Agency: High Oil Costs to Stay *** Natural Gas Price Drop Predicted

Agency: High oil costs to stay *** Natural gas price drop predicted

WASHINGTON Oil prices will persist near or above $50 a barrel for years and force a shift to more fuel-efficient cars and alternative fuels, the government said Monday, discarding earlier predictions that costs would drop to around $30 a barrel.

The Energy Department forecast was more positive on natural gas prices. It said they would retreat from the recent spikes to more than $14 per thousand cubic feet and settle at under $5 in the long term as demand weakens, especially for electricity production.

The analysis reflected a significant change from the departments projections a year ago when it predicted oil prices in constant dollars not counting normal inflation would retreat in the long term and settle at about $31 a barrel by 2025.

The report issued Monday said that oil prices will remain in the mid-$40 range or higher in coming years and average $54 a barrel by 2025, increasing to an average of $57 a barrel by 2030 when adjusted for inflation. Crude oil prices have been hovering around $60 a barrel, briefly soaring as high as $70 earlier this year.

As for now, the Organization of Petroleum Exporting Countries decided Monday to keep its crude-oil production steady at record levels, and to meet next month to consider reducing output a strategy meant to keep markets calm but prices firm.

The decision by oil ministers of the 11-nation OPEC cartel appeared to reflect a recognition that oil prices may have peaked. But analysts cautioned that any near-term downward trend would be limited and gradual, stopping well above the cost of crude before it began to climb about two years ago.

Markets appeared unimpressed and driven more by fears of a colder- than-normal winter in the Northern Hemisphere and concerns about supplies lost by Sundays massive explosions at an oil terminal north of London.

Even before OPECs meeting, Saudi Oil Minister Ali Naimi said the recent rebound in crude prices was driven not by shortages, but by cold weather in the United States and a corresponding spike in natural gas prices.

The Energy Departments long-term forecast, which attempts to gauge the nations energy picture 20 years from now, assumed no major policy shift such as future restrictions on greenhouse gases or oil development in the Arctic National Wildlife Refuge in Alaska, which supporters said would produce a flow of 1 million additional barrels of oil a day by 2025.

Any major policy shift such as curbing fossil fuel use to counter global warming would change the picture dramatically especially in the use of coal for generating electricity, said Guy Caruso, head of the Energy Information Administration, the Energy Departments statistical agency which issued the report.

Demand for crude oil and natural gas is expected to continue to increase, but not as sharply as had been projected a year ago.

And the report projected a growth in electricity production from nuclear power plants with construction of at least six large reactors, beginning after 2014. A year ago the agency said it saw no new reactors on the horizon.

At the same time, the agency said energy production would result in a steady 1.2 percent a year increase in the amount of heat- trapping carbon dioxide that will flow into the atmosphere. Annual carbon emissions from burning fossil fuels will be 28 percent higher in 2025 than they are today, the Energy Information Administration said.