CO2 to Hold Steady This Year, But Rise Coming in 2012

The Energy Information Administration expects fossil-fuel CO2 emissions to remain flat in 2011, as higher petroleum and natural gas consumption is offset by a decline in coal, according to the agency’s latest Short-Term Energy Outlook.

Increases in hydroelectric and other renewable energy generation will help to mitigate growth in emissions, EIA says, and it expects natural gas inventories to approach record levels this year. But the agency expects a 0.9 percent increase in fossil-fuel CO2 emissions in 2012 as consumption rises.

EIA expects very little growth in electricity consumption this year, with a decline in residential use balancing out increased electricity sales to industrial and commercial sectors. Average residential prices are expected to rise 2.9 percent from 11.6 cents per kWh in 2010 to 11.9 cents per kWh this year.

The National Oceanic and Atmospheric Administration is predicting that cooling degree-days this summer will be about 14 percent lower than last summer, resulting in a 5.3 percent comparative decline in residential electricity consumption.

Natural gas generation in the electric power sector is projected to increase by 1.6 percent in 2011 and by 1.2 percent in 2012. Natural gas’s share of electricity generation has shifted either up or down, depending on what part of the country is under consideration.

Its share in the West Census Region slumped from 29 percent to 19 percent between Q1 2010 and Q1 2011, reaching the smallest first-quarter share since 2000, as a result of record levels of hydroelectric generation. On the other hand, low marginal costs for natural gas compared to coal pushed up natgas’s share by nearly six percent in the Northeast Census region.

EIA expects that generators in the East will continue the trend of substituting natural gas for coal, with nationwide coal production falling by 1.2 percent this year, while in the West natural gas’s share will rise as hydroelectric’s falls. But in 2012, EIA expects a 1.8 percent increase in coal production. It expects the power-sector deliverd coal price to rise from $2.26 per MMBtu in 2010 to $2.32 in 2011, and then hold steady in 2012.

Working inventories of natural gas ended June 2011 at 2.5 trillion cubic feet, or about eight percent below their level one year previously. EIA expects that these inventories will build strongly this summer and approach record-high levels in the second half of 2011, with the Henry Hub natural gas spot price projected to average $4.27 per million British thermal units, $0.12 below the 2010 average.

EIA expects, however, that the natural gas market will begin to tighten in 2012, with the spot price increasing to an average of $4.54.

The agency predicts that regular-grade gasoline prices will average $3.62 and $3.51 per gallon over the third and fourth quarters of 2011, a further drop from their $3.68 per gallon level in June. That was itself a steep drop from the average $3.91 per gallon price in May, which reflected a decline in crude oil prices from their April peak, as well as recovery from refinery outages and Mississippi River flooding.

EIA expects oil markets to tighten through 2012, although the IEA release of strategic oil reserves will provide some additional supply. The projected cost of crude oil for U.S. average refiner acquisition is for $108 per barrel in 2012, up from $102 in 2011 – about $1 per barrel below the projection in last month’s Outlook.

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