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Short-Term Energy Outlook (STEO)
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| Forecast Highlights
Global liquid fuels
- The June Short-Term Energy Outlook (STEO) is subject to heightened levels of uncertainty resulting from a variety of factors, including Russia’s full-scale invasion of Ukraine. Global macroeconomic assumptions in STEO are from Oxford Economics and include global GDP growth of 3.1% in 2022 and 3.4% in 2023, compared with growth of 6.0% in 2021. A range of potential macroeconomic outcomes could affect energy markets in the forecast period. Factors driving energy supply uncertainty include how sanctions affect Russia’s oil production, the production decisions of OPEC+, and the rate at which U.S. oil and natural gas producers increase drilling.
- The Brent crude oil spot price averaged $113 per barrel (b) in May. We expect the Brent price will average $108/b in the second half of 2022 (2H22) and then fall to $97/b in 2023. Current oil inventory levels are low, which amplifies the potential for oil price volatility. Actual price outcomes will largely depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market.
- We forecast Russia’s production of total liquid fuels will decline from 11.3 million b/d in the first quarter of 2022 (1Q22) to 9.3 million b/d in 4Q23. This STEO incorporates the recently announced EU ban of seaborne crude oil and petroleum product imports from Russia. We assume the crude oil import ban will be imposed in six months and the petroleum product import ban in eight months. This forecast does not reflect restrictions on shipping insurance, as details regarding such restrictions were not available when we finalized this forecast on June 2. The possibility that these sanctions or other potential future sanctions reduce Russia’s oil production by more than expected creates upward risks for crude oil prices during the forecast period.
- At its June 2 meeting, OPEC+ announced an upward adjustment of production targets for July and August. We updated our forecast to reflect these targets. We expect OPEC crude oil production to average 29.2 million b/d in 2H22, up 0.8 million b/d from 1H22.
- The U.S. average retail price for regular grade gasoline averaged $4.44 per gallon (gal) in May, and the average retail diesel price was $5.57/gal. Rising prices for gasoline and diesel reflect refining margins for those products that are at or near record highs amid low inventory levels. We expect the gasoline wholesale margins (the difference between the wholesale gasoline price and Brent crude oil price) to fall from $1.17/gal in May to average 81 cents/gal in 3Q22, and we expect retail gasoline prices to average $4.27/gal in 3Q22. Diesel wholesale margins in the forecast fall from $1.53/gal in May to $1.07/gal in 3Q22, and retail diesel averages $4.78/gal in 3Q22.
- U.S. refinery utilization averages 94% in 3Q22 in our forecast, as a result of high wholesale product margins. Despite our expectation that refinery utilization will be at or near the highest levels in the past five years, operable refinery capacity is about 900,000 b/d less than at the end of 2019, and as a result, we do not expect total refinery output of products to reach its highest level in the past five years. Although we expect high refinery utilization will help bring wholesale margins down from record levels.
Natural gas
- We expect the Henry Hub spot price to average $8.69 per million British thermal units (MMBtu) in 3Q22, up from an average of $8.13/MMBtu in May. Natural gas prices are rising mainly because of three factors: natural gas inventories that are below the five-year average, steady demand for U.S. liquefied natural gas (LNG) exports, and high demand for natural gas from the electric power sector given limited opportunities for natural gas-to-coal switching. In 2023, we expect the Henry Hub price will average $4.74/MMBtu amid rising natural gas production.
- U.S. natural gas inventories ended May at 2.0 trillion cubic feet (Tcf), which is 15% below the five-year average. We forecast that natural gas inventories will end the 2022 injection season (end of October) at just over 3.3 Tcf, which would be 9% below the five-year average.
- We forecast that U.S. LNG exports will average 11.7 billion cubic feet per day (Bcf/d) during 2Q22 and 3Q22 and 11.9 Bcf/d for all of 2022, a 22% increase from 2021, as a result of additional U.S. LNG export capacity that has come online. Since the end of 2021, the EU and the UK imported record-high LNG volumes because of low natural gas inventories. Europe has become the main destination for U.S. LNG exports and accounted for 74% of total U.S. LNG exports during the first four months of 2022. We forecast LNG exports will average 12.6 Bcf/d in 2023. Expected growth in LNG exports in 2023 results from LNG export terminals that came online in mid-2022 being operational for the whole year in 2023.
- U.S. consumption of natural gas in our forecast averages 85.3 Bcf/d in 2022, up 3% from 2021. Rising U.S. natural gas consumption reflects increased consumption across all sectors. In the residential and commercial sectors, increasing consumption results from colder temperatures in 2022 than in 2021, and in the industrial sector, rising economic activity contributes to higher consumption. Limited natural gas-to-coal switching in the electric power sector, despite high natural gas prices, results in increased consumption of natural gas for power generation. For 2023, we forecast that natural gas consumption will average 85.1 Bcf/d, about the same as 2022.
