tag:blogger.com,1999:blog-61994102024-03-05T02:56:49.796-05:00Energy OutlookProviding useful insights and making the complex world of energy more accessible, from an experienced industry professional. A service of GSW Strategy Group, LLC. Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.comBlogger1712125tag:blogger.com,1999:blog-6199410.post-25580553441756549282018-04-23T12:13:00.003-04:002018-04-25T10:55:09.798-04:00Donald Trump vs. OPECAs of last week's price report from the US Energy Information Administration, the average US pump price of regular gasoline has gone up by <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_NUS_DPG&f=W">$0.19 per gallon</a> since the first week of March. That reflects normal seasonal factors but is mainly due to a jump in international crude oil prices of around <a href="https://www.eia.gov/dnav/pet/hist/RBRTED.htm">$8 per barrel</a> in the same period. President Trump's accusation that OPEC is responsible for rising fuel costs shouldn't have surprised anyone:<br />
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Last Friday's tweet prompted a quick retort from Saudi Oil Minister al-Falih: "<a href="https://www.wsj.com/articles/oil-edges-higher-as-investors-look-to-opec-meeting-1524217572?mod=searchresults&page=1&pos=3">there is no such thing as an artificial price</a>." It doesn't require a deep study of OPEC or economics to conclude that, however phrased, Mr. Trump's remark was closer to the truth than his chosen foil's reply on this issue.<br />
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The more interesting question is whether OPEC's very intentional efforts in conjunction with Russia to tighten oil markets are actually harmful to US interests at this point. Could our instinctive reaction to rising oil prices be based on outdated thinking from the long era of perceived scarcity that began with the oil crises of the 1970s and ended, more or less, with this decade's US shale boom?<br />
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Let's recall that less than four years ago oil prices fell below $100 per barrel as the <a href="https://www.eia.gov/energyexplained/images/charts/u.s.tight_oil_production.jpg">rapidly growing output</a> of US shale, or "tight oil" production from wells in North Dakota and South and West Texas created a global oil surplus and rising oil inventories. Oil prices went into free fall around the end of 2014--eventually bottoming out below $30 per barrel--after Saudi Arabia and the rest of OPEC abandoned their output quotas and opened up the taps.<br />
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That response to the shale wave began the only period in at least four decades when the oil market could truly be characterized as free, when all producers essentially pumped as much oil as they desired. Some referred to it as OPEC's "<a href="http://energyoutlook.blogspot.com/2016/02/opecs-war-on-us-producers.html">war on shale</a>."<br />
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However, those conditions proved to be just as hard on OPEC as on US shale producers, and by the end of 2016 OPEC blinked. The output <a href="http://energyoutlook.blogspot.com/2016/12/some-thoughts-on-opec-deal.html">agreement </a>between OPEC's members and a group of non-OPEC producing countries led by Russia has been in place over a year, and it has taken this long to dry up the excess inventories that had accumulated in 2015-16. OPEC's quota compliance--historically mediocre at best--was aided significantly by geopolitical factors affecting several producers, notably the ongoing implosion of Venezuela's economy and the <a href="https://www.wsj.com/articles/venezuelas-oil-industry-takes-a-fall-1516271401">oil industry</a> on which it depends.<br />
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Given all this, it's fair to say that OPEC has engineered today's higher oil prices, while its leading members <a href="https://www.ft.com/content/c7dd7e82-446c-11e8-93cf-67ac3a6482fd?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8">contemplate even higher prices</a>. It's much less obvious that this is bad for the US, which now has a vibrant and diverse energy sector and is finally approaching the energy independence that politicians have touted since the late 1970s.<br />
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Prior to the shift in the focus of the shale revolution from natural gas to oil, the US was still a substantial net importer of petroleum and its products. In 2010, we imported <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTNTUS2&f=A">over 9 million barrels per day</a> more than we exported. That was around <i>half </i>of our <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTUPUS2&f=A">total petroleum supply</a>. Today, these figures are under 4 million barrels per day and 20%, respectively.<br />
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That means that when the price of oil rises, this is no longer followed by enormous outflows of dollars leaving the US to enrich Middle East and other producers. Something like 80 cents of every dollar increase in the price of oil stays in the US, and in the short run the effect may be even more beneficial as investment in US production steps up in response.<br />
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In other words, when oil prices go up and gasoline and diesel prices follow, the main effect on the US economy is to shift money from one portion of the economy to another, rather than the whole economy springing a large leak. What makes that shift challenging is that consumers come out on the short end, while oil exploration and production companies, and to some extent oil refiners, gain.<br />
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A useful way to gauge the impact on consumers is to compare one year's prices to the previous year's. When oil prices were falling a few years ago, year-on-year drops of as much as <a href="https://www.eia.gov/petroleum/weekly/archive/2014/141231/includes/analysis_print.php">$1.00 per gallon</a> for gasoline (2014-15) put up to $100 billion a year back into the pockets of consumers. That provided a timely stimulus for an economy still recovering from the financial crisis of the previous decade.<br />
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As oil prices started to recover last year, these comparisons turned negative. Currently, the average regular gasoline price is <a href="https://www.eia.gov/petroleum/weekly/archive/2018/180418/includes/analysis_print.php">$0.31/gal. higher than last year</a> at this time. If gas prices were to stay that much higher than last year's for the rest of 2018, it would impose a drag of about $45 billion on consumer spending. $2.75/gal. is the highest US average unleaded regular price for April since 2014. Although gas is still nearly $1.00/gal. cheaper than it was then, memories tend to be short.<br />
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We may be living in a new era of energy abundance, but I am skeptical that our political instincts have caught up with these altered circumstances. The price of gasoline is still arguably the most visible price in America. When it goes up week after week, consumers notice, even in an economy running at essentially "<a href="http://thehill.com/policy/finance/333048-us-economy-at-full-employment-economist-says">full employment</a>" and growing at <a href="https://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-forecasters/2018/survq118">3% per year</a>.<br />
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Most of those consumers are potential voters, and this is another election year with much at stake. In that light, I would not expect President Trump to abandon his attack on "artificial prices" for oil, even if it's arguable that the US economy as a whole may not be worse off with oil over $70 instead of below $60 per barrel.<br />
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<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-55462018641822008802018-01-19T11:03:00.002-05:002018-01-19T11:46:47.435-05:00Should the US Energy Future Depend on Cheap Solar Imports? The <a href="https://af.reuters.com/article/africaTech/idAFL1N1PB28Q?utm_source=newsletter&utm_medium=email&utm_campaign=&stream=top-stories">pending administration decision</a> on whether to impose a tariff or other fee on US imports of solar equipment from China raises serious concerns. The right choice in this case is less obvious than suggested by the jobs and free-trade arguments from the main US <a href="https://www.pv-tech.org/news/seia-makes-last-plea-as-trump-hints-decision-imminent">solar trade association</a> (SEIA) or the <a href="https://www.wsj.com/articles/solar-power-death-wish-1505513718">Wall St. Journal's</a> editorial page. Solar power generates <a href="https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_1_01">less than 2%</a> of US electricity today. However, if it is to grow as experts forecast and advocates claim is essential, then considerations such as long-term energy security can't be ignored, while near-term job losses from a new tariff would be more than offset by subsequent growth.<br />
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Last October the US International Trade Commission issued its <a href="https://www.wsj.com/articles/u-s-trade-panel-backs-solar-tariffs-1509476295">recommendations </a>in favor of the complaint by two US manufacturers of solar panel components. I usually favor low tariffs and open access, especially when the markets in question are functioning smoothly and the principal impacts from trade are the result of "comparative advantage" in production or extraction between countries. However, there is little about the market for solar equipment, including the photovoltaic (PV) cells and modules at issue here, that qualifies as free.<br />
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The production and deployment of solar energy hardware has depended since its inception, and from one end of its value chain to the other, on significant government interventions. In the case of China-based PV manufacturing, these have <a href="https://www.washingtonpost.com/business/economy/us-solar-manufacturers-to-file-dumping-charges-against-chinese-firms/2011/10/19/gIQAlkPrxL_story.html?utm_term=.30b5586deb2c">included </a>low-interest government loans, preferential access to land, and <a href="https://news.nationalgeographic.com/news/energy/2014/11/141111-solar-panel-manufacturing-sustainability-ranking/">minimal environmental regulations</a>. China-based PV manufacturers were also able to take advantage of <a href="http://energyoutlook.blogspot.com/2008/05/sunshine-in-germany.html">extravagantly generous European solar subsidies</a> in the 2000s to scale up their output, drive down their costs, and ultimately send much of the EU's solar manufacturing industry <a href="https://www.greentechmedia.com/articles/read/The-Mercifully-Short-List-of-Fallen-Solar-Companies-2015-Edition#gs.dRS4U2Q">into bankruptcy</a>.<br />
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On the US end, both solar manufacturing and deployment (installation) have benefited greatly from <a href="http://programs.dsireusa.org/system/program/detail/658">federal tax credits</a>, <a href="https://www.treasury.gov/initiatives/recovery/Documents/Status%20overview.pdf">cash grants</a> from the US Treasury, and a web of <a href="http://ncsolarcen-prod.s3.amazonaws.com/wp-content/uploads/2017/03/Renewable-Portfolio-Standards.pdf">state quotas</a> for aggressively increasing utilization of renewable energy sources. Justified on grounds of energy security, "green jobs", and climate change mitigation, these measures have strongly promoted solar power and delivered an extraordinary <a href="https://seia.org/solar-industry-data">68% compound annual growth rate</a> in US solar installations since 2006. On a per-unit-of-energy basis, these supports are also at least an order of magnitude more valuable to the solar industry than the <a href="http://energyoutlook.blogspot.com/2013/12/is-wind-energy-tax-credit-about-to.html">federal tax benefits</a> received by the oil and gas industry.<br />
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One of the factors that makes this decision so difficult and politically sensitive is that a whole industry has apparently grown up around cheap solar imports, to the point that the main solar benefit to the US economy today is from installation, not manufacturing. US companies and their employees build solar panel racks and other "balance of system" gear, finance rooftop and other solar projects, and construct these installations.<br />
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These companies could be at risk of losing business and shedding jobs, if a large tariff were imposed on imported solar cells, modules and panels. Those impacts might be less than feared, though, because the cost of the actual sunlight-converting PV hardware now makes up <a href="https://www.energy.gov/eere/articles/soft-costs-101-key-achieving-cheaper-solar-energy">less than a third</a> of total solar project costs. In other words, a tariff that doubled effective PV cost would drive up total solar costs to a much smaller degree, and least of all for residential solar, which has the highest total costs per kilowatt.<br />
