U.S. Energy Information Administration | Short-Term Energy Outlook October 2018 2
establishing a new record high. EIA expects natural gas production will continue to rise
in 2019 to an average of 87.7 Bcf/d.
EIA forecasts that U.S. natural gas storage inventories will total 3.3 trillion cubic feet
(Tcf) at the end of October. This level would be 14% lower than both the 2017 end-of-
October level and the five-year (2013–17) average for the end of October, and it would
also mark the lowest level for that time of year since 2005.
EIA expects Henry Hub natural gas spot prices to average $2.99/million British thermal
units (MMBtu) in 2018 and $3.12/MMBtu in 2019. NYMEX futures and options contract
values for January 2019 delivery that traded during the five-day period ending October
4, 2018, suggest a range of $2.22/MMBtu to $4.85/MMBtu encompasses the market
expectation for January Henry Hub natural gas prices at the 95% confidence level.
Electricity, coal, renewables, and emissions
EIA expects the share of U.S. total utility-scale electricity generation from natural gas-
fired power plants to rise from 32% in 2017 to 35% in both 2018 and 2019. EIA’s
forecast electricity generation share from coal averages 28% in 2018 and 27% in 2019,
down from 30% in 2017. The nuclear share of generation was 20% in 2017 and EIA
forecasts that it will be slightly below 20% in 2018 and in 2019. Wind, solar, and other
nonhydropower renewables provided slightly less than 10% of electricity generation in
2017, and EIA expects them to provide more than 10% in 2018 and nearly 11% in 2019.
The generation share of hydropower was 7% in 2017 and EIA forecasts that it will be
about the same in 2018 and 2019.
In 2017, EIA estimates that U.S. wind generation averaged 697,000 megawatthours per
day (MWh/d). EIA forecasts that wind generation will rise by 8% to 750,000 MWh/d in
2018 and by a further 6% to 793,000 MWh/d in 2019.
Solar power generates less electricity in the United States than wind power but
continues to grow at a faster rate. EIA expects solar generation will rise from 211,000
MWh/d in 2017 to 267,000 MWh/d in 2018 (an increase of 26%) and to 305,000 MWh/d
in 2019 (an increase of 14%).
EIA forecasts U.S. coal production will decline by 2% to 756 MMst in 2018, despite a 12%
(11 MMst) increase in coal exports. The production decrease is largely attributable to a
forecast decline of 4% (26 MMst) in domestic coal consumption in 2018. EIA expects
coal production to decline by 2% (13 MMst) in 2019 because it forecasts that coal
exports and coal consumption will decrease by 7% and 5%, respectively.
After declining by 0.8% in 2017, EIA forecasts that U.S. energy-related carbon dioxide
(CO2) emissions will rise by 2.2% in 2018. This increase largely reflects higher natural gas
consumption because of a colder winter and a warmer summer than in 2017. EIA
expects emissions to decline by 1.1% in 2019, as forecast temperatures are forecast to
U.S. Energy Information Administration | Short-Term Energy Outlook October 2018 3
return to normal. Energy-related CO2 emissions are sensitive to changes in weather,
economic growth, energy prices, and fuel mix.
Petroleum and natural gas markets review
Crude oil
Prices:
The front-month futures price for Brent crude oil settled at $84.58 per barrel (b) on
October 4, an increase of $6.41/b from September 4. The front-month futures price for West
Texas Intermediate (WTI) crude oil for delivery at Cushing, Oklahoma, increased by $4.46/b
during the same period, settling at $74.33/b on October 4 (Figure 1).
Both Brent and WTI crude oil prices reached four-year highs on October 3. Crude oil prices rose
in anticipation of potentially steep declines in Iranian crude oil production and exports as a
result of the reinstitution of U.S. sanctions on November 4. Trade press reports that major oil-
importing countries including Japan, South Korea, China, and India, are planning or are
considering sharp reductions in crude oil imports from Iran. As a result, the amount of Iranian
crude oil supply available in the global market may be much lower than market participants
initially expected in May, when the United States announced it would exit from the Joint
Comprehensive Plan of Action. EIA estimates that Iranian crude oil production fell by more than
0.4 million barrels per day (b/d) since May to an average of 3.4 million b/d in September.
In June, members of the Organization of the Petroleum Exporting Countries (OPEC), along with
Russia, agreed to increase oil production levels to the original crude oil production target set in
November 2016. In the third quarter of 2018, OPEC members (other than Iran and Venezuela)
increased crude oil production by more than the amount that crude oil production in Iran and
Venezuela declined. However, recent price increases indicate that oil market participants have
concerns about the ability of Saudi Arabia, other OPEC members, and Russia to continue to
offset expected further production declines in Iran and in Venezuela. Increases in OPEC crude oil
U.S. Energy Information Administration | Short-Term Energy Outlook October 2018 4
production to offset declines in Iran and Venezuela have resulted in declining OPEC spare crude
oil production capacity. STEO estimates that OPEC spare capacity fell below 1.4 million b/d in
September, the lowest level since December 2016 when global oil inventory levels were much
higher.
With increased uncertainty about the amount that Iranian crude oil production could decline,
and how much of the decline can be offset by other supplier, STEO now forecasts the Brent
crude oil spot price will average $81/b in the fourth quarter of 2018, up from a forecast of $76/b
in the September STEO. Despite continuing production declines in Iran and Venezuela, EIA
forecasts global oil supply and demand to be nearly balanced in 2019 contributing to downward
oil price pressures. By the second half of 2019, when transportation constraints in the Permian
region of the United States are expected to be alleviated, U.S. crude oil production, and
potentially crude oil exports, are expected to increase, which could help keep prices in the mid-
$70/b range.
Although both the Brent and WTI front-month futures price rose during the past several weeks,
Brent prices increased more than WTI prices. As a result, the Brent futures curve became more
backwardated (when near-term contract prices exceed those of longer-dated ones) than the
WTI futures curve for the first time since June (Figure 2). From September 4 to October 4, the
Brent 1st–13th month futures contract price spread rose from $3.44/b to $4.29/b. During the
same period, the WTI 1st–13th month futures contract price spread declined from $3.60/b to
$2.40/b.
During September and through the first week of October, the probability that the December
2018 WTI crude oil futures contract will expire at $70/b increased sharply. A probability
calculated using futures and options data indicates that WTI futures prices have a 75% chance of
reaching $70/b at expiration as of October 4 (Figure 3). The probability of reaching $70/b was at
just 42% on September 4.