August Short-Term Energy Outlook

Port Bureau News,

Forecast Highlights

The August Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty related to the ongoing recovery from the COVID-19 pandemic. U.S. economic activity continues to rise after reaching multiyear lows in the second quarter of 2020 (2Q20). U.S. gross domestic product (GDP) declined by 3.5% in 2020 from 2019 levels. This STEO assumes U.S. GDP will grow by 6.6% in 2021 and by 5.0% in 2022. The U.S. macroeconomic assumptions in this outlook are based on forecasts by IHS Markit. Our forecast assumes continuing economic growth and increasing mobility. Any developments that would cause deviations from these assumptions would likely cause energy consumption and prices to deviate from our forecast.

Global Liquid Fuel

  • Brent crude oil spot prices averaged $75 per barrel (b) in July, up $2/b from June and up $25/b from the end of 2020. Brent prices have been rising this year as result of steady draws on global oil inventories, which averaged 1.8 million barrels per day (b/d) during the first half of 2021 (1H21) and remained at almost 1.4 million b/d in July. We expect Brent prices will remain near current levels for the remainder of 2021, averaging $72/b from August through November. However, in 2022, we expect that continuing growth in production from OPEC+ and accelerating growth in U.S. tight oil production—along with other supply growth—will outpace decelerating growth in global oil consumption and contribute to Brent prices declining to an average of $66/b in 2022.

  • We estimate that 98.8 million b/d of petroleum and liquid fuels were consumed globally in July, an increase of 6.0 million b/d from July 2020 but 3.4 million b/d less than in July 2019. We forecast that global consumption of petroleum and liquid fuels will average 97.6 million b/d for all of 2021, which is a 5.3 million b/d increase from 2020. We forecast that global consumption of petroleum and liquid fuels will increase by 3.6 million b/d in 2022 to average 101.2 million b/d.

  • U.S. gasoline consumption averaged 8.6 million b/d in 1H21, up from 8.3 million b/d in 2H20 but below the 9.3 million b/d in 2H19. Our latest estimates show that gasoline consumption in May through July was higher than we had previously expected. Growth in employment and increasing mobility have led to rising gasoline consumption so far in 2021. In this STEO, forecast U.S. gasoline consumption averages 8.8 million b/d in 2021, up from 8.0 million b/d in 2020. We expect the trend of rising employment and mobility to continue into next year, and as a result, we forecast gasoline consumption to average almost 9.0 million b/d in 2022. However, our assumption that a relatively high share of the workforce will continue working from home next year compared with before the pandemic keeps our forecast gasoline consumption below the 2019 level of 9.3 million b/d.

  • U.S. regular gasoline retail prices averaged $3.14 per gallon (gal) in July, the highest monthly average price since October 2014. Recent gasoline price increases reflect rising crude oil prices and rising wholesale gasoline margins, amid relatively low gasoline inventories. We expect that prices will average $3.12/gal in August before falling to $2.82/gal, on average, in 4Q21. The expected drop in retail gasoline prices reflects our forecast that gasoline margins will decline from elevated levels, as is typical in the United States during the second half of the year.

  • We forecast OPEC crude oil production will average 26.5 million b/d in 2021, up from 25.6 million b/d in 2020. OPEC crude oil production in the forecast rises from 25.0 million b/d in April to an average of 27.1 million b/d in 3Q21. Our expectation of rising OPEC production is primarily based on our assumption that OPEC will raise production through the end of 2021 in line with targets it announced on July 18. We expect OPEC crude oil production will rise to an average of 28.7 million b/d in 2022.

  • EIA’s most recent monthly data show U.S. crude oil production was 11.2 million b/d in May. We expect production to be relatively flat through October before it starts rising in November and December and throughout 2022. Forecast U.S. crude oil production for 2022 averages 11.8 million b/d, up from 11.1 million b/d in 2021.

Natural Gas

  • In July, the natural gas spot price at Henry Hub averaged $3.84 per million British thermal units (MMBtu), which is up from the June average of $3.26/MMBtu. We expect the Henry Hub spot price will average $3.71/MMBtu in 3Q21 and $3.42/MMBtu for all of 2021, which is up from the 2020 average of $2.03/MMBtu. Higher natural gas prices this year primarily reflect two factors: growth in liquefied natural gas (LNG) exports and rising domestic natural gas consumption for sectors other than electric power. In 2022, we expect the Henry Hub price will average $3.08/MMBtu amid rising U.S. natural gas production.

  • We expect that U.S. consumption of natural gas will average 82.5 billion cubic feet per day (Bcf/d) in 2021, down 1.0% from 2020. U.S. natural gas consumption declines in the forecast, in part, because electric power generators switch to coal from natural gas as a result of rising natural gas prices. In 2021, we expect residential and commercial natural gas consumption combined will rise by 1.2 Bcf/d from 2020 and industrial consumption will rise by 0.2 Bcf/d from 2020. Rising natural gas consumption in sectors other than the electric power results from expanding economic activity and colder winter temperatures in 2021 compared with 2020. We expect U.S. natural gas consumption will average 83.8 Bcf/d in 2022.