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There's another important aspect of this debate that hasn't received much attention. If solar power is as important to our future energy diet as many think, then it should be no more desirable to become heavily reliant on China for our supplies of PV components than it did to depend on <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrimuspg2&f=a">growing imports of Middle East oil</a>. That was the main energy security issue for the US for the last 30 years, until the shale revolution unexpectedly reversed that trend. Relying on solar imports from China in the long run will be nothing like depending on Canada for the <a href="https://www.eia.gov/tools/faqs/faq.php?id=727&t=6">largest share</a> of the petroleum the US still imports.<br />
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It also makes sense to address this situation now, before solar power has grown to 20% or 30% of the US electricity mix, and with the US economy near full employment, when those workers that did lose their jobs would have the best chance to replace them quickly.<br />
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From the start, the complaint of unfair competition lodged by Suniva Inc. and Solar World Americas--Chinese- and German-owned, respectively--has been derided as an effort to prop up a couple of marginal players at the expense of the much larger US solar-installation sector. That ignores the position of First Solar (NASDAQ:FSLR), a US-based PV manufacturer with $3 billion in <a href="https://www.marketwatch.com/investing/stock/fslr/financials">global sales</a>. The company is <a href="https://www.bloombergquint.com/business/2017/10/12/first-solar-jumps-into-trade-case-opposing-majority-of-industry">on record</a> supporting the trade complaint. Of course they aren't a disinterested party; they stand to benefit from a tariff that would raise the cost of competing PV gear from China and elsewhere.<br />
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That's precisely the point of the complaint: strengthening US solar manufacturers, so that the growth of solar energy in this country doesn't end up like TV sets and other consumer electronics. There's more at stake, because PV <i>isn't </i>TV. If solar power becomes a major part of US energy supplies by mid-century, it will actually matter if we have a robust manufacturing base to drive its deployment, rather than relying on any one country or region for its key building block.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-3033578377850650192018-01-04T14:10:00.004-05:002018-01-04T14:35:29.083-05:00Iran and Oil Prices in 2018The turn of the year brought the usual year-end analyses of energy events, along with predictions and <a href="https://www.axios.com/eight-energy-and-climate-issues-to-watch-in-2018-2519370363.html?utm_source=sidebar">issues to watch</a> in the year to come. I tend to focus on <a href="https://www.eurasiagroup.net/issues/top-risks-2018">tallies of risks</a> and large uncertainties. There's no shortage of those this year, and the current <a href="https://www.washingtonpost.com/news/worldviews/wp/2018/01/04/irans-protests-are-fading-but-iranians-are-still-angry/?utm_term=.4b776e074ff3">unrest in Iran</a> moves the risks associated with that country higher up the list, at least for now.<br />
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The implications of instability in Iran extend well beyond oil prices, but let's focus there for now. The sources of instability include both the internal <a href="https://www.washingtonpost.com/news/worldviews/wp/2018/01/04/irans-protests-are-fading-but-iranians-are-still-angry/?utm_term=.4b776e074ff3">economic and political concerns</a> apparently behind the protests, as well as US-Iran relations and the fate of the Iran nuclear deal and related sanctions.</div>
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As former Energy Department official Joe McMonigle <a href="https://app.hedgeye.com/insights/64554-iran-protests-the-next-big-catalyst-for-higher-oil-prices">noted</a>, a decision by President Trump to allow US sanctions on Iranian oil exports to go back into effect could remove up to one million barrels per day of crude oil from the global market. He sees the protests making the reinstatement of sanctions likelier. Whether that would lead directly to much higher oil prices is harder to gauge.</div>
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A little history is in order. <a href="https://www.reuters.com/article/iran-nuclear-usa-timeline/timeline-u-s-iran-relations-from-1953-coup-to-2016-sanctions-relief-idUSL2N1500R1">Sanctions</a> on Iran, including those covering the receipt of Iranian oil exports, were one of the main tools that brought its government to the nuclear negotiating table. For a roughly three-year span beginning in late 2011, international sanctions reduced Iran's oil exports by <a href="https://www.eia.gov/todayinenergy/detail.php?id=21792">more than one million barrels per day</a>, at a cumulative cost exceeding $100 billion based on oil prices at the time. The effectiveness of those sanctions was also enhanced by the rapid growth of US oil production from shale. </div>
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Starting in 2011, expanding US "tight oil" <a href="https://www.eia.gov/todayinenergy/detail.php?id=10411">production from shale</a> began to reduce <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRNTUS2&f=A">US oil imports </a>and eased the market pressures that had driven oil back over $100 per barrel as the world recovered from the financial crisis and recession of 2008-9. In the process, shale made it possible for tough oil sanctions to be imposed on Iran and sustained without creating a global oil price shock.<br />
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Instead, <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=W">oil prices</a> actually declined over the period of tightest sanctions. By 2014 <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M">US oil output</a> had grown by more than Iran's entire, pre-sanctions exports and cut US oil imports so much that OPEC effectively lost control of oil prices. Seeking to drive shale producers out of the market, OPEC's leadership switched tactics and <a href="https://oilprice.com/Energy/Crude-Oil/Saudi-Arabia-Continues-to-Ramp-Up-Oil-Output-in-Face-of-Market-Glut.html">attempted to flood the market</a>, driving the price of oil briefly below $30. That cut even further into Iran's already-reduced oil revenues and put the country's leadership in an untenable position, forcing them to negotiate limits on their nuclear program. </div>
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If Iran's oil exports were to drop again this year, for whatever reason, the impact on oil prices would depend on the extent to which the factors that allowed us to absorb such a curtailment just a few years ago have changed. One measure of that is that after several years of painfully low prices--at least for producers--the price of the Brent crude global oil benchmark is now well over $60. Yesterday it <a href="https://www.wsj.com/articles/iran-unrest-continues-to-buoy-crude-prices-1514977958?mod=">flirted with $68/barrel</a>, a three-year high. </div>
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That recovery is the result of a roughly 18-month slowdown in <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M">US oil production</a> in 2015-16, an <a href="https://blogs.wsj.com/briefly/2016/11/30/the-opec-deal-at-a-glance/?mod=djem_EnergyJournal">agreement </a>between OPEC and key non-OPEC producers like Russia to cut output by around 1.2 million barrels per day, and production problems in places as diverse as Venezuela and the <a href="https://www.bloomberg.com/news/articles/2017-12-30/north-sea-forties-pipeline-system-fully-operational-ineos-says">North Sea</a>.<br />
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These events have largely put the oil market back into <a href="https://www.iea.org/oilmarketreport/omrpublic/">balance </a>and worked off much of the excess oil inventories that had accumulated since 2014. Commercial US crude oil inventories, which are among the most transparently reported in the world, have fallen 100 million barrels since their <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCESTUS1&f=W">peak last spring</a>. However, they remain about 100 million barrels above their typical pre-2014 levels. </div>
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Viewed from that perspective, a reduction in supply from any source might be exptected to send prices higher. However, although global oil demand is still growing, we should realize that today's tighter oil market is largely the result of voluntary restraint, rather than shortages. Potential production increases from the rest of OPEC, Russia and the US could more than compensate for another big drop in Iran's oil exports.<br />
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In particular, US shale output has been climbing again for the last year, boosted by rising prices and the amazing productivity of the venerable <a href="https://www.eia.gov/petroleum/drilling/pdf/permian.pdf">Permian Basin</a> of Texas. Meanwhile, production from the deepwater Gulf of Mexico is also increasing as projects begun when oil was still over $100 reach completion. In its <a href="https://www.eia.gov/outlooks/steo/report/us_oil.php">latest forecast</a> the US Energy Information Administration projected that US crude production will reach an all-time high averaging 10 million barrels per day this year. Despite that, US shale producers still have thousands of <a href="https://www.eia.gov/petroleum/drilling/#tabs-summary-3">"drilled-but-uncompleted" wells</a>, or DUCs, waiting in the wings. </div>
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So, short of instability in Iran morphing into a regional conflict involving Saudi Arabia and the other Gulf producers, oil prices might drift higher but would be unlikely to spike anywhere near $100. And that's without factoring in <a href="https://www.ft.com/content/53c3d4b0-efad-11e7-ac08-07c3086a2625?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8">the scenario </a>suggested by the Financial Times' Nick Butler, who proposes that the Iranian government might choose to break the OPEC/Russia deal and <i>increase </i>their oil exports, in order to boost their economy and mollify the protesters, thereby shoring up the regime. </div>
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The last point brings us back from a narrow focus on oil prices to larger geopolitical uncertainties. As a noted Iran expert at the Council on Foreign Relations recently <a href="https://www.wsj.com/articles/irans-theocracy-is-on-the-brink-1514823059">observed</a>, Iran's religious government faces challenges similar to those that led to the collapse of the Soviet Union.<br />
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It's far from clear that 2018 will be Iran's <a href="https://en.wikipedia.org/wiki/Revolutions_of_1989">1989</a>, or that President Rouhani is capable of becoming his country's Mikhail Gorbachev. Yet surely the 2015 nuclear agreement was a bet by the US and its "P5+1" partners that Iran would be a very different nation by the time its main provisions <a href="http://www.bbc.com/news/world-middle-east-33521655">start to expire</a> in the next decade. The whole world would win if that prediction came true.<br />
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<i>On that note I'd like to wish my readers a happy start to the New Year. My top resolution is to post here more frequently and more regularly than in 2017. </i></div>
Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-40251159387375408412017-09-22T09:52:00.000-04:002017-09-22T12:57:14.547-04:00Could China's EVs Lead to Peak Oil Demand?<ul>
<li><i><b><span style="font-family: "arial" , "helvetica" , sans-serif;">China's decision on whether and when to ban cars burning gasoline and diesel could alter our view of how far we are from a peak in global oil demand.</span></b></i></li>
<li><i><b><span style="font-family: "arial" , "helvetica" , sans-serif;">Even though the likely date of such a peak is highly uncertain, the idea of an impending peak could significantly affect investments and other decisions.</span></b></i></li>
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A few months ago the British government made headlines when it announced it would <a href="http://www.bbc.com/news/uk-40723581">ban new gasoline and diesel cars</a>, starting in 2040. That move, which apparently <a href="http://www.roadandtrack.com/new-cars/car-technology/a10362988/uk-gas-diesel-cars-2040/">excludes hybrid cars</a>, is further fallout from the 2015 Dieselgate <a href="http://energyoutlook.blogspot.com/2015/10/vw-scandal-puts-diesels-future-at-risk.html">emissions-cheating scandal</a>.<br />
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Now it appears that China is preparing to <a href="https://www.bloomberg.com/news/articles/2017-09-10/china-s-fossil-fuel-deadline-shifts-focus-to-electric-car-race-j7fktx9z">issue a similar ban</a>. With <a href="http://www.oica.net/wp-content/uploads//total-sales-2016.pdf">around 30%</a> of global new-vehicle sales, China could upend the plans and economics of the world's fuel and automobile industries. However, it is less obvious that this would lead directly to the arrival of "peak demand" for oil, an idea that has largely displaced earlier thoughts of Peak Oil related to supply.<br />
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Some background is in order, because the two concepts are easy to confuse. <a href="http://energyoutlook.blogspot.com/2008/04/peak-anxiety.html">Peak Oil</a>, which gained considerable traction with investors and the public in the 2000s, was based on the undoubted fact that the quantity of oil in the earth's crust is finite, at least on a human time-scale. Its <a href="http://energyoutlook.blogspot.com/2005/06/perceptions-of-peak-oil-ive-devoted.html">proponents </a>argued that we were nearing a geological limit on oil production, and that quite soon oil companies and OPEC nations wouldn't be able to sustain their current production, let alone continue adding to it every year.<br />
