Petroleum and Natural Gas Outlook Briefing for the National Association of State Energy Officials 2005 Energy Outlook Conference Washington, DC Mike Burdette Petroleum Division, Energy Information Administration February 17, 2005

EIA’s Petroleum and Natural Gas Outlook Crude oil price outlook Global oil supply/demand fundamentals Global and U.S. petroleum stocks U.S. refinery capacity and utilization U.S. petroleum product supply, demand, and prices Natural gas price and supply outlook Residential heating fuel costs

WTI Crude Oil Price: Potential for Volatility Around Base Case Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Weighing the MarketBulls Continued strong economic and oil demand growth Little spare capacity available Relatively low inventories Possible supply disruptions, including Iraq, Russia, Venezuela, Saudi Arabia, and Nigeria Bears Slowing economic and oil demand growth More supply Inventory recovery More capacity growth Milder winter weather Easing supply risks

Low Excess Capacity and Low Days of Supply Are Fundamentals Supporting High Crude Prices Sources: WTI: Reuters; OECD Days Supply: International Energy Agency; World Excess Production Capacity: U.S. Energy Information Administration estimates.

OPEC Spare Capacity Is Extremely Tight Right Now Current Excess Capacity Saudi Arabia1.5 – 2.0 Other Persian Gulf0.1 Other OPEC Source: U.S. Energy Information Administration estimates.

Annual World Oil Demand Growth Was Unexpectedly Strong in 2004 Forecast History Source: EIA, Short-Term Energy Outlook, February 2005.

OECD Commercial Oil Inventories (Using 5-Year Average and +/- 1 STD) Source: History – IEA; Forecast – EIA Short-Term Energy Outlook, February 2005.

U.S. Crude Inventories Projected to Remain in Normal Range Sources: EIA, Short-Term Energy Outlook, February Million Barrels

U.S. Gasoline and Distillate Inventories Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Capacity Surplus Disappearing, Creating Short-Term Challenge Gross Inputs Operable Capacity Forecast Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

U.S. Gasoline Supply and Demand Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Gasoline Supply/Demand Balance Reflected in Spreads Spot Gasoline Price WTI Price

Crude Oil, Gasoline, and Diesel Fuel Prices Sources: EIA Short-Term Energy Outlook, February Retail Diesel Fuel Retail Regular Gasoline Crude Oil (WTI)

U.S. Natural Gas Spot Prices – Henry Hub Sources: History: EIA; Projections: Short-Term Energy Outlook, February 2005.

Working Gas in Underground Storage Sources: EIA, Short-Term Energy Outlook, February 2005.

Residential Heating Fuel Costs Source: Short-Term Energy Outlook, February 2005.

Petroleum and Natural Gas Outlook Conclusion EIA expects global crude oil prices to decline modestly this year and next, but remain over $40 per barrel (WTI) Growth in global oil demand has outstripped that in supply in recent years, decreasing spare production capacity Global production capacity expansion will begin to catch up, re- establishing some increment of spare capacity Global and U.S. petroleum inventories will return to/remain near average levels through next year U.S. gasoline supplies appear solid to date ahead of the driving season, but strong demand, limited U.S. refinery capacity, and competition for imports could tighten the balance U.S. retail gasoline prices will peak near last year’s highs Natural gas prices are expected to soften due to adequate supplies LNG will grow in importance in the U.S. natural gas supply picture Residential heating fuel costs for this winter will total 10-30% more than last year