run Forecast Summary (2001-2015)

April, 2001

 

At its meeting on March 23, 2001, the IPAA Supply and Demand Committee reached the following conclusions about industry, energy and macroeconomic trends from 2001 to the year 2015:

  • Real Gross Domestic Product (GDP) will increase by an average rate of 1.9 percent from 2000 to 2001, and 2.9 percent through 2005 as the economy stabilizes. Inflation, as measured by the GDP Implicit Price Deflator, is forecast to slowly decrease from 2.1 percent in 2000-2001 period to 2 percent in the 5 year increment through 2005 to 1.9 percent in 2015.
  • Total U.S. natural gas demand is expected to continue increasing steadily throughout the rest of decade, reaching 24.8 trillion cubic feet (Tcf) by the year 2005. The annual growth rate should average 1.8 percent from 2000 to 2005. From 2005 to 2010, natural gas demand will grow at a 1.8 percent rate to reach 28.1Tcf. From 2010-2015, natural gas will grow at 1.8 percent, reaching 30.7 Tcf in 2015.
  • At the same time, U.S. natural gas production is forecast to increase at an annual rate of 1.9 percent in 2001 and by 1.3 percent annually through 2005. Although this is a slower growth rate than that shown by consumption, total gas output should hit 20.5 Tcf by the year 2005, and 24.8 Tcf by 2015.
  • Total gas imports, mainly from Canada, are expected to rise to 4.95 Tcf by 2005, up from 3.73 Tcf in 2000. Imports of 6.05 Tcf in 2015, will account for almost 20 percent of total gas demand.
  • U.S. oil demand should continue rising by between 1.3 and 1.8 percent a year during the next 15 years depending on economic factors and tightness of crude markets. Total demand should reach 22.3 million barrels per day (MM b/d) by 2005, and 25.4 MM b/d by 2015.
  • Domestic crude oil production decreased slightly by about 50,000 b/d to 5.83 MM b/d in 2000 but will reverse its decline through 2005, reaching 6.55 MM b/d by 2005. The decline will resume in the next decade at a rate averaging 2 percent annually, dropping to 5.63 MM b/d in 2010 and 5.34 MM b/d in 2015.
  • Total oil imports (crude and products) are predicted to reach 12.1 MM b/d by 2005 and 14.9 MM b/d in 2015, up from 11.1 MM b/d in 2000. This is an increase of 1.7 percent between 2000-2005, 2.4 percent from 2005-10 and 1.8 percent from 2010-15 respectively. Imports as a percentage of demand rise from 57.5 percent in 2001 to 61.3 percent by 2015.

MACROECONOMIC TRENDS

Real Growth in Economic Activity

Through 2015 the Committee estimates that domestic economic activity, as measured by real (inflation-adjusted) GDP, is expected to grow by 3.0 percent. Despite the current slowdown, strong economic growth is expected to continue with robust productivity growth. The expansion reached 10 years in April 2001, the longest in modern U.S. economic history. The investment cycle, consumer spending, and productivity will be key factors in bringing about the evolving growth pattern. Economic growth will push continued growth in energy use but the overall GDP-based energy intensity of the economy should continue to fall despite gains in per capita energy usage.

Inflation

Inflation rates, as measured by GDP implicit price deflator, are expected to adhere to a more historical growth level depending on labor and stock market movements. The Committee projects inflation to average approximately 1.9 percent annually between 2000 and 2015. Declining inflation for the past decade has been joined by strong productivity growth but creeping core inflation has the Federal Reserve on the offensive. The investment cycle and capital accumulation rates will continue to affect the Federal Reserve's actions and changes to the monetary or fiscal policy would have implications on the long-term inflation rate.

ENERGY

Energy consumption will follow economic growth, averaging 1.4 percent for the period 2000-2015. Energy usage per dollar of GDP will fall over 25 percent from 2001-2015 but energy usage per capita will rise at a slightly greater level. Domestic energy demand will rise from 95 Quad BTUs in 2000 to 116.26 in 2015, encompassing efficiency gains and 3 percent annual economic growth.

Generally, moderating economic growth, fuel switching, and growing end-use efficiencies will help temper consumption growth over the next 15 years. Tightness in fuel supply, regional infrastructure shortfalls, and strong commodity prices will influence the relative shares of petroleum and natural gas in the country's total energy mix. From 2000-2015, natural gas will grow by an annualized rate of 2.2 percent and petroleum will grow at 1.5 percent. Electricity and petroleum products will likely factor heavily with annualized 6.4 percent growth for electric utilities and 1.4 percent growth for products. Growth from hydropower, geothermal, and other renewable energy sources will average 1.6 percent growth per year with hydropower's contribution continuing to decline. Nuclear is projected to decline by 15 percent from 2001-2015 pending re-licensing activities during the 2005-to-2010 time frame.

Electricity usage is predicted to ramp up as more consumers continue to switch to electricity-based technologies, constituting the fastest growing source of delivered energy. Coal will grow at an average annual rate of 1 percent annually, continuing to be the favored base-load fuel for electricity.