- We forecast U.S. dry natural gas production to average 95.7 Bcf/d in June and to average 97.9 Bcf/d in 2H22, which would be 2.7 Bcf/d (3%) more than in 2H21. We expect dry natural gas production to average 101.6 Bcf/d in 2023.
Electricity, coal, renewables, and emissions
- The largest increases in U.S. electricity generation in the next two years are likely to come from renewable energy sources, driven by expanded generating capacity from these sources. We expect renewable energy will provide 22% of U.S. generation in 2022 and 24% in 2023, up from a share of 20% last year. Solar capacity additions in the electric power sector total 20 gigawatts (GW) for 2022 and 22 GW for 2023. Solar PV installation delays from 2022 to 2023 account for about 1 GW of the expected installed solar capacity. We expect that small-scale (systems less than 1 GW) solar capacity will grow to a total of 39 GW by the end of 2022 and to 46 GW in 2023.We estimate that wind capacity additions in the U.S. electric power sector will total 11 GW in 2022 and 5 GW in 2023.
- The continued retirement of coal-fired generating capacity in the United States contributes to our forecast that the share of electricity generation from coal will decline from 23% in 2021 to 21% in 2022 and to 20% in 2023. The coal fleet has been facing constraints in raising its share of generation despite high natural gas prices. The constraints include limited rail capacity for fuel delivery, low coal stocks at power plants, reduced coal mining capacity, and rising generation from renewable sources.
- Although we expect annual U.S. natural gas fuel costs for electricity generators will increase 59% in 2022, we do not expect a significant decline in generation from natural gas-fired power plants because of the limited ability of coal power plants to act as an alternative source of generation. We forecast the U.S. natural gas generation share will average 37% in 2022, about the same as last year. The forecast natural gas share averages 36% in 2023 as the share of generation from renewable sources increases.
- We forecast the U.S. residential electricity price will average 14.6 cents/kWh between June and August 2022, up 4.8% from summer 2021. The forecast summer commercial sector price averages 12.0 cents/kWh (up 4.7%) and the forecast industrial sector price averages 7.7 cents/kWh (up 3.2%). Higher retail electricity prices largely reflect higher wholesale power prices and higher natural gas prices. We expect the summer increases in retail residential electricity prices will range from an increase of 2.4% in the West South Central region to a 16.1% increase in New England.
- U.S. coal production in the forecast increases by 23 million short tons (MMst) (3.9%) in 2022 to 601 MMst and then declines by 13 MMst (2.1%) to 588 MMst in 2023. The forecast increase occurs despite our expectation that coal use in the electric power sector will decline. We expect rising coal production will replenish electric power sector inventories and contribute to U.S. coal exports.
- We expect energy-related carbon dioxide (CO2) emissions in the United States to increase 1.3% in 2022 and fall by 0.7% in 2023. Forecast emissions increases in 2022 primarily reflect growth in transportation demand.
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| U.S. EIA Residential Energy Consumption Survey Results
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| EIA expects U.S. natural gas prices to remain high through 2022
In the June 2022 Short-Term Energy Outlook (STEO), EIA forecasts that U.S. natural gas spot prices will increase again this month and then remain high through 2022. Natural gas spot prices at the U.S. Henry Hub benchmark in Louisiana averaged $8.14 per million British thermal units (MMBtu) in May 2022, and EIA expects the Henry Hub price to average $8.71/MMBtu this summer (June through August). Henry Hub prices did drop in early June after a fire at a Texas liquefied natural gas terminal shut down operations there for at least three weeks. Since the facility accounts for about 15% of the U.S. export capacity, the price drop reflects markets shifting to consume nearly 2 million dekatherms of the natural gas domestically.
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| EPA extends waiver to allow E15 gasoline this summer
On April 29, EPA issued a waiver to allow E15 gasoline—gasoline that uses a 15 percent ethanol blend—to be sold this summer. The waiver was extended through June 30, 2022. However, it states, “retailers and wholesale purchaser-consumers in these areas may continue selling or dispensing gasoline that meets the conditions of this waiver after June 30, 2022, until supplies in their E15 storage tanks are depleted.”
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| FMCSA extends emergency declaration for COVID-19 to August 31
On May 31, the Federal Motor Carriers Safety Administration (FMCSA) extended and amended the national emergency declaration for the COVID-19 pandemic. Specifically, the extension and amendment of the declaration includes “gasoline, diesel, diesel exhaust fluid (DEF), jet fuel, ethyl alcohol, and heating fuel including propane, natural gas, and heating oil.” FMCSA released an FAQ with the extension to answer some common questions – including:
Question: Does the current COVID-19 Emergency Declaration include the transportation of fuel?
