The consensus expects new record highs for global economic activity in 2023 and again in 2024.
In tandem with this growth, history suggests consumption of oil and natural gas should rise. Yet, two dynamics have confounded markets and policymakers: official forecasts for weakening global, near-term consumption and geopolitical developments, notably the Russia-Ukraine and Israel-Hamas wars, which have increased the world’s reliance on U.S. energy production and exports.
The EIA has projected that global oil demand growth between now and 2028 will be half the projection of other major official sources. If our government has underestimated the world’s need for oil and makes policy decisions that assume low demand growth and discourage investment in energy resources and domestic energy development, then the U.S. could fall irreversibly behind. American consumers are paying more for energy and being overly reliant on OPEC+ nations, whose objective has been to increase their market power and prices.
Specifically, OPEC’s five-year projection implies global oil demand growth twice that of our government’s projections — a difference of nearly 3.9 million b/d, which is comparable to all of the oil supply non-OPEC producers added to the market over the past five years. The gap between OPEC and EIA’s projections could necessitate almost $200 billion in capital investments in the next few years.
Amid these dynamics, current federal policies appear to misalign with our nation’s growing energy needs.
Adding fuel to this debate, the International Energy Agency (IEA) anticipates a peak in oil growth demand by 2030 — seven years from now. OPEC suggests that IEA’s projections could lead the global energy system to "fail spectacularly." Should the EIA and IEA forecasts discourage oil production investment by non-OPEC countries, this could inadvertently strengthen OPEC’s market dominance. As global demand grows, if American investments don’t keep pace, it could jeopardize our nation’s energy security and the stability of global energy markets.
Meanwhile, global uncertainties amplify the criticality of U.S. energy exports, which, for natural gas, the EIA projects could grow by more than 80% by 2030. Its projections also assume that domestic production remains flat, so increased exports depend on a 29.1% decrease in domestic consumption within the power sector by 2030 to maintain real prices near $3 per MMBtu. However, such a drastic reduction in consumption would be unprecedented, given that the U.S. hasn’t seen two straight years of declining natural gas usage in power generation since 1997, when the end-use sector-level data began being recorded.
While the EIA’s latest projections reflect its assumptions about the Inflation Reduction Act of 2022, which supports renewables, its 2021 outlook anticipated solid U.S. natural gas demand to 2030. Consequently, a risk is that the projected downturn in domestic natural gas demand is a reflection of energy modeling when the economy needs more natural gas to accompany renewables in power generation.
Similarly, EIA projects U.S. oil exports to grow by more than 20% between 2023 and 2030, against a 2.2% decrease in domestic consumption over the same period. In its view, the U.S. will be the world’s largest source of growth by 2030, providing up to 60% of incremental new supplies.
Amid these dynamics, current federal policies appear to misalign with our nation’s growing energy needs. Perhaps some hope that increased exports, without corresponding production growth, could increase domestic prices and accelerate a shift away from fossil fuels. But this strategy lacks foresight. An industry won’t invest in production and infrastructure without a cohesive value chain.
The U.S. natural gas industry sits at the intersection of geopolitics, domestic policies and economic realities. The data is clear: oil and natural gas remain crucial energy sources, and their efficient management requires a pragmatic, forward-looking policy approach. It is imperative for policymakers to prioritize a realistic and sustainable strategy that aligns with the energy realities of today and the demands of tomorrow.
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