Oil's role will be largely impacted by the transportation and petrochemical feedstock markets. Motor gasoline demand continues to occupy the predominant share in overall petroleum demand.

PETROLEUM

Supply

The peak year for U.S. crude oil production was 1970, when production reached 9.6 million barrels per day (MM b/d). Production has fallen since by almost 40 percent with each decade removing an average of 1 MM b/d of production. The price collapse of 1998-99 removed over 500,000 barrels from domestic production and 2000 represented the eighth consecutive year of decline. The Committee expects the downward trend of the past 15 years to level off and then increase through 2005 to an output level of 5.9 MM b/d in 2001 and an annual average of 6.6 MM b/d by 2005. Production will then retreat by an annualized rate of 2.3 percent back to 5.3 MM b/d in 2015. Despite technological progress, increased lower-48 production and accelerated deep-water discoveries in the Gulf of Mexico, resource access and capital spending limitations will moderate growth on the supply side. Federal offshore continues to gain ground, currently responsible for 26 percent of U.S. production. NGL production has risen for the past two years and, despite a forecasted drop in 2001, is expected to grow at an annualized rate of 1.5 percent through 2015.

In order to keep pace with rising demand and the treadmill cycle of production levels, the annual growth rate in crude oil imports is predicted to increase 2.6 percent annually from 2000 to 2005, 1.6 percent from 2005 to 2010, and 0.8 percent from 2010-2015. Petroleum product imports will grow in response to ever-tightening U.S. refinery capacity.

The Committee anticipates that total petroleum imports will account for 57 percent of domestic demand in 2005, compared to a 58 percent import dependency ratio in 2001. By 2015, the United States' import dependency ratio will grow to 61.3 percent, up almost 1 percent from last year's spring forecast. In 2001, the U.S. will be importing 11.4 MM b/d of crude oil and petroleum products. By 2015, this figure will rise to 14.9 MM b/d.

Demand

U.S. petroleum demand will grow by 1.8 percent annually from 2000 to 2005. Between 2005-2010 and 2010-2015, petroleum demand grows by 1.3 and 1.4 percent, respectively. This projection takes into account average annual economic growth of 3 percent.

Growth in population and in travel per capita is expected to increase gasoline consumption which comprises over half of total transportation energy demand. Increases in distillate and aviation fuel result from increased freight transport and air travel.

NATURAL GAS

Supply

Natural gas supply has reacted to higher prices and demand with increased production from the lower-48 and shallow Gulf of Mexico. Domestic gas production is forecasted to reach 24.8 Tcf in 2015 with 1.3 percent annual growth between 2000-2005, and 1.9 percent growth between 2005-2010 and 2010-2015. After declining production levels in 1998 and 1999, increased drilling activity lifted 2000 supply by 3.7 percent.

The supply/demand imbalance will keep the share of imports increasing relatively steadily, from 16 to nearly 23 percent of consumption throughout the timeframe of the forecast. Additional imports (approaching 4 Tcf/year) will likely originate in western Canada, augmented by new pipelines from Atlantic Canada. Only the Gulf of Mexico surpasses Canada in terms of aggregate gas supply. Talk is currently underway for consideration of pipeline options coming out of Alaska and/or the Mackenzie Delta. This development, however, would not have significant effect until at least the 2010 timeframe. Despite promising exploration prospects in Mexican basins, the U.S. will continue to be a net exporter to its southern neighbor in the near future.

LNG imports add a new variable to the supply matrix, with imports up 22 percent between 1999 and 2000 and anticipated forward growth averaging 8 percent annually. Considering the tight supply situation, the LNG factor will only gain in relative market share (especially as a peaking fuel) despite its 1 percent share of total gas demand.

Demand

Total gas demand is anticipated to increase to 30.7 Tcf in 2015, a 2 percent annual growth rate from 2000 through 2015. Gas will gain market share in most consuming sectors with the largest gains estimated in electric power generation, which accounts for nearly half of the 7.4 Tcf demand increase between 2000 and 2015.

In the residential and commercial sectors, gas is capturing a predominate share of new space-heating installations. Additionally, gas is capturing load from oil in the conversion market. Retail access has the potential to increase the economic attractiveness of gas, further stimulating demand growth in these sectors.

Electric industry restructuring creates some uncertainty over the growth of gas demand over the next few years; however, the Committee believes that gas continues to be the most economic fuel for new electric generating additions. Between 2001 and 2015 an additional 4.8 Tcf of gas is projected to generate electricity.

Industrial gas consumption growth will slow through 2015 to a 1 percent annual rate, down from a 4.6 percent annual rate between 1986 and 1997. A large portion of the fuel's gain over the past ten years was for gas-fired cogeneration and NUG facilities. High gas prices, increased efficiency in gas-fired generation, conservation, and reduced industrial production will lead to the anticipated decline in industrial demand.