Answer: Yes, the Emergency Declaration includes the transportation of fuel including gasoline, diesel, jet fuel, ethyl alcohol, and heating fuel including propane, natural gas, and heating oil.
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| DOE CESER Blog: OT Defender Program Highlights the Value of Government-Industry Information Sharing
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| Operational security managers are often the first line of defense against cyber and physical attacks that threaten the security of our nation's energy infrastructure. The work they do is essential to ensuring the systems we rely on every day for our power and fuel are safe and secure, but the fact of the matter that these critical workers face an ever-evolving and dynamic threat landscape, often with limited resources at their disposal.
That’s why the Department of Energy (DOE) creates programs like the Operational Technology (OT) Defender Fellowship. The OT Defender Fellowship is a highly selective educational opportunity led by DOE’s Office of Cybersecurity, Energy Security, and Emergency Response (CESER), alongside the Idaho National Laboratory (INL), that gives its fellows an exclusive, insider view of how the government functions. During year-long cohorts of about a dozen participants at a time, these OT security managers have opportunities to collaborate with key stakeholders and partners, are shown how to better serve their organizations and the energy sector, and how to contribute to two-way information sharing between government and industry. The first cohort began in January of 2021 and ran through March of 2022, and the second recently kicked off in April of 2022.
The Fellowship is much more than just a networking activity; it offers its participants experiences that they cannot receive anywhere else. The students are given access to cutting-edge tools and technologies, virtual meet-and-greets with key cyber leaders, and input from and conversations with partners that had been previously out of reach. One fellow commented during program closeout, “This program provides a great overview of all the programs available to critical infrastructure. It also builds bridges and gets OT Defenders in front of policy makers in the ways other programs have not.”
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| “One of the things we heard throughout the year is they want time to hear from each other,” shared Jared Smith, Program Manager at the Cybercore Integration Center at INL. “They’ve got a strong desire for additional opportunities to collaborate outside of the program. Because of this resounding interest, we plan to facilitate more inter-session discussions and in-person engagements in the future.” That desire for interconnectedness highlights the real value of the program: it fosters closer partnerships between companies that might otherwise not have been working together as closely as they could.
Mr. Brian Marko, Program Manager of Energy Sector Exercises and Cyber Training Programs in CESER, also added that he was “thrilled at how quickly barriers went down between the fellows as the program kicked off. They shared information willingly and freely, which shows that they really do see this as a collaborative opportunity, not competitive, even despite geographical dispersion and industry rivalry.”
Though the second OT Defender Fellowship Program cohort began just recently, the team is already running at full speed to apply feedback from the first session. Prioritizing opportunities for bi-directional communication, initiating conversation, and promoting strong collaboration between industry, government, and stakeholder partners remain the primary goals for the next year.
“We’ll continue to make a point of putting our heads together and facilitating those connections between the fellows,” Mr. Marko stated. “When we really focus on how we can benefit from sharing information instead of competing amongst each other, it creates amazing results.”
For more information on the OT Defender Fellowship Program, visit their homepage on the Idaho National Laboratory’s official website.
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| Nuclear News: BWXT design picked for DOD “Project Pele” Prototype Nuclear Microreactor
According to Power Magazine, the Department of Defense (DOD) has picked BWX Technologies’ (BWXT’s) microreactor design for its “Project Pele” full-scale transportable prototype. Two Tennessee sites will be involved. Reactor fuel for Project Pele will be produced from DOE’s stockpiles of highly enriched uranium currently stored at the Y–12 National Security Complex in Oak Ridge, TN. The fuel will be converted from a metal to an oxide at BWXT’s Nuclear Fuel Services facility in Erwin, TN. However, testing of the prototype reactor will occur at Idaho National Laboratory as it has a fully functional grid that is disconnected from the main grid. For more on this innovative project, visit here: https://www.powermag.com/dod-picks-bwxt-to-manufacture-project-pele-prototype-nuclear-microreactor/?oly_enc_id=2026C0624790A4V.
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| Preparedness Focus: Hurricanes
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| NOAA forecasts above-normal 2022 Atlantic Hurricane season
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| Power Demand to Grow in Tennessee Valley as Economy Electrifies, TVA CEO
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Memphis City Council Hammers TVA Economic Impact Study
However, “Memphis Light, Gas and Water estimated customers could save between $26 million and $55 million per year if the utility were to sever its longtime relationship with the Tennessee Valley Authority — far less than the $100 million to $150 million in annual savings it projected in a 2020 study. Critics said the lowball estimate reflects a preference among MLGW leaders to remain with TVA rather than source power elsewhere. Outside studies paid for by third parties have found much greater benefits.” TN Journal, June 17, 2022.