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The presumption that such a peak was imminent has been pretty clearly refuted by the shale revolution, the first stages of which had already begun when Peak Oil was still fashionable. In fact, humanity has only extracted a small percentage of the world's oil resources. We continue to find both additional resources and new ways to extract more from previously identified resources. Global proved oil reserves--a measure of how much can be produced economically with current technology--have <a href="https://www.eia.gov/beta/international/data/browser/#/?pa=0000000000000000000008&c=00000000000000000000000000000000000000000000000001&tl_id=5-A&vs=INTL.57-6-WORL-BB.A&cy=2016&vo=0&v=H">more than doubled</a> sinc<span style="background-color: white;">e 1</span><span style="background-color: white;">980</span>, while production (and consumption)<span style="background-color: white;"> <a href="http://www.indexmundi.com/energy/?product=oil&graph=production">grew by 34%</a>.</span><br />
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For that matter, many of the shale plays that today produce a total of <a href="https://www.eia.gov/energyexplained/data/U.S.%20tight%20oil%20production.xlsx">more than <span style="background-color: white;">4 million barrels </span>per day</a> had been known for decades. Petroleum engineers just didn't see how to produce oil from them in commercial volumes and at a cost that could compete with other sources like oil fields in deep water.<br />
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The first mention I heard of "peak demand" was at an <a href="http://energyoutlook.blogspot.com/2009/10/meme-watch-peak-demand.html">IHS investment conference in 2009</a>, when supply-focused Peak Oil was still king. At the time, it was a novel idea, since only a year earlier, oil prices crested <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCLC1&f=D">just <span style="background-color: white;">short of $150</span> per barrel</a> on the back of surging demand and, to some extent the expectation of Peak Oil, and were only tamed by the unfolding global financial crisis.<br />
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Peak demand proposes that consumption of petroleum and its products will reach its maximum extent within a few decades, and thereafter <a href="https://www.ft.com/content/4b7f788f-87af-3295-afb3-a2e6ad1eddf5?emailId=59c03b73dcb36a0004e0a084&segmentId=7e94968a-a618-c46d-4d8b-6e2655e68320">plateau </a>or fall. Crucially, it doesn't depend on a single theory, but on a combination of factors that are easily observable, though still uncertain in their future progression: meaningful improvements in fuel economy, even for large vehicles; policies and regulations to decarbonize the global energy system in response to climate change; an apparent decoupling of GDP and energy consumption; and the rise of partially and fully electrified vehicles.<br />
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That brings us back to the implications of a ban on internal combustion engine (ICE) cars in China. Considering that China has accounted for roughly a third of the increase in <a href="https://www.iea.org/media/omrreports/fullissues/2017-08-11.pdf">global oil consumption since 2014</a>, this has to be reckoned as one of the larger uncertainties about future oil demand. Even if we're only talking about the equivalent of a couple of million barrels per day of lost demand growth by 2030, OPEC's ongoing struggle to balance a market that has been oversupplied by less than that amount puts the potential impact for oil investment and economics into sharp relief.<br />
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China has every incentive to take this step. Its urban air pollution is on a scale that cities like London and L.A. haven't experienced since the 1950s or 1960s. The country's <a href="https://www.theguardian.com/environment/2015/jun/30/china-carbon-emissions-2030-premier-li-keqiang-un-paris-climate-change-summit">2015 <span style="background-color: white;">pledge </span>to limit</a> greenhouse gas emissions was a centerpiece, and arguably the <i>sine qua non</i>, of the Paris climate agreement. If that weren't enough, the country's <a href="http://marketrealist.com/2017/09/chinas-crude-oil-imports-hit-2017-low/">dependence on oil imports</a> is exploding in much the same way as the US's did in the early-to-mid 2000s.<br />
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Perhaps I'm cynical to think that the last point weighs most heavily on China's policy-makers, just as US energy debates hinged on energy security concerns until quite recently. China's oil demand continues to grow, with <a href="http://www.oica.net/wp-content/uploads//pc-sales-2016.pdf">over 20 million new cars</a> and trucks reaching its roads each year, and the vast majority of them still needing gasoline or diesel fuel. Meanwhile, its oil production is going sideways, at best, as its mature oil fields decline.<br />
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Moreover, despite the country's large <span style="background-color: white;"><a href="https://www.eia.gov/analysis/studies/worldshalegas/pdf/China_2013.pdf">unconventional oil resource potential</a></span> there does not seem to be a shale light at the end of their tunnel, because most of the conditions that supported the shale revolution here don't apply within China's state-dominated system. What it does have is plenty of electricity, and multiple ways to generate a lot more.<br />
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Let's concede that China's grid electricity, on which most of those EVs would be running, is among the highest in the world in emissions of both CO2 and local air pollutants. Switching China's new cars from gasoline and diesel to electricity won't constitute a big environmental win, initially or perhaps ever. Even under the relatively generous assumptions used in a <a href="https://www.bloomberg.com/gadfly/articles/2017-09-18/china-electric-cars-run-on-coal-but-are-still-cleaner">recent analysis on Bloomberg</a>, it will take the average EV in China 7 years to repay its extra lifecycle carbon debt, unless the country's electricity mix becomes much greener.<br />
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That seems realistic but almost beside the point, if China's main aim is to shore up its worsening energy security. Nor should we ignore the industrial-policy angle in such a move. China set out to dominate the global solar equipment market and can claim success, at least <a href="https://www.statista.com/statistics/269812/global-market-share-of-solar-pv-module-manufacturers/">based on sales</a>. If EVs catch on as many expect, the ultimate global market for them would be a sizable multiple of last year's $116 billion figure for <a href="https://www.pv-magazine.com/2017/01/12/bnef-global-solar-investment-fell-32-in-2016/">global solar investment</a>, only part of which relates to solar cell and module manufacturing, where China leads.<br />
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So let's assume 100% EVs is a given in China from some point in the next two decades. Does that spell the end of global oil demand growth in roughly the same timeframe? A number of recent forecasts, including those from <a href="http://www.investors.com/news/shell-ceo-warns-of-peak-demand-while-dows-chevron-exxon-disagree/">Shell </a>and <a href="http://www.offshoreenergytoday.com/statoil-oil-demand-to-peak-around-2030-natural-gas-fuel-of-the-future/">Statoil</a>, reached that conclusion even before the news about China's future car market.<br />
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It's not hard to envision this point of view solidifying into conventional wisdom, with interesting implications. Among other things, it could result in further cuts to investment in oil exploration and production that various experts including the <a href="http://oilprice.com/Energy/Energy-General/IEA-Price-Spike-Coming-in-2020.html">International Energy Agency</a> already worry could lead to another big oil price spike--well before EVs take off in a big way. It could also reduce R&D and investment in improvements to the conventional cars that will account for the large majority of car fleets and new car sales for some time to come, with <a href="https://www.ft.com/content/6995464a-94a2-11e7-bdfa-eda243196c2c?conceptId=0d93ba5a-15bc-361b-816e-39f76237075f&desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8">adverse consequences</a> for emissions.<br />
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When I consider these forecasts I'm struck by how early we are in this particular transition. Global EV sales are still only around 1% of global car sales, and petroleum products account for all but a small sliver of the global transportation energy market. As fellow energy blogger Robert Rapier recently noted on Forbes, "<a href="http://china%20is%20a%20long%20way%20from%20reining%20in%20its%20oil%20consumption%20growth./">China is a long way from reining in its oil consumption growth</a>."<br />
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Meanwhile, the nascent competition between petroleum liquids and electricity in transportation will occur against the backdrop of a much more complex reshuffling of the entire global energy mix. The current stage of that larger transition involves the rejection of coal and its replacement by natural gas and intermittent renewable energy: wind and solar electricity.<br />
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An excellent <a href="https://www.reuters.com/article/us-coal-climatechange-kemp/coals-problem-is-not-climate-change-kemp-idUSKCN1BO1VB">article </a>by John Kemp in Reuters last week placed the shift away from coal in the context of a long sequence of historical energy transitions. As he noted, "Each step in the grand energy transition has seen the dominant fuel replaced by one that is more convenient and useful." Although there are other, compelling rationales for a move in the direction of electric vehicles backed by wind and solar power, it is extremely difficult to see that combination today in the terms Mr. Kemp used.<br />
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Pairing EVs with vehicle autonomy might create a product that is indeed more convenient and useful than current ICE cars with their effectively unlimited range and short refueling times. Perhaps it will require packaging self-driving EVs into mobility-on-demand services to beat that standard. It remains to be seen whether such a package would be technically or commercially viable, since even Tesla's "Autopilot" feature is still a <a href="http://money.cnn.com/2017/09/12/technology/future/ntsb-tesla-autopilot/index.html">far cry</a> from such <a href="http://www.techrepublic.com/article/autonomous-driving-levels-0-to-5-understanding-the-differences/">level 4 or 5 autonomy</a>.<br />
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And even if EVs win the battle for car consumers with sustained help from governments, electricity is still an energy carrier, not an energy source. Renewables may go a long way toward replacing coal in the next two decades, but dispensing with both coal's<span style="background-color: white;"> 28% </span>contribution to <a href="http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/primary-energy.html">global primary energy consumption</a> <i>and </i>oil<span style="background-color: white;">'s 33% </span>in such a short interval looks like a massive stretch. Before the transition to EVs is complete, we may see at least some of them running on electricity generated by gas turbines burning petroleum distillates such as kerosene. (The environmental impacts of such a linkage would be significantly lower than running a fleet of EVs on coal.)<br />
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So while China's likely ban on internal combustion engine cars certainly looks like a key step on the path to peak oil demand, it could just as easily force oil producers to find new markets. That happened over a century ago, when a much smaller oil industry saw kerosene lose out to electric lighting and was farsighted or lucky enough to shift its focus to fueling Mr. Ford's new automobiles. <br />
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Peak demand for oil definitely lies somewhere in our future, regardless of China's future vehicle choices. However, as a long-time practitioner of scenario planning, my faith in precise forecasts extrapolated from current facts and trends is limited. Whether we are close to peak demand or, as with a global peak in oil supply, continue to push it farther off, will remain subject to uncertainties that won't be resolved for some time. Our best indication of either peak--demand or supply--will come when we have passed it. However, the <i>idea </i>of an impending peak has shown great potential to affect markets and decisions in the meantime.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-42738984660775447902017-07-20T12:30:00.001-04:002017-07-20T14:18:58.539-04:00Are Renewables Set to Displace Natural Gas?<br />
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><i><b>Bloomberg's renewable energy affiliate forecasts that wind and solar power will make major inroads into the market share of natural gas within a decade. </b></i></span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><i><b>This might be a useful scenario to consider, but it is still likelier that coal, not gas, faces the biggest risk from the growth of renewables. </b></i></span></li>
