US energy demand growth slows on economic sluggishness

MARILYN RADLER | JULY 2011 | SOURCE: Oil & Gas Journal

Total energy demand in the US this year will increase marginally from 2010, weighed down by the sluggish economy and high oil prices.

Buoyed by low prices, natural gas demand will rise more than demand for oil, while coal and nuclear demand will decline slightly from last year's levels. US demand for hydroelectric power, wind, and other renewable energy sources will post the largest percentage growth this year.

US energy demand growth slows on economic sluggishness

US production of oil and gas will increase this year due to continued development of unconventional resources. Meanwhile, global oil demand growth will slow from a year ago, and supplies will increase by 1.5 million b/d.

Worldwide oil demand

Strong demand for oil in developing countries will result in worldwide oil demand climbing by 1.3 million b/d to 89.3 million b/d this year, according to the latest forecast from the International Energy Agency. In 2010, global oil demand increased by 2.7 million b/d.

Oil demand in the developed countries of the Organization for Economic Cooperation and Development will contract by 200,000 b/d from last year to average 45.9 million b/d. IEA expects marginal reductions in demand in North America and OECD Europe, as high prices and economic weakness drive efficiency improvements.

Outside the OECD, the agency projects that demand will be unchanged from 2010 in the former Soviet Union (FSU), non-OECD Europe, and Africa. Oil demand in China will surge to 9.7 million b/d this year from 9.1 million b/d, buoyed not only by the country's economic growth but also by an increase in demand for gas oil in light of widespread power outages.

Meanwhile, other Asian non-OECD demand will climb by 400,000 b/d to average 10.8 million b/d this year. Elsewhere outside the OECD, IEA forecasts small increases in demand in Latin America and the Middle East.

IEA noted in its May Oil Market Report that governments in Russia, Brazil, and China face difficulties fully passing on recent price rises to consumers, helping to sustain robust demand growth in the non-OECD countries.

Global oil supply

With oil production in Libya sharply curtailed in the wake of civil war, the remaining members of the Organization of Petroleum Exporting Countries will need to accelerate output growth to help meet projected worldwide demand this year.

Total non-OPEC oil supply will average 53.3 million b/d, IEA forecasts, up from 2010 average supply of 52.7 million b/d. OECD supply in total will be unchanged at 18.9 million b/d, as North American output inches upward and OECD Europe supply contracts by an equal amount. OECD Asian oil supply is forecast to hold at 600,000 b/d.

Non-OECD oil supply will climb this year to average 30.3 million b/d from last year's 29.9 million b/d, led by output gains in Latin America, notably in Brazil. China and the FSU will post small increases in output.

The most recent OPEC ministerial meeting, held in Vienna last month, failed to reach a new agreement of output levels for its members, despite the market's loss of Libya's light crude oil and Saudi Arabia's concerns about high prices for Brent crude oil. With no OPEC agreement to raise oil output, Saudi Arabia promised to add supply to the market unilaterally.

Libyan oil output averaged an estimated 450,000 b/d in March, down from 1.39 million b/d in February and 1.58 million b/d in January.

The Centre for Global Energy Studies (CGES), London, said after the June 8 meeting, "By consistently failing to take action, even when there is compelling evidence that it needs to do so, OPEC is making itself irrelevant as a force for stability in the oil market."

The Saudis clearly saw the need for a formal output increase and even threatened to go it alone if it could not get agreement at the meeting, CGES said, adding that oil markets will now have to wait and see whether Saudi Arabia lives up to that promise in the months ahead.

CGES assessed OPEC's spare production capacity in May at 4.75 million b/d, with 3.25 million b/d of this in Saudi Arabia.

OPEC supply of natural gas liquids will average 5.9 million b/d this year, IEA estimates. This portion of OPEC output, which is not subject to the organization's production agreements, continues to climb and averaged 5.3 million b/d last year.

OPEC crude supply averaged 29.9 million b/d in this year's first quarter, according to IEA. Following a second-quarter dip to 29.2 million b/d, OGJ estimates that the organization's output will climb to average 30 million b/d in this year's second half. This will result in worldwide supply averaging 89 million b/d for the year and an annual stockdraw of 300,000 b/d.

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