  • We estimate that U.S. natural gas inventories ended July 2021 at almost 2.8 trillion cubic feet (Tcf), which is 6% lower than the five-year (2016–20) average for this time of year. More natural gas was withdrawn from storage during the winter of 2020–21 than the previous five-year average, largely as a result of the colder-than-average February temperatures that constrained natural gas production while it increased consumption. We forecast that inventories will end the 2021 injection season (end of October) at 3.6 Tcf, which would be 4% below the five-year average.

  • We expect dry natural gas production will average 92.9 Bcf/d in the United States during 2H21—up from 91.4 Bcf/d in 1H21—and then rise to 94.9 Bcf/d in 2022, driven by natural gas and crude oil prices, which we expect to remain at levels that will support enough drilling to sustain production growth.
Electricity, Coal, Renewables, and Emissions

  • We forecast that U.S. retail sales of electricity will increase by 2.7% in 2021 after falling by 3.9% in 2020. The largest forecast increase in electricity consumption occurs in the industrial sector, driven by rising levels of economic output. We forecast U.S. retail sales of electricity to the industrial sector will grow by 5.3% this year. Retail sales of electricity to the commercial sector also grow in the forecast, but they grow at the slightly slower pace of 2.2% in 2021 because some workers will continue working from home instead of in office buildings. We forecast U.S. residential electricity sales will grow by 1.5% in 2021 as a result of colder temperatures in 1Q21 compared with 1Q20 and because of hot temperatures in June.

  • We expect the share of electric power generation produced by natural gas in the United States will average 36% in 2021 and 37% in 2022, down from 39% in 2020. The forecast share for natural gas as a generation fuel declines in response to our expectation of a higher delivered natural gas price for electricity generators, which we forecast will average $4.46/MMBtu in 2021 compared with an average of $2.39/MMBtu in 2020. As a result of the higher expected natural gas prices, the forecast share of generation from coal rises from 20% in 2020 to 23% this year but falls to 21% next year. New additions of solar and wind generating capacity are offset somewhat by reduced generation from hydropower this year, resulting in the forecast share of all renewables in U.S. generation to average 20% in 2021, about the same as last year, before rising to nearly 23% in 2022. The nuclear share of U.S. electricity 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.

  • We forecast that planned additions to U.S. wind and solar generating capacity in 2021 and 2022 will increase electricity generation from those sources. We estimate that the U.S. electric power sector added 14.7 gigawatts (GW) of new wind capacity in 2020. We expect 17.6 GW of new wind capacity will come online in 2021 and 6.3 GW in 2022. Utility-scale solar capacity rose by an estimated 10.6 GW in 2020. Our forecast for added utility-scale solar capacity is 16.2 GW in 2021 and 16.6 GW for 2022. We expect significant solar capacity additions in Texas during the forecast period. In addition, about 5 GW of small-scale solar capacity (systems less than 1 megawatt) will come online each year during 2021–22 in the STEO forecast.

  • Coal production in our forecast totals 607 million short tons (MMst) in 2021, an increase of 13% over 2020. We expect electric sector consumption of coal to be 33 MMst greater than supply in 2021, contributing to significant inventory draws. In 2022, we expect coal production to decline by 7 MMst (1%).

  • We expect coal consumption for electricity generation to grow by 75 MMst (17%) in 2021 as a result of relatively high natural gas prices that make coal more competitive for dispatch in the electric power sector. Forecast electric power sector demand for coal then falls by 47 MMst (9%) in 2022. We expect demand for coal for other uses to rise by 5 MMst (13%) in 2021 and by 3 MMst (7%) in 2022. This increase is mostly for coking coal, which is used in steelmaking.

  • We expect coal exports to total 90 MMst in 2021, a 21 MMst (30%) increase from 2020. In 2022, forecast coal exports rise an additional 16 MMst to 106 MMst. High global steel prices are driving these increases in coal exports, and trade tensions between China and Australia continue to support U.S. thermal coal exports.

  • We estimate that U.S. energy-related carbon dioxide (CO2) emissions decreased by 11% in 2020 as a result of less energy consumption related to reduced economic activity and responses to COVID-19. For 2021, we forecast energy-related CO2 emissions will increase about 7% from the 2020 level as economic activity increases and leads to rising energy use. We also expect energy-related CO2 emissions to rise in 2022 but by a slower rate, 1%. We forecast that after declining by 19% in 2020, coal-related CO2 emissions will rise by 17% in 2021 and then decrease by 7% in 2022. Short-term changes in energy-related CO2 can be affected by temperature. A recent STEO supplement examines these dynamics.

The comprehensive report is available at