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Energy Forecasting in Volatile Times

Energy Forecasting in Volatile Times. Federal Forecasters Conference – The Value of Government Forecasts September 27, 2012| Washington, D.C. Adam Sieminski, Administrator. About EIA .

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Energy Forecasting in Volatile Times

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  1. Energy Forecasting in Volatile Times Federal Forecasters Conference – The Value of Government Forecasts September 27, 2012| Washington, D.C. Adam Sieminski, Administrator

  2. About EIA The U.S. Energy Information Administration (EIA) collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment. By law, EIA’s data, analyses, and forecasts are independent of approval by any other officer or employee of the United States Government. Adam Sieminski September 27, 2012

  3. Short-Term Energy Outlook:U.S. retail gasoline and crude oil prices dollars per gallon Source: U.S. Energy Information Administration Short-Term Energy Outlook, September 2012 forecast Adam Sieminski September 27, 2012

  4. Energy price forecasts are inherently volatile West Texas Intermediate crude oil price dollars per barrel Source: U.S. Energy Information Administration Short-Term Energy Outlook, September 2012 Adam Sieminski September 27, 2012

  5. Probability of December 2012 WTI contract expiring above different price levels Source: U.S. Energy Information Administration Short-Term Energy Outlook, September 2012 Adam Sieminski September 27, 2012

  6. Domestic production of shale gas and tight oil has grown dramatically over the past few years tight oil production for select plays million barrels of oil per day Source: HPDI, Texas RRC, North Dakota department of mineral resources, and EIA, through March, 2012. shale gas production (dry) billion cubic feet per day Adam Sieminski September 27, 2012

  7. Speed of development raises new data collection issues Texas oil production million barrels per day Source: Hydrocarbon Production Database Incorporated (HPDI), EIA, State of Texas. Data through April, 2012 Differences indicate lags in reporting and processing data at the State level Adam Sieminski September 27, 2012

  8. Increased natural gas production lowered prices power plants paid for this fuel A South delivered fuel prices dollars per megawatthour Source: U.S. Energy Information Administration, Power Plant Operations Report Adam Sieminski September 27, 2012

  9. Lower natural gas prices at power plants lead to increased natural gas use for power generation Monthly generation from major fuels thousand megawatthours Source: U.S. Energy Information Administration, Power Plant Operations Report Adam Sieminski September 27, 2012

  10. Challenges in providing official forecasts and projections to policymakers: • Focus on the near-term • Complicated models • Uncertainties in the impact of policy changes Adam Sieminski September 27, 2012

  11. Accurate forecasts in global markets require global inputs OPEC surplus capacity and historic average million barrels per day Source: U.S. Energy Information Administration Short-Term Energy Outlook, September 2012 forecast Adam Sieminski September 27, 2012

  12. Source: U.S. Energy Information Administration Correlations (+ or -) between daily returns on crude oil futures and financial investments have also strengthened WTI crude oil price peak * U.S. Dollar Index (DXY), which is a weighted index of a basket of currencies, per U.S. dollar. As the dollar strengthens against other currencies, the value of the index rises. ** U.S. Treasury is based on the negative of the change in yield on 30-year U.S. government bonds because as yields rise, bond prices fall. Note: Correlations computed quarterly Adam Sieminski September 27, 2012

  13. Accurate forecasts also require monitoring of events outside of model inputs 10 year bond yield (spread above German yields) dollars per barrel Source: Intercontinental Exchange, Bloomberg LLC Adam Sieminski September 27, 2012

  14. Long-term Projections Adam Sieminski September 27, 2012

  15. The shale gas & tight oil technology story is only beginning, with much yet to be written • Technology is creating new resources out of source rocks • Production data provides a rearview mirror perspective • see the changes, but with a delay • EIA does not anticipate step changes in technology applications • EIA does recognize and incorporate long-term technological change • Annual re-estimating of U.S. plays is necessary • new data is providing significant new detail of what production is possible • Broad implications exist for world wide oil and gas production Adam Sieminski September 27, 2012

  16. Changing understanding of geology, technology and economics Geology Engineering / Technology Theory Experiment Commercial Practice Economics Technically Recoverable Resources Gas in Place Drilling Data Adam Sieminski September 27, 2012

  17. Shale gas resource potential and related costs remain highly uncertain Three alternate cases High Technically Recoverable Resource (TRR) case assumes High EUR case with wells closer together (80 acres per well), and it could represent finding more plays. High Estimate Ultimate Recovery (EUR) case assumes an EUR per shale gas well set 50% higher than in the Reference case. Results in lower per Mcf costs. Low EUR case is like High EUR but lower. Shale gas production trillion cubic feet High TRR High EUR Reference Low EUR Source: U.S. Energy Information Administration, Annual Energy Outlook 2012 Adam Sieminski September 27, 2012

  18. Annual Energy Outlook 2012:U.S. dependence on imported petroleum declines U.S. liquid fuel supply million barrels per day Source: U.S. Energy Information Administration, Annual Energy Outlook 2012 History Projections 2005 2010 Consumption Extended Policies 14% 36% High TRR 60% 49% Net petroleum imports Domestic supply Adam Sieminski September 27, 2012

  19. Framing outcomes is an important consideration for forecasters Economic impact of greenhouse gas reduction between 2010 and 2025 Change in Real GDP (billion 2000 dollars) Real GDP (billion 2000 dollars) Source: U.S. Energy Information Administration Adam Sieminski September 27, 2012

  20. U.S. Energy Information Administration home page | www.eia.gov Short-Term Energy Outlook | www.eia.gov/steo Annual Energy Outlook | www.eia.gov/aeo International Energy Outlook | www.eia.gov/ieo Monthly Energy Review | www.eia.gov/mer For more information EIA Information Center InfoCtr@eia.gov Our average response time is within three business days. (202) 586-8800 24-hour automated information line about EIA and frequently asked questions. Adam Sieminski September 27, 2012

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