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TVA Replaces Generators at Its Newest Nuclear Unit Only Six Years After Finishing the Plant
During the last quarter, TVA removed and replaced four steam generators at the Unit 2 reactor at Watts Bar Nuclear Plant near Spring City, TN. Unit 2, which began commercial operations in October 2016, was the nation’s first new nuclear power reactor to enter service in the 21st Century. Tennessee’s two nuclear power plants – Watts Bar and Sequoya – provided 47% of in-state electricity in 2020, according to EIA. For the full story on the replacement, visit https://energycentral.com/news/tva-replaces-generators-its-newest-nuclear-unit-only-six-years-after-finishing-plant.
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For over 800 days, OEP’s Primary ESC has been activated for the COVID-19 pandemic and other disasters. He shares responsibilities as the Infrastructure Branch Manager over ESF-1 Transportation, ESF-2 Communications, ESF-3 Infrastructure, and ESF-12 Energy. During the quarter, OEP ESCs participated in virtual tabletop exercises for preparing to maintain resilience in the event of an emergency that may impact the energy grid or fuel supply chain. If you are interested in having our ESCs participate in your exercise or present on energy security and resiliency, please contact us at TDEC.OEP@tn.gov.
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| Personal Preparedness: ReadyTN App
ReadyTN is a mobile device application from TEMA that provides emergency preparedness, response, and recovery information to Tennesseans. The app displays real time weather and emergency alert messages, as well as maps of open Red Cross Shelters, Smartway maps of real time traffic conditions from the Tennessee Department of Transportation, and local emergency management contact information. ReadyTN has resources to help individuals build emergency kits, create emergency plans for themselves and their families, and learn about the emergency hazards Tennesseans face. Download ReadyTN for your mobile device at either the Apple Store (iPhone) or Google Play Store (Android).
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Middle TN Cyber Conference, Murfreesboro, Sept. 13-14, 2022
The Tennessee Department of Safety & Homeland Security and the conference committee are proud to once again bring together individuals from business, industry, and government from September 13-14 to showcase the latest information, strategies, best practices, and innovative solutions to address today’s challenges in cybersecurity featuring speakers from commercial businesses, industry, and government. The real world Capture the Flag is on September 14. For more information on attending this free conference in Murfreesboro, visit https://middletncyberconf.com/.
Pres. Biden Signs State and Local Governments Cybersecurity Act into Law
On June 31, President Biden signed into law legislation that ensures federal cybersecurity experts assist state and local governments (SLG) in protecting their networks against the growing number of cyberattacks across the United States. The law amends the Homeland Security Act of 2022 to give the Department of Homeland Security more latitude to use centers like the Cybersecurity and Infrastructure Security Agency (CISA) and the Multi-State Information Sharing and Analysis Center (MS-ISAC) to coordinate with state local territory and tribal (SLTT) entities. The measure also requires the National Cybersecurity and Communications Integration Center to share vital security tools and protocols with state, local, tribal, and territorial governments, including:
- conduct exercises with state, local, tribal, or territorial government entities;
- provide operational and technical cybersecurity training to such entities; and
- promote cybersecurity education and awareness.
PHMSA issued Notice of Probable Violation to Colonial Pipeline
On May 5, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a Notice of Probable Violation to Colonial Pipeline for last year’s ransomware attack. PHMSA fined Colonial Pipeline $846,300 for probable violation of Pipeline Safety Regulations, including not having a communications plan in place for manual operation of the pipeline. Most of the citations are for control room management practices and recordkeeping violations.
To receive more critical cybersecurity alerts, contact Tennessee’s Special Agent for Cybersecurity at James.Cotter@tn.gov and ask to be added to his IT Manager listserv.
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| ABOUT EMERGENCY SUPPORT FUNCTION (ESF) 12 (ENERGY)
Emergency Support Functions (ESFs) are mechanisms developed under the National Response Framework to provide federal, state, and local governments a common language and organization structure for responding to natural disasters, terrorist attacks, and other catastrophic events. Each of the 15 ESFs has a corresponding organization or agency tasked with overseeing the preparedness, response, and recovery phases of incident management. Tennessee was one of the first to integrate the ESF concept, and TEMA was tasked to manage the activities of the ESCs.
The purpose of ESF-12 Energy is to facilitate energy security in areas of the state affected by an emergency. While TVA is responsible for electricity generation and the electric grid, OEP has primary responsibility for monitoring the status of the transportation and heating fuel distribution network, and, if necessary, coordinating the State response to fuel disruptions. Working with our public sector partners, such as TEMA, the Governor’s Office, Department of Agriculture, Department of Commerce and Insurance, and the Department of Safety and Homeland Security, the State is able to convene the necessary government agencies and private sector stakeholders to ensure a continuous supply of transportation and heating fuels to citizens throughout the State. If you would be interested in having our ESCs present on energy security or energy resiliency, please contact us at TDEC.OEP@tn.gov.
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CONTACT OEP ESF-12 STAFF:
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