Tuesday, January 04, 2005

DOE Projections of Oil Prices

Sometimes DOE does things that are a little hard to understand in the beginning. Take for example, the Annual Energy Outlook with Projections to 2025. Here is what the report says about the oil prices:
In the AEO2005 reference case, the annual average world oil price (IRAC) increases from $27.73 per barrel (2003 dollars) in 2003 to $35.00 per barrel in 2004 and then declines to $25.00 per barrel in 2010 as new supplies enter the market. It then rises slowly to $30.31 per barrel in 2025, about $3 per barrel higher than the AEO2004 projection of $27.41 per barrel in 2025. (ed. note: These are 2003 dollars) In nominal dollars, the average world oil price is about $52 per barrel in 2025. The AEO2005 world oil price forecast is characterized by decreasing prices through 2010 and moderately increasing prices thereafter. This is consistent with a forecast that projects increases in world petroleum demand, from about 80 million barrels per day in 2003 to more than 120 million barrels per day in 2025, which is met by increased oil production both from the Organization of Petroleum Exporting Countries (OPEC) and from non-OPEC nations. AEO2005 projects OPEC oil production of 55 million barrels per day in 2025, 80 percent higher than the 31 million barrels per day produced in 2003. The forecast assumes that OPEC will pursue policies intended to increase production, that sufficient resources exist, and that access and capital will be available to expand production. Non-OPEC oil production is expected to increase from 49 to 65 million barrels per day between 2003 and 2025.

Now compare this to the projections from Philip Verleger. You will find a substantial difference. EIA does have an update on its projections by taking in to account the latest futures market data. Note that these two projections differ substantially. I am looking forward to the release of the completed Annual Energy Review 2005 for a more substantial discussion of these two and other scenarios.

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