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A recent story on Bloomberg News, "<a href="https://www.bloomberg.com/news/articles/2017-07-17/big-oil-sees-salvation-in-gas-but-what-if-it-s-the-wrong-bet">What If Big Oil's Bet on Gas Is Wrong</a>?", challenges the conventional wisdom that demand for natural gas will grow as it displaces coal and facilitates the growth of renewable energy sources like wind and solar power. Instead, the forecast highlighted in the article envisions gas's global share of electricity dropping from 23% to 16% by 2040 as renewables shoot past it. So much for gas as the "bridge to the future" if that proves accurate.<br />
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Several points in the story leave room for doubt. For starters, this projection from Bloomberg New Energy Finance (BNEF), the renewables-focused analytical arm of Bloomberg, would leave coal with a larger share of power generation than gas in 2040, when it has renewables reaching 50%. That might make sense in the European context on which their forecast seems to be based, but it flies against the US experience of coal losing <a href="https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_1_01">18 points of electricity market share</a> since 2007 (from 48.5% to 30.4%), with two-thirds of that drop picked up by gas and one-third by expanding renewables. (See chart below.)<br />
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It's also worth noting that the US Energy Information Administration projected in February that natural gas would continue to gain market share, even in the absence of the EPA's Clean Power Plan, which is <a href="https://www.awma.org/blog_home.asp?Display=19">being withdra</a><span style="background-color: white;"><a href="https://www.awma.org/blog_home.asp?Display=19">wn</a>.</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxP7d-ar52ykBh7bgUSg2cly3iFvss8pjkv2i33HWPZVMn4did-wNKJbsf7LKqpCPHb9pg-lAmW4auNVNG4IRi2H-E_Here_MhxY4BUNWEAS6TMWno1aObUHFwp1ryjUy8-gSE/s1600/RE+vs+gas+2017.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="324" data-original-width="602" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxP7d-ar52ykBh7bgUSg2cly3iFvss8pjkv2i33HWPZVMn4did-wNKJbsf7LKqpCPHb9pg-lAmW4auNVNG4IRi2H-E_Here_MhxY4BUNWEAS6TMWno1aObUHFwp1ryjUy8-gSE/s1600/RE+vs+gas+2017.gif" /></a></div>
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Natural gas prices have had a lot to do with the diverging outcomes experienced in Europe and the US, so far. As the shale boom ramped up, average US natural gas spot prices fell from nearly <a href="https://www.eia.gov/dnav/ng/hist/rngc1M.htm">$9 per million BTUs</a> (MMBTU) in 2008 to $3 or less since 2014. Meanwhile, Europe remains tied to long-term pipeline supplies from Russia and LNG imports from North Africa and elsewhere. Wholesale gas price indexes in Europe reached <a href="https://www.icis.com/press-releases/lng-markets-analysis-february-2017-spot-european-gas-prices-match-asia-lng-on-cold-snap/">$7-8 per MMBTU</a> earlier this year.<br />
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But it's not clear that the factors that have kept gas expensive in Europe and protected coal, even as nuclear power was being phased out in Germany, will persist. The US now <a href="https://www.eia.gov/dnav/ng/ng_move_expc_s1_m.htm">exports </a>more liquefied natural gas (LNG) than it imports. US LNG exports to Europe may not push out much Russian gas, but along with expanding global LNG capacity they are forcing Gazprom, Russia's main gas producer and exporter, to become more competitive.<br />
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Then there's the issue of flexibility versus intermittency. Wind and solar power power are not flexible; without batteries or other storage they are at the mercy of daily, seasonal or random variation of sunlight and breezes, and in need of back-up from truly flexible sources. Large-scale hydroelectric capacity, which makes up <a href="http://www.irena.org/DocumentDownloads/Publications/IRENA_REthinking_Energy_2017.pdf">75% of today's global renewable generation</a> and is capable of supplying either 24x7 "baseload" electricity or ramping up and down as needed, has provided much of the back-up for wind and solar in Europe, but is unlikely to grow rapidly in the future.<br />
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That means the bulk of the growth in renewables that BNEF sees from now to 2040 must come from extrapolating intermittent wind and solar power from their relatively modest combined <a href="http://www.irena.org/DocumentDownloads/Publications/IRENA_REthinking_Energy_2017.pdf">4.5% of the global electricity mix</a> in 2015 to a share larger than coal still holds in the US. The costs of wind and solar technologies have fallen rapidly and are expected to continue to drop, while the integration of these sources into regional power grids at scales up to 20-30% has gone better than many expected. However, without cheap electricity storage on an unprecedented scale, their further market penetration seems likely to encounter increasing <a href="http://www.latimes.com/projects/la-fi-electricity-solar/">headwinds </a>as their share increases. <br />
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BNEF may be relying on the same aggressive forecast of falling battery prices that underpinned its <a href="https://about.bnef.com/blog/electric-vehicles-accelerate-54-new-car-sales-2040/">recent projection</a> that electric vehicles (EVs) will account for more than half of all new cars by 2040. As the <a href="https://www.ft.com/content/2956d4aa-67fb-11e7-8526-7b38dcaef614?conceptId=eae81e92-5092-350c-8dbf-741d54be79a5&desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8">Financial Times</a> noted this week, battery improvements depend on chemistry, not semiconductor electronics. Assuming their costs can continue to fall like those for solar cells looks questionable. Nor is cost--partly a function of temporary government incentives--the only aspect of performance that will determine how well EVs compete with steadily improving conventional cars and hybrids. <br />
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I also compared the BNEF gas forecast to the International Energy Agency's most recent <a href="http://www.iea.org/newsroom/news/2016/november/world-energy-outlook-2016.html">World Energy Outlook</a>, incorporating the national commitments in the Paris climate agreement. The IEA projected that renewables would reach 37% of global power generation by 2040, or roughly half the increase BNEF anticipates. The IEA also saw global gas demand growing by 50%, passing coal by 2040. That's a very different outcome than the one BNEF expects.<br />
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Despite my misgivings about its assumptions and conclusions, the BNEF forecast is a useful scenario for investors and energy companies to consider. With oil prices stuck in low gear and future oil demand highly uncertain, thanks to environmental regulation and electric and autonomous vehicle technologies, many large resource companies have increased their focus on natural gas. Some, like <a href="http://www.ibtimes.co.uk/shell-total-believe-future-natural-gas-not-coal-1504050">Shell and Total</a>, invested to produce more gas than oil, predicated on gas's expected role as the lowest-emitting fossil fuel in a decarbonizing world. If that bet turned out to be wrong, many billions of dollars of asset value would be at risk.<br />
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However, it's hard to view that as the likeliest scenario. Consider a simple reality check: As renewable electricity generation grows to mainstream scale, it must displace something. Is that likelier to be relatively inflexible coal generation, with its high emissions of both greenhouse gases and local pollutants, or flexible, lower-emitting natural gas power generation that offers integration synergies with renewables? The US experience so far says that baseload facilities--coal and nuclear--are challenged much more by gas and renewables, than gas-fired power is by renewables plus coal.<br />
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The bottom line is that the world gets <a href="http://data.worldbank.org/indicator/EG.USE.COMM.FO.ZS">80% of the energy</a> we use from oil, gas and coal. Today's renewable energy technology isn't up to replacing all of these at the same time, without a much heavier lift from batteries than the latter seem capable of absent a real breakthrough. If the energy transition now underway is indeed being driven by emissions and cleaner air, then it's coal, not gas, that faces the biggest obstacles.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-52846645280864149252017-06-06T08:52:00.000-04:002017-06-06T09:16:31.068-04:00Withdrawal Exposes Weakness of the Paris Climate AgreementWhen President Trump <a href="https://www.whitehouse.gov/the-press-office/2017/06/01/statement-president-trump-paris-climate-accord">announced </a>last week that the US would withdraw from the Paris Climate Agreement, he unleashed a flood of condemnation. <a href="https://www.nytimes.com/2017/06/01/world/europe/climate-paris-agreement-trump-china.html?emc=edit_th_20170602&nl=todaysheadlines&nlid=2716540">Foreign leaders</a>, US politicians, <a href="http://www.reuters.com/article/us-usa-climatechange-musk-idUSKBN18S6EO">corporate executives</a>, and environmental groups all roundly criticized the move. It also <a href="https://www.washingtonpost.com/news/energy-environment/wp/2017/06/05/post-abc-poll-nearly-6-in-10-oppose-trump-scrapping-paris-agreement/?utm_term=.d7310439e36a">hasn't polled well</a>.<br />
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As the initial reaction dies down, it's worth considering how this happened, what it means, and what might come next. The invaluable Axios news site has some noteworthy insights on the latter problem that I will get to shortly.<br />
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I am convinced it was a mistake to withdraw. In this I share the view of many <a href="https://www.washingtonpost.com/news/on-leadership/wp/2017/06/02/trump-ran-as-an-ally-to-business-but-snubbed-americas-ceos-by-pulling-out-of-the-paris-accord/?utm_term=.aad1af2d8846">current and former business leaders</a>, including the <a href="http://www.foxbusiness.com/features/2017/04/18/pruitt-vs-tillerson-trumps-team-split-on-paris-agreement.html">Secretary of State</a>, that the US was better off as a party to the deal and all the future negotiations it entails. Even if the goal was truly to renegotiate the agreement on more favorable terms, signaling withdrawal first seems counterproductive. However, I also see the consequences of our withdrawal in less catastrophic terms than most critics of the move.<br />
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As I <a href="http://energyoutlook.blogspot.com/2016/01/2015-turning-point-for-energy.html">noted </a>not long after it was concluded, the Paris Agreement is by design much weaker than its predecessor, the Kyoto Protocol. Although the 2015 Paris deal was probably the strongest one that could have been negotiated at the time, it still represented a big compromise between developed and developing countries on who should reduce the bulk of future emissions and who should bear the responsibility for the consequences of past emissions. <a href="http://unfccc.int/files/home/application/pdf/paris_agreement.pdf">Its text</a> is full of verbs like recognize, acknowledge, encourage, etc., and the <a href="http://unfccc.int/focus/ndc_registry/items/9433.php">commitments it collected</a> were essentially voluntary.<br />
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The agreement was also <a href="http://thehill.com/policy/energy-environment/243662-french-official-says-climate-deal-should-bypass-congress">explicitly </a>negotiated so as to maximize its chances of being enacted under the executive powers of the US president, without his having to refer the agreement to the US Senate for its concurrence. That implied it could be undone in the same way.<br />
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In other words, President Obama took a calculated risk that his successor(s) would choose to be bound by his <a href="https://obamawhitehouse.archives.gov/blog/2016/09/03/president-obama-united-states-formally-enters-paris-agreement">Executive Order</a> endorsing Paris. That was tantamount to a bet on his party winning the 2016 election, since most of the Republicans who had announced at the time were <a href="http://www.latimes.com/nation/politics/la-na-sej-year-ahead-environment-20151230-story.html">opposed to it</a>, or the Clean Power Plan that was the linchpin of future US compliance with it.<br />
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Seeking Senate approval as a treaty would have been a much bigger lift--or required an even weaker agreement--but success would have provided significant political protection for the follow-on to the <a href="https://fivethirtyeight.com/features/a-lesson-from-kyotos-failure-dont-let-congress-touch-a-climate-deal/">unratified Kyoto Protocol</a>. Perhaps that explains why President Trump has chosen the much <a href="https://www.c2es.org/docUploads/legal-note-could-future-president-reverse-us-approval-paris-agreement.pdf">slower exit path</a>--up to three years--provided within the Paris Agreement, rather than the quicker route of pulling out of the umbrella UN Framework Convention on Climate Change. The Convention was signed by President George H.W. Bush with the bipartisan <a href="https://www.congress.gov/treaty-document/102nd-congress/38/all-info">advise and consent</a> of the Senate in 1992.<br />
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Setting politics aside, it's also not obvious that US withdrawal from Paris will put our greenhouse gas emissions on a significantly different track than if we stayed in. Even the EPA's <a href="https://www.washingtonpost.com/news/energy-environment/wp/2017/04/28/court-freezes-clean-power-plan-lawsuit-signaling-likely-end-to-obamas-signature-climate-policy/?utm_term=.6afeb7f51cff">review and likely withdrawal</a> of its previous Clean Power Plan, which underpinned the Obama administration's strategy for meeting the <a href="http://www4.unfccc.int/ndcregistry/PublishedDocuments/United%20States%20of%20America%20First/U.S.A.%20First%20NDC%20Submission.pdf">voluntary goal it submitted at Paris</a>, may have only a <a href="https://www.eia.gov/todayinenergy/detail.php?id=26292">minor impact on global emissions</a>.<br />
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Federal climate policy has not been the main driver of recent emissions reductions in the US power sector. Cheap, abundant natural gas from shale and the rapid adoption of renewable energy under state "<a href="http://ncsolarcen-prod.s3.amazonaws.com/wp-content/uploads/2017/03/Renewable-Portfolio-Standards.pdf">renewable portfolio standards</a>", supported by federal tax credits that were <a href="https://www.greenbiz.com/article/congress-extends-renewable-investment-tax-credit-what-now">extended again</a> in 2015, have been the primary factors in overall US emissions falling by<span style="background-color: white;"> <a href="https://www.epa.gov/sites/production/files/2017-02/documents/2017_executive_summary.pdf">11% since 2005</a>. These trends look set to continue.</span><br />
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<span style="background-color: white;">The bigger question is what happens globally with the US out of the Paris Agreement--assuming the administration does not reverse course again before it can issue the required formal notice to withdraw<a href="https://www.c2es.org/docUploads/legal-note-could-future-president-reverse-us-approval-paris-agreement.pdf"> roughly 2 1/2 years from now</a>. </span><br />
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<span style="background-color: white;">At least in the short term, I doubt much else will change. For the most part, the Nationally Determined Commitments delivered at Paris reflected what the signatories intended to do anyway. <a href="http://www4.unfccc.int/ndcregistry/PublishedDocuments/China%20First/China's%20First%20NDC%20Submission.pdf">China's NDC</a> is a perfect example. That country's ongoing air pollution crisis provides ample incentive to scale back on energy intensity and coal-fired power plants, which are the main source of its emissions. </span><br />
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<span style="background-color: white;">Increasing the role of renewable energy in its national energy mix perfectly suits China's ambitions in renewable energy technology. Exhibit A for that is a solar manufacturing sector that went from insignificance to <a href="https://en.wikipedia.org/wiki/List_of_photovoltaics_companies#Solar_Photovoltaic_Production_by_Country">more than 50%</a> of the global supply of photovoltaic (PV) cells in under a decade, while China's domestic market accounted for <a href="https://www.ise.fraunhofer.de/content/dam/ise/de/documents/publications/studies/Photovoltaics-Report.pdf">21% of global PV installations</a> through 2015. </span><br />
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<span style="background-color: white;">The reactions to last week's announcement surely raised the stakes for other countries that might consider leaving. However, this action has also provided China and other high-emitting developing countries with an ironic mirror image of one of the </span><a href="http://www.nbcnews.com/id/8422343/ns/politics/t/bush-kyoto-treaty-would-have-hurt-economy/#.WTWYS2jyvIU">main arguments</a><span style="background-color: white;"> on which the US government based its unwillingness to implement the Kyoto Protocol. </span><br />
<span style="background-color: white;"><br /></span>
<span style="background-color: white;">What ought to matter more than any of the domestic and geopolitical maneuvering around the US exit is the actual impact on the global climate. Reporting on Axios, Amy Harder (formerly of the Wall St. Journal) <a href="https://www.axios.com/climate-change-is-here-to-stay-so-learn-to-live-with-it-2430689506.html">portrayed </a>this as a sort of emperor's clothes moment with a column entitled, "Climate change is here to stay, so deal with it." Monday's main Axios "stream" characterized her piece as a "<a href="https://www.axios.com/axios-am-2433263455.html">truth bomb</a>." </span><br />
<span style="background-color: white;"><br /></span>
<span style="background-color: white;">As Harder put it, "The chances of reversing climate change are slim regardless of US involvement in the Paris agreement." That's consistent with recent assessments from the <a href="https://www.iea.org/topics/climatechange/">International Energy Agency</a> and others. Citing the Bipartisan Policy Center and the UN, her column suggested a pivot to greater focus on adaptation, the hard and deeply unglamorous work of bolstering infrastructure and systems to withstand changes in the climate, including those that are already baked in. Attributing the source of changes in rainfall and sea level matters less than plugging the resulting physical gaps. That makes adaptation politically less toxic than cutting emissions, though still plenty challenging, fiscally. </span><br />
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<span style="background-color: white;">As I have been watching the fallout from last week's news, I keep coming back to <a href="http://energyoutlook.blogspot.com/2010/08/by-executive-order.html">comparisons to the Cold War</a> that I made when the idea of pursuing <a href="https://www.eenews.net/assets/2010/08/06/document_cw_01.pdf">climate policy through executive action</a> was emerging in 2010. Like the Cold War, dealing with climate change requires a similarly enduring bipartisan coalition. Major policy swings every 4 or 8 years are just too costly and ineffective, due to the planning horizons involved.</span><br />
<span style="background-color: white;"><br /></span>
<span style="background-color: white;">NATO may be going through a difficult moment, but it is approaching its 70th year. After seeing its key weakness exposed, can anyone honestly look at the framework of the Paris Agreement and conclude that it is likely to last as long? Yet if climate change is as serious as many suggest, those are exactly the terms in which we should be thinking.</span>Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com4tag:blogger.com,1999:blog-6199410.post-79669391014047553712017-04-28T09:24:00.000-04:002017-04-28T09:48:48.690-04:00Pitting Wind and Solar Against Nuclear Power<ul>
<li><b><i><span style="font-family: "arial" , "helvetica" , sans-serif;">With US electricity demand stalled, expanding wind and solar power is increasing the economic pressure on equally low-emission nuclear power.</span></i></b></li>
<li><b><i><span style="font-family: "arial" , "helvetica" , sans-serif;">New state incentives for nuclear plants are facing resistance from the beneficiaries of renewable energy subsidies, as both battle for market share.</span></i></b></li>
</ul>
It's an old adage that a growth market has room for all participants, including new entrants. The US electricity market is now experiencing the converse of this, with increasing competition for static demand leading to headlines like the one I saw earlier this week: "<a href="https://www.bloomberg.com/news/articles/2017-04-24/lifeline-for-nuclear-in-u-s-states-seen-threatening-wind-solar">Lifeline for Nuclear Plants Is Threatening Wind and Solar Power</a>."<br />
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The idea behind that headline is ironic, considering that for more than a decade renewables have depended on government mandates and <a href="https://energy.gov/savings/renewable-electricity-production-tax-credit-ptc">incentives </a>to drive their impressive expansion. Along with recently cheap natural gas, they have made conditions increasingly difficult for established generating technologies like coal and nuclear power. In the case of coal, that was an entirely foreseeable and even intentional outcome, but for nuclear power it has come as a mostly unintended consequence. <br />
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Much as the slowdown in gasoline demand brought on by the recession created a <a href="http://energyoutlook.blogspot.com/2013/08/crashing-into-ethanol-blend-wall.html">crisis for biofuel quotas</a>, stagnant electricity demand has hastened and intensified the inevitable fight for market share and the resulting shakeout in generating capacity. US electricity consumption has been <a href="https://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_01">essentially flat</a> since the financial crisis of 2008-9, thanks to a weak economy and aggressive investment in energy efficiency. More generation serving the same demand means lower prices for all producers, and fewer annual hours of operation for the least competitive of them.<br />
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At the same time abundant, low-priced natural gas from soaring <a href="https://www.eia.gov/dnav/ng/hist/n9050us2A.htm">shale production</a> has made gas-fired turbines both a direct competitor in the 24/7 "baseload" segment that coal and nuclear power formerly dominated, and the go-to backup source for integrating more renewables onto the grid.<br />
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The US is essentially swimming in energy, at least when it comes to resources that can be turned into electricity. The only rationale left for the substantial subsidies that wind and power still receive--<a href="http://www.nationalreview.com/article/436228/wind-energy-subsidies-billions">over $3 billion</a> budgeted for wind alone in 2017--is environmental: mainly concerns about climate change and the emissions of CO2 and other greenhouse gases linked to it.<br />
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That's the same reason why some states have become alarmed enough by the recent wave of <a href="https://www.eia.gov/todayinenergy/detail.php?id=28572">nuclear power plant retirements</a> to consider providing some form of financial support for existing facilities. Nuclear power isn't just the <a href="https://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_01">third-largest source of electricity</a> in the US; it is by far our largest producer of zero-emission power: <a href="https://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_01_a">3.5 times the output of wind</a> in 2016 and 22 times solar. A large drop in nuclear power is simply not compatible with the desire to continue cutting US emissions. Environmental groups like EDF are reaching <a href="http://blogs.edf.org/energyexchange/2017/04/17/why-we-still-need-americas-nuclear-power-plants-at-least-for-now/">similar conclusions</a>.<br />
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Nuclear's scale is even more of a factor when it comes to considering what could replace it. For example, it takes the output of about 2,000 wind turbines of 2 megawatts (MW) each--roughly half of the 8,203 MW of <a href="http://www.awea.org/MediaCenter/pressrelease.aspx?ItemNumber=9812">new US wind installations</a> last year--to equal the annual energy production of a single typical nuclear reactor. An <a href="http://ansnuclearcafe.org/2012/02/09/wind-nuclear-infographic/#sthash.ppiQHMKt.j08DN1wf.dpbs">infographic </a>I saw on Twitter makes that easier to visualize:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjotFcaAVNmKAdl4Rv_t-bLtrwlwo5W9VkpTnH3nTmOoOVL5nWmqex3HQi61xUsf1xvqUVA7jtVaddf2Z3J-dpQcsoJOlI37-2W91JJ6L7Ww5msQ60tSVOGZZkxqN3TLgI5f-bl/s1600/wind+comparison.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="488" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjotFcaAVNmKAdl4Rv_t-bLtrwlwo5W9VkpTnH3nTmOoOVL5nWmqex3HQi61xUsf1xvqUVA7jtVaddf2Z3J-dpQcsoJOlI37-2W91JJ6L7Ww5msQ60tSVOGZZkxqN3TLgI5f-bl/s640/wind+comparison.jpg" width="640" /></a></div>
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I can appreciate why utilities and others that are investing heavily in wind and solar power might be convinced that providing incentives to keep nuclear power plants from retiring prematurely is "<a href="https://www.bloomberg.com/news/articles/2017-04-24/lifeline-for-nuclear-in-u-s-states-seen-threatening-wind-solar">the wrong policy</a>." After all, we have collectively pushed them to invest in these specific technologies, because it has been easier to reach a consensus at the federal and state levels to provide incentives for renewables, rather than for all low-emission energy.<br />
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As long as we are promoting renewables in this way, though, we should recognize that nuclear power is no less worthy. The biggest benefit of renewables is their low emissions (including non-greenhouse air pollutants,) an attribute shared with nuclear power. Yet because of their much lower energy densities, requiring much bigger footprints for the same output, and their lower reliability, incorporating a lot more renewables into the energy mix requires additional investments in electricity grid modernization and energy storage, along with new tools like "demand response." Nuclear power is compact, available about 90% of the time, and it works just fine with the existing grid.<br />
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By experience and philosophy, I'm a big fan of markets, so I would normally be more sympathetic to the view <a href="http://www.api.org/news-policy-and-issues/news/2017/04/25/api-ohio-reject-nuclear-subsidies-and-st">expressed by the American Petroleum Institute</a> that states shouldn't tip the scales in favor of nuclear power over gas and other alternatives. However, we don't have anything resembling a level playing field for electricity generation, even in states with deregulated electricity markets. The existing federal incentives for wind and solar power, together with state <a href="http://ncsolarcen-prod.s3.amazonaws.com/wp-content/uploads/2017/03/Renewable-Portfolio-Standards.pdf">Renewable Portfolio Standards</a>, are already tipping the scales strongly in <i>their </i>favor. These subsidies will remain in place until at least 2022, consistent with the <a href="https://www.greentechmedia.com/articles/read/breaking-house-passes-1.1-trillion-spending-bill-with-renewable-energy-tax">most recent extension</a> by Congress. Why do renewables merit such subsidies more than nuclear power?<br />
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Wind and solar power are key parts of the emerging low-emission energy mix, and we will want more as their costs continue to fall, but not at the expense of much larger low-emission energy sources that are already in place. Less nuclear power doesn't just mean more renewables. It also means more gas or coal-fired power. That's the <a href="https://www.eia.gov/todayinenergy/detail.php?id=26372">experience </a>of Germany's "Energiewende", or energy transition.<br />
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As long as that is the case, and without corresponding incentives for equally low-emission nuclear plants, as well as for fossil-fuel plants that capture and sequester their CO2, we will end up with an energy mix in the next few years that is less diverse, less reliable, and emits more CO2 than necessary. I wouldn't consider that progress.<br />
<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-34668026482196937792017-03-17T10:21:00.001-04:002017-03-17T10:49:58.318-04:00Why Oil Forecasting Is So Difficult Now: Short-cycle vs. Long-cycle vs. "Peak Demand"Oil experts are deeply divided in their views on the future of what is still the world's key commodity. This divergence was on display at last week's <a href="https://ceraweek.com/?utm_campaign=pc8549_NM_eEvent_DG_EI_Global_CW17LiveNonReg_ET1&utm_medium=email&utm_source=Eloqua">CERA Conference</a> in Houston, which brought together industry executives, consultants, media, and government officials from around the world. Although I didn't attend in person, the organizers provided extensive streaming coverage of keynote talks and interviews with thought leaders.<br />
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From <a href="http://ondemand.ceraweek.com/detail/videos/tuesday-march-7/video/5351346990001/welcome-and-ministerial-address-with-he-khalid-a.-al-falih?autoStart=true">OPEC oil ministers</a> and the head of the <a href="http://ondemand.ceraweek.com/detail/videos/tuesday-march-7/video/5351341750001/oil-industry-in-transition:-where-are-we-in-the-cycle?autoStart=true">International Energy Agency</a>, we heard that the world could be headed for another <a href="https://www.ft.com/content/6506aba2-0265-11e7-ace0-1ce02ef0def9">supply crunch within a few years</a>, due to low investment following 2014's oil-price collapse. I've mentioned this concern <a href="http://energyoutlook.blogspot.com/2016/09/opec-agrees-to-agree.html">before</a>.<br />
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By contrast, the major oil companies seemed more cautious. Low oil prices caught many of them with big, expensive projects underway--too far along to stop but undermined by prices now far below the assumptions on which they were justified. Cash flow seems to be a higher priority than growth. "Peak demand", when global oil consumption stops growing and might begin shrinking, could also arrive within ten years or so, at least according to <a href="http://ondemand.ceraweek.com/detail/videos/thursday-march-9/video/5358093459001/opening-dialogue-with-ben-van-beurden?autoStart=true">Shell's CEO</a>, further disrupting markets.<br />
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Renewables were discussed frequently, but shale was arguably the star of the segments I watched. Big companies touted their <a href="http://ondemand.ceraweek.com/detail/videos/monday-march-6/video/5350117759001/global-oil-dialogue-with-darren-woods?autoStart=true">shift toward shale</a> assets that can be brought into production quickly, while independent E&P (exploration and production) companies <a href="http://ondemand.ceraweek.com/detail/videos/complete-gallery/video/5353578156001/north-america-s-e-p-future?autoStart=true&page=9">highlighted </a>both the upside and limitations of focusing on the core, or most productive, cost-effective portions of various shale regions.<br />
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With these large, and to some extent mutually contradictory trends in play, any kind of straight-line extrapolation from current or past conditions of price, supply, or demand seems sure to be swamped by uncertainties. Rather than putting my thumb on the scales for one view or another, my best service just now is improving our understanding of these risks and why they look so uncertain.<br />
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On the supply side, the relationship between short-cycle and long-cycle investments is especially interesting and a source of great uncertainty. Short-cycle supply, mainly from shale or "tight oil" wells that can be drilled and brought on-stream quickly and for only a few million dollars each--but that also tail off quickly--was the main factor in the drop from over $100 per barrel to less than $40 just a couple of years ago. It now provides many of the lowest-risk, most attractive opportunities available to the oil and gas industry. Yet the more short-cycle oil is developed, the longer the recovery of long-cycle investment is likely to be delayed, because shale is effectively putting a low ceiling on oil prices and will consume ongoing cash flow to sustain it.<br />
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Long-cycle oil, which still accounts for over 90% of global supply, is an entirely different domain. It consists mainly of large conventional oil fields that were developed years ago and continue to pump oil with relatively little continuing investment. It also includes new, big-ticket projects in places like the deep waters of the Gulf of Mexico and offshore Brazil, that add to growth but importantly offset the natural decline rates--often 4%-10% annually--that eat into the output of older oil fields every year.<br />
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Hundreds of billions of dollars of planned investment in long-cycle projects was <a href="https://www.woodmac.com/analysis/global-upstream-investment-slashed-by-US1-trillion">deferred or canceled since 2014</a>. Because such projects take years--sometimes decades--to develop from discovery to production, this investment drought implies a hole in future production. That shortfall hasn't appeared yet, because projects like BP's <a href="http://www.bp.com/en/global/corporate/press/press-releases/bp-thunder-horse-south-expansion-starts-up-ahead-of-schedule-and-under-budget.html">Thunder Horse expansion</a> that were begun when oil was still over $100 are still <a href="http://www.ogj.com/oil-drilling-and-production/production-operations/field-start-ups.html">periodically starting up</a>. The impact of the long-cycle gap might also shrink or vanish entirely if enough short-cycle oil is developed in the meantime. <br />
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We might never notice this impending gap, if demand growth slowed sharply from its recent rate of more than 1 million barrels per day per year, or even started to fall. Not so long ago, few could imagine oil demand falling without hitting a wall on supply--so-called "Peak Oil"--but now it's almost harder to envision oil demand continuing to expand in light of competition from renewables, substitution from electric vehicles, and constraints imposed by climate policies intended to comply with the Paris Agreement.<br />
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The big uncertainties for these changes are time and scale. The Solar Energy Industries Association (SEIA) forecasts US solar power growing from <a href="http://www.seia.org/research-resources/us-solar-market-insight">42 Gigawatts</a> (GW) last year to <a href="https://www.greentechmedia.com/articles/read/u.s.-solar-market-has-record-breaking-year-total-market-poised-to-triple-in">nearly 120 GW</a> by the end of 2022. However, that would leave solar generating just 4% of US electricity, even if electricity demand didn't grow at all in the interim. Nor does solar power compete with oil, except in the few remaining places--mainly in the Middle East--where lots of oil is burned to produced electricity, or when it powers electric cars.<br />
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With regard to EVs, Tesla's goal of producing <a href="http://www.roadandtrack.com/new-cars/future-cars/news/a32571/tesla-model-3-pre-production/">500,000 cars per year</a> by the end of next year is impressively big. However, even if those Teslas replaced only conventional cars of average fuel economy, all of which were then scrapped--unlikely on both counts--they would reduce US gasoline demand by less than 0.2%. It would take more than six times as many EVs to offset last year's <a href="http://www.api.org/~/media/Files/News/2017/January/16-Dec-MSR-Summary.pdf">growth in US gasoline demand of 1.3%</a>. Only as EV sales ramp up and conventional cars are retired in large numbers would they start to make a serious dent in oil demand. How long will it take to reach that point, and how much would a big jump in oil prices within the next few years nudge it along?<br />
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Until recently, most of the speculation that the transition away from oil and other fossil fuels could happen faster came from outside the industry. Lately, though, respected voices in the industry--or at least <a href="https://www.ft.com/content/64771727-1f42-348d-9a08-d72e4c2a82e4">closer to it</a>--have begun to raise the possibility that the shift to renewables and EVs might accelerate, affecting demand sooner than expected. <br />
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To be clear, I am still convinced that constraints on how fast capital stock turns over--vehicle fleets, HVAC, factory equipment, etc.--impose a speed limit on any large-scale transition like this. However, careful examination of the last<a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D"> 20 years of oil prices</a> provides ample proof that smaller-scale shifts can have large impacts. From the Asian Economic Crisis of the late 1990s, to the massive price spike of 2006-8, followed by the financial crisis, the Arab Spring, and the shale boom, we can see that supply/demand imbalances of no more than about 2-3 million barrels per day--say 3-4% of production or consumption--were sufficient to drive oil prices as low as $10 and as high as $145 per barrel.<br />
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When we combine the big, new trends outlined above with normal uncertainties about the economy and then factor in the extreme sensitivity of oil markets to relatively modest surpluses and shortfalls, predicting the likely path for oil looks very daunting. The factors driving it may be changing, but accurate oil forecasting remains as challenging as ever. That same realization stimulated interest in <a href="https://hbr.org/2013/05/living-in-the-futures">scenario planning</a> more than 40 years ago, focused on the insights available from considering multiple possible futures, rather than just one.<br />
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<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-87232962939916950452017-02-16T11:59:00.002-05:002017-02-16T12:28:02.503-05:00Is the US Ready for a Carbon Tax?<ul>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><i><b>While the Trump administration seeks to undo CO2 regulations, a group of former Republican officials has proposed a new, market-based emissions plan.</b></i></span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><i><b>This "carbon tax" looks simpler than EPA's Clean Power Plan or previous cap-and-trade legislation, but not simpler than the pre-Obama status quo.</b></i></span></li>
</ul>
The idea of taxing the carbon content of energy--and presumably the goods and services produced with it--is back in the news. A group of <a href="https://www.washingtonpost.com/news/energy-environment/wp/2017/02/07/senior-republican-leaders-propose-replacing-obamas-climate-plans-with-a-carbon-tax/?utm_term=.353c5d7b0d2d">Republican "wise men"</a> has floated it as an <a href="https://www.nytimes.com/2017/02/08/opinion/a-conservative-case-for-climate-action.html?emc=edit_th_20170208&nl=todaysheadlines&nlid=2716540&_r=0">alternative to the regulation-based approach</a> to emissions that the Obama administration pursued after its preferred "cap & trade" legislation died in the Congress.<br />
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Reduced to its basics, a carbon tax is a focused version of a consumption tax, based on usage rather than income or valuation. The level of the tax would be set by law, either as a fixed amount per ton of emissions or at an initial rate with preset future increases. What can't be known with certainty in advance is just how much a given level of carbon tax would reduce actual emissions.<br />
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This contrasts with the method of setting a price on carbon preferred by many other economists and environmental groups, called "cap & trade." In this approach, the government sets a cap, or maximum level, on emissions for a designated sector or the economy as a whole, while parties subject to the cap are allowed to trade emission allowances and credits with each other under that cap. Thus policy makers set the level of emission reductions, and allow the market to find the resulting price on carbon. In principal, that ought to be more efficient than the simpler carbon tax, because market forces should drive participants with low costs of cutting emissions to make the deepest reductions and then sell their excess cuts to others, for less than it would cost the latter to reduce by that amount.<br />
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From the late 1990s until 2009 or '10 I was convinced that cap & trade was the better approach to pricing emissions. However, the experience of watching the US Congress attempt to design a cap-and-trade system for the US economy cured my certainty. As I have <a href="http://energyoutlook.blogspot.com/2010/03/whats-alternative-to-kgl.html">described at length</a>, the inclination of legislators to help favored companies, industries and sectors, combined with the extraordinary temptations created by the sheer scale of the revenue such a system would channel through the government's hands, revealed practical problems that look insurmountable in the real world, at least under our political system.<br />
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In fairness, cap-and-trade is currently used to promote emissions reductions in various jurisdictions, including California, the mainly northeastern states participating in the <a href="https://www.rggi.org/">Regional Greenhouse Gas Initiative</a>, and the European Union. From what I have observed, all of them have experienced technical difficulties involving the allocation of free allowances, inadequate liquidity, and other issues. The biggest practical problem is that the carbon prices these systems have tended to deliver might be characterized as the opposite of a Goldilocks price; i.e., they are typically high enough to generate substantial revenue, creating strong constituencies for their continuation, but too low to influence behavior very much.<br />
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For example, California's emissions credits currently trade at around <a href="https://www.arb.ca.gov/cc/capandtrade/auction/results_summary.pdf">$13 per metric ton</a> of CO2, equivalent to $0.10 per <a href="http://www.eia.gov/tools/faqs/faq.cfm?id=307&t=11">gallon of gasoline</a> containing ethanol. Would an extra $1 per fill-up make much of a difference in how much you drive, which car to buy when you replace your current car, or whether to sell your car (or forgo buying one) and take public transportation?<br />
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Moreover, California's emissions have been <a href="https://www.arb.ca.gov/cc/capandtrade/capandtrade.htm">essentially flat</a> since the state implemented cap-and-trade <a href="https://www.arb.ca.gov/cc/capandtrade/capandtrade.htm">in 2012</a>. However, since 2002 the state's electric utilities--historically the highest emitting sector--have operated and invested under a <a href="http://www.energy.ca.gov/portfolio/">Renewable Portfolio Standard</a> requiring them to increase the share of renewable energy in their generation mix to 20% by 2010, 33% by 2020, and now 50% by 2030. I suspect that accounts for most of the 7% drop in emissions since 2002, while the impact of a carbon price <a href="https://www.arb.ca.gov/cc/inventory/doc/docs1/1a1ai_importedelectricityunspecified_pacificsouthwest_electricitygeneration_unspecifiedsources_co2_2014.htm">equivalent to 0.6 cents</a> per kilowatt-hour (kWh) is likely lost in the noise. Of course a carbon tax would create its own political and practical complications.<br />
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First, consider how a carbon tax would affect different energy sources. As with cap & trade, a carbon tax should have its biggest impact on the highest-emitting forms of energy. In practice that would compound the current disadvantages for coal compared to abundant, low-priced natural gas and rapidly growing, essentially zero-emitting renewables like wind and solar power. At least on the surface, that seems at odds with the stated goal of the Trump administration to attempt to rescue the US coal industry and the communities that depend on it.<br />
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Like cap & trade, a carbon tax would also require a significant amount of new bookkeeping to track the path of "embedded emissions"--the CO2 and other greenhouse gases emitted at each step of a product or service's supply chain--through the economy. Some of this is already done voluntarily by companies participating in various sustainability reporting efforts, but it would be new for many others. The EPA, Department of Energy, and numerous non-governmental agencies have done much work to quantify such emissions, but a carbon tax would require a level of rigor and audit trail consistent with the creation of what amounts to a shadow currency within the economy.<br />
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A carbon tax also raises similar questions of how to spend the resulting revenue that have bedeviled cap & trade. At the <a href="https://www.epa.gov/ghgemissions/us-greenhouse-gas-inventory-report-1990-2014">current US emissions</a> and assuming few sources were exempted, the proposed $40 per metric ton initial carbon tax would raise around $275 billion per year. That's 8% of this year's <a href="http://federal-budget.insidegov.com/l/120/2017-Estimate">federal budget</a>. It doesn't take a cynic to guess that the first inclination of any Congress enacting such a tax would be to hang onto this money to fund new programs, reduce the federal deficit, or some combination, rather than returning it to taxpayers as former Secretaries Baker and Schultz and the economists who back them suggest.<br />
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Their proposal would require that the proceeds of the carbon tax be rebated to essentially the same people who would be paying it at the gas pump or in their gas and electric bills. This sounds similar to the "<a href="http://www.washingtonpost.com/wp-dyn/content/article/2010/06/17/AR2010061704564.html">Cap and Dividend</a>" approach to cap & trade proposed by Senators Cantwell (D) and Collins (R) a few years ago. Their bill had the great advantage of simplicity, requiring just a fraction of the <a href="https://www.congress.gov/111/bills/hr2454/BILLS-111hr2454pcs.pdf">1,427 pages</a> of the 2009 Waxman-Markey cap & trade bill, the main purpose of which seemed to be to redistribute vast sums of money outside the tax code. But like W-M, it went absolutely nowhere.<br />
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Like it or not, that's my best guess of the fate of the current carbon tax idea, too. The biggest challenge facing a carbon tax today is that it would not be running as a simpler, more market-oriented alternative to prescriptive legislation or complex EPA regulations. After all, the administration's intention appears to be to eliminate the EPA's main emissions-reduction regulation, the Clean Power Plan, not to replace it.<br />
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And although the new US Secretary of State, Mr. Tillerson, is <a href="http://blogs.wsj.com/environmentalcapital/2009/01/08/exxons-tillerson-give-me-a-carbon-tax-not-cap-and-trade/">on record</a> numerous times in support of a carbon tax, that position seems to have been put forward mainly in preference to cap & trade, rather than on its own merits in the absence of any other strict climate policy. <br />
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A carbon tax would raise the effective price of energy commodities in which we appear to have a global competitive advantage, at least for now. The current proposal may rebate the carbon tax on exports, but most economic activity starts and ends within this country. And as noted in the NY Times op-ed by Dr. Feldstein and the other economists backing this measure, the revenue recycling to consumers would be on an equal basis, rather than proportional to usage, so there would be winners and losers as with any redistributive taxation. Lower-income Americans driving older cars seem likelier to come out on the short end of that than wealthier consumers driving new cars that meet rising fuel economy standards.<br />
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Ultimately, we must ask why President Trump or his team would want to impose a new tax on US consumers and businesses to address a problem that has probably just become an even lower priority for them than it was. Notwithstanding Mr. Trump's demonstrated unpredictability, the simplest answer seems to be that he wouldn't.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com5tag:blogger.com,1999:blog-6199410.post-13710698294101509742017-01-12T12:20:00.000-05:002017-01-12T12:33:04.071-05:00US Energy Under Trump<ul>
<li><i><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>President-Elect Trump and his appointees plan a major policy and regulatory shift for energy, focusing more on economic benefits and less on environmental impacts.</b></span></i></li>
<li><i><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Obama-era regulations most at risk of roll-back are those justified mainly on climate concerns not shared by Mr. Trump and his team.</b></span></i></li>
<li><span style="background-color: white;"><i><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Emissions are still likely to fall <i style="font-family: "Times New Roman"; font-weight: normal;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>in the next four years </b></span></i>as shale and renewable energy output grow.</b></span></i> </span></li>
</ul>
Next week's presidential inauguration will trigger the biggest policy and regulatory shift for the US energy industry in at least ten years. That's how long it has been since energy policy was set by a Republican president and Congress. Donald Trump is a different kind of Republican, though, and his goal does not seem to be a return to scarcity and high energy prices. What should we expect, instead?<br />
<br />
To gauge how sharply the energy polices of the incoming Trump administration will diverge from those of the last eight years, we need to understand what motivates both leaders. The Obama administration's approach was driven by a deep, shared conviction that climate change is the <a href="http://www.cnn.com/2015/01/21/us/climate-change-us-obama/">most important challenge</a> the US--and world--faces. The cost of energy and its impact on the economy became secondary concerns, subordinated by the belief that the added cost of climate policies would be offset in whole or part by the benefits of the green investment they unleashed--remember "<a href="https://www.bloomberg.com/news/articles/2012-10-11/the-5-million-green-jobs-that-werent">green jobs</a>"?<br />
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We saw this in President Obama's first year in office. Amid a deep recession he worked with Congress to attempt to limit greenhouse gas emissions by means of an economy-wide cap-and-trade system, on which he had campaigned. The House of Representatives passed the Waxman-Markey bill (<a href="https://www.govtrack.us/congress/bills/111/hr2454">HR.2454</a>), a veritable <a href="http://energyoutlook.blogspot.com/2009/06/funny-thing-happened-on-way-to-cap-and.html">dog's breakfast of economic distortions</a>. Yet despite a filibuster-proof majority in the Senate in 2009, Waxman-Markey and every subsequent cap-and-trade bill died there.<br />
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That failure set in motion the agenda that the Obama administration has pursued ever since, to achieve via regulations the emissions reductions it could not deliver through comprehensive climate legislation. Last year's publication of the EPA's final <a href="https://www.epa.gov/cleanpowerplan/clean-power-plan-existing-power-plants">Clean Power Plan</a> was a key component of an effort that seems <a href="https://www.bostonglobe.com/metro/2016/12/21/trump-proofing-obama-makes-last-minute-moves/fbW8nZT4n0o7hMZD7yplFI/story.html">set to continue</a> until just before Inauguration Day. <br />
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The transformation of energy regulations under President Obama was dramatic enough that a transition to any Republican administration would be a big change. The transition now in prospect will be even more jarring. Mr. Trump's <a href="http://www.wsj.com/articles/donald-trump-pledges-to-roll-back-energy-regulations-bolster-coal-industry-1470703160">rhetoric </a>and his choices for key administration positions point to a concerted effort to unravel as many of the Obama-era regulations affecting energy as possible. That isn't just based on philosophical differences over regulation and markets. For President-Elect Trump the economy and jobs are <a href="http://www.cnn.com/2016/11/21/politics/donald-trump-outlines-policy-plan-for-first-100-days/">paramount</a>, so the Obama energy regulations must look like an unjustifiable threat to the fossil fuel supplies that still meet <a href="http://www.eia.gov/totalenergy/data/monthly/pdf/sec1_7.pdf">81% of the nation's energy needs</a>.<br />
<br />
Despite that, it is unlikely the new administration will go out of its way to target renewable energy or the tax credits that have driven its growth to date. Renewables are becoming <a href="https://www.greentechmedia.com/articles/read/new-survey-shows-renewable-energy-polls-ridiculously-well-among-trump-voter">increasingly popular</a> with conservatives. However, because Mr. Trump sees climate change as, at best, a secondary issue that may not be amenable to human intervention, his administration's won't put renewables on a pedestal as the Obama administration has done.<br />
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The biggest challenge for renewable energy may come from tax reform intended to make US companies and factories more competitive globally and shrink the incentive for them to relocate to lower-tax countries. This appears to be a <a href="http://www.forbes.com/sites/beltway/2016/12/27/ten-tax-policy-issues-to-watch-in-2017/#1ca459057946">high priority</a> for the new White House and Congress, and one on which they broadly agree. If corporate tax rates drop, the value of the tax credits renewables enjoy is likely to fall, too, making wind, solar and other such projects less attractive and less competitive.<br />
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It remains to be seen how many of the Obama energy regulations can be rolled back. The most recent regulations might be averted through legislation like the <a href="http://thehill.com/regulation/306564-house-passes-bill-targeting-midnight-obama-regs">Midnight Rules Relief Act</a>, or the <a href="https://www.washingtonpost.com/blogs/2chambers/post/reins-bill-to-expand-congressional-power-over-executive-regulations-passed-by-house/2011/12/07/gIQAs6VMdO_blog.html?utm_term=.9ae047863a18">REINS Act</a>, both of which would update the <a href="https://en.wikipedia.org/wiki/Congressional_Review_Act">Congressional Review Act</a>, a rarely used 1990s law intended to limit what presidents could impose by last-minute executive actions. Other regulations may eventually stand or fall as <a href="http://thehill.com/policy/energy-environment/312644-court-delays-appeal-case-over-obamas-fracking-rule">the courts rule</a>. The stakes are high, particularly for regulations affecting the production of oil and gas from shale by means of hydraulic fracturing and horizontal drilling.<br />
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Energy independence was a touchstone of Mr. Trump's candidacy. Despite his campaign's focus on coal, it is fracking, as hydraulic fracturing is more commonly known, that holds the key to achieving that goal in the foreseeable future. It has been the <a href="https://www.eia.gov/energy_in_brief/article/shale_in_the_united_states.cfm">main driver</a> of the growth in US energy production since 2010.<br />
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The latest <a href="http://www.eia.gov/pressroom/releases/press443.cfm">long-term forecast</a> from the US Energy Information Administration (EIA) puts energy independence within reach--in the sense of the US becoming a net exporter of energy--by 2026 or sooner. However, the recent flurry of regulations affecting such things as <a href="https://www.doi.gov/pressreleases/interior-department-announces-final-rule-reduce-methane-emissions-wasted-gas-public">drilling on federal land</a>, and putting large portions of US waters <a href="https://www.washingtonpost.com/news/energy-environment/wp/2016/12/20/president-obama-expected-to-ban-oil-drilling-in-large-areas-of-atlantic-and-arctic-oceans/?utm_term=.b214cd38c7fb">off-limits for offshore drilling</a> would not have been part of that projection. As EIA Administrator Adam Sieminski <a href="http://click.newsletters.ft.com/f/a/KGNOlipc_rKBritMQK560A~~/AAAAAQA~/RgRaUk32P0EIAOwjh1Cgo3BXCGZpbnRpbWVzWAQAAAAAQgoAAz7Jb1h0O2Z-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~">remarked</a> at a briefing on the forecast, "If you had policy that changed relative to hydraulic fracturing, it would make a big, big difference to everything that's in here."<br />
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That's a key point, because most past notions of energy independence assumed that energy prices would have to be very high to promote lots of efficiency and conservation and stimulate large amounts of expensive new supply. The shale revolution changed that.<br />
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However, the global context is also changing. OPEC is attempting to <a href="http://energyoutlook.blogspot.com/2016/12/some-thoughts-on-opec-deal.html">reassert its control</a> over the oil market, with help from non-OPEC countries like Russia. Two years of low oil prices shrank global oil and gas investment budgets by around <a href="https://www.woodmac.com/analysis/global-upstream-investment-slashed-by-US1-trillion">a trillion dollars</a>, and the International Energy Agency has <a href="https://www.iea.org/newsroom/news/2016/february/global-oil-supply-growth-plunging-with-us-taking-biggest-hit-for-now.html">warned </a>of coming oil price spikes as a result. Forestalling tighter US regulations on fracking and offshore drilling increases the chances that US supplies could grow by enough to balance shortfalls elsewhere and avert much higher prices at the gas pump.<br />
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Energy infrastructure is likely to be another focus of the new administration, because the economic and competitive benefits of abundant energy will be diluted if, for example, Marcellus and Utica shale gas or Bakken and Permian Basin shale oil have to be exported because domestic customers don't have access to them.<br />
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That suggests an early effort to reverse decisions by the current administration to block the construction of various pipelines, starting with the <a href="http://energyoutlook.blogspot.com/2015/11/the-keystone-rejection-and-shift-back.html">Keystone XL pipeline</a> and more recently the <a href="http://www.politico.com/story/2016/12/us-army-corps-blocks-dakota-access-pipeline-232172">Dakota Access Pipeline</a>. That will force new confrontations with activists and environmental organizations that have raised their game to a new level in the last eight years.<br />
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Such opposition would likely intensify if the new administration sought to withdraw the US from the Paris climate agreement, which recently <a href="http://unfccc.int/paris_agreement/items/9444.php">went into effect</a>, or submitted it for review by the US Senate as a treaty. But it's not clear that a big change in direction would require leaving Paris.<br />
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The US commitments at Paris, like those of the other signatories, were <a href="http://www.newyorker.com/news/john-cassidy/skeptical-note-paris-climate-deal">voluntary and non-binding</a>. For that matter, <a href="http://www.eia.gov/todayinenergy/detail.php?id=28312">recent shifts</a> in US energy consumption and especially electricity generation have put the US in a good position to meet its initial Paris goals with little or no additional effort, <a href="https://www.whitehouse.gov/administration/cabinet/exit-memos/department-energy">as noted</a> by outgoing Energy Secretary Moniz. The Paris Agreement will only become a major point of contention if President Trump chooses to make it one. <br />
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In his list of the top energy stories of 2016, fellow blogger <a href="http://www.forbes.com/sites/rrapier/2016/12/27/the-top-30-energy-stories-of-2016/#26a92aac339f">Robert Rapier</a> rated the election of Donald Trump ahead of the OPEC deal and many other important events of the year, based on its likely impact on "every segment of the US energy industry." In retrospect that was equally true of Barack Obama's election in 2008. The shift we are about to experience on energy will be that much sharper, because President Obama and President-Elect Trump both set out to make big changes to the status quo for energy, in opposite directions. We shouldn't miss one important difference, however.<br />
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The course that Barack Obama's administration followed on energy was largely predictable from the start, because it was based on openly and deeply held beliefs about energy and the environment. Donald Trump's well-known preference for deals over dogma sets up the prospect of some big surprises, in addition to what we can already anticipate.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com3tag:blogger.com,1999:blog-6199410.post-90824638318461573162016-12-01T09:42:00.001-05:002016-12-07T14:25:28.558-05:00Some Thoughts on the OPEC DealFrom one perspective, the <a href="http://blogs.wsj.com/briefly/2016/11/30/the-opec-deal-at-a-glance/?mod=djem_EnergyJournal">agreement </a>struck by OPEC's members in Vienna yesterday marks the cartel's return to the business of managing the oil market, after a two-year experiment with the free market. Viewed another way, however, it represents what Bloomberg's Liam Denning termed a "<a href="https://www.bloomberg.com/gadfly/articles/2016-11-30/opec-production-cut-will-the-coalition-hold">capitulation of sorts</a>"--an admission of defeat in the price war that OPEC effectively declared in late 2014. Yet while more than a few bottles of champagne were likely consumed around the US oil patch last night, this doesn't necessarily mean a return to the way things were just a few years ago, when oil prices seemed to cycle between high and higher.<br />
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We should look carefully to assess the real results of OPEC's attempt to squeeze higher-cost producers out of the market. On that criterion it was successful: <a href="https://www.woodmac.com/analysis/global-upstream-investment-slashed-by-US1-trillion">hundreds of billions</a> of dollars in oil exploration and production projects have been canceled or deferred, mainly by Western oil companies and other non-OPEC producers. If this was the 1990s, and oil still lacked viable competition, especially in transportation, and if demand could be relied on to continue growing steadily, the strategy OPEC has just ended would have set up many years of strong and rising prices for its members.<br />
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Yet OPEC miscalculated in at least two ways. First, as many experts have noted, it correctly identified US shale producers as the new marginal suppliers to the market but failed to anticipate how quickly these companies could respond to a dramatic price cut. Having squeezed their vendors and spread best drilling practices at warp speed, shale producers are now positioned to resume growing both output and profits as oil prices trend north of $50 per barrel--undermining the effect of OPEC's cuts as they go.<br />
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Its other miscalculation was in the capacity of the cartel's members--even some of the strongest--to endure the austerity that protracted low prices would bring. Although many of these countries have among the world's lowest-cost oil reserves to find and produce, it turned out that their effective cost structures, including transfers to their national budgets, were really no lower than those of the Western oil majors that have also struggled for the last two years. <br />
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A great deal of attention will now be focused on how OPEC implements its <a href="http://www.opec.org/opec_web/static_files_project/media/downloads/press_room/OPEC%20agreement.pdf">output cuts</a>, and whether its non-OPEC partners like Russia live up to their end of the bargain. The <a href="http://energyoutlook.blogspot.com/2014/12/is-opec-washed-up.html">history of OPEC deals</a> suggests that is only prudent. However, a new factor is at work here that adds extra uncertainty to the outcome, even if OPEC miraculously achieved 100% compliance.<br />
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OPEC's formula for sustaining comfortably high (for them) oil prices has always relied on an economic paradox: They restrain their own, low-cost production and shift the marginal source of supply--the last barrel that sets the price--to make room for non-OPEC producers with much higher costs. That allows OPEC's members to collect outsize returns on their own production, what economists call "rent".<br />
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This time, though, at least until the looming <a href="http://www.engineeringnews.co.za/article/big-oil-capex-cuts-may-lead-to-supply-deficit-by-2025-wood-mackenzie-2016-09-05">gap in supply created by all that foregone investment</a> in deepwater platforms and oil sands facilities starts to bite, the cost of the marginal barrel from shale won't be that much higher than OPEC's marginal cost. And all of this will be playing out in the context of historically high inventories. If that's not a recipe for volatility, I don't know what is.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com4tag:blogger.com,1999:blog-6199410.post-71881319373472607992016-11-03T08:52:00.003-04:002016-11-03T10:07:40.373-04:00Energy and the 2016 Presidential ElectionIn less than a week, the most controversial and acrimonious presidential election