2022 U.S. Energy Outlook

Among the diverse vertical markets that are served by the U.S. electrical distribution industry, the 0il & gas industry represents one of the largest consumers of electrical products. For many regions of the country oil & gas projects fuel the bottom line for distributors that supply electrical products to energy companies. Needless to say, robust exploration and production activity at a nearby basin can really make a distributor’s year from a revenue standpoint.

After a bumpy 2020 and “fluid” 2021, the North American rig count is in recovery mode, albeit at a gradual pace. The COVID-19 pandemic sent ripples through the energy supply chain as things like quarantines, closures, and changes in travel habits dropped energy consumption. This led to a glut of supply that triggered market corrections in 2021 that saw producers suspend a great number of drilling projects. Heading into 2022, the North American shale market appears to be in the early stages of a recovery from the COVID-impacted oil price downturn.

The gradual increase seen in last year’s US rig count, driven mostly by activity in the Permian Basin, is likely to continue in 2022, according to Rystad Energy, an independent energy research and business intelligence company. The number of wells drilled in US shales is also likely to see an uptick in 2022. Overall, Lower 48 oil production is expected to increase from 9.4 million bbl/day in Q4 2021 to 10.0 million bbl/day by Q4 2022. U.S. land rig count projections from Rystad Energy forecast an average of 589 rigs this year – up from an average of 427 in 2021. Much of this growth is being driven by the Permian Basin in West Texas and Southern New Mexico. Smaller increases are forecasted in the Haynesville and Eagle Ford basins where lifting costs are a bit higher.

Earlier this week, the U.S. Energy Information Administration (EIA)  released its Short-Term Energy Outlook which looks at energy activity through Q1 2023. Some notable insights include:

• U.S. crude oil production averaged 11.2 million b/d in 2021. The EIA expects production to average 11.8 million b/d in 2022 and to rise to 12.4 million b/d in 2023, which would be the highest annual average U.S. crude oil production on record. The current record is 12.3 million b/d, set in 2019.

• The natural gas spot price at Henry Hub averaged $3.91 per million British thermal units (MMBtu) in 2021. Monthly average prices reached $5.51/MMBtu in October, but they declined in November and December as mild weather prevailed across much of the country, resulting in less natural gas used for space heating. The EIA expects Henry Hub spot prices will average $3.82/MMBtu in the first quarter of 2022 and average $3.79/MMBtu for all of 2022 and $3.63/MMBtu in 2023.

• The EIA estimates global liquid fuels inventories fell by an average of 1.4 million barrels per day (b/d) in 2021 compared with inventory growth of 2.1 million b/d in 2020. 2022 global oil inventories rise in their forecast, increasing at a rate of 0.5 million b/d in 2022 and 0.6 million b/d in early 2023.

• On the demand side, global consumption of petroleum and liquid fuels averaged 96.9 million b/d in 2021, up by 5.0 million b/d from 2020, when consumption fell significantly because of the pandemic. The EIA expects global liquid fuels consumption will grow by 3.6 million b/d in 2022 and 1.8 million b/d in 2023.

Of course, uncertainty will continue to impact these forecasts. We are living in unprecedented economic times with never-before-seen market influences. Along with the ongoing pandemic, winter weather and consumer energy demand present a wide range of potential outcomes for energy consumption. Supply uncertainty in the forecast stems from uncertainty about OPEC+ production decisions and the rate at which U.S. oil and natural gas producers will increase drilling.

Regardless of market conditions in the Oil & Gas sector, Distributor Wire & Cable (DWC) will be equipped to help U.S. electrical distributors serve this market with specialty wire & cable products and services. Contact your DWC Account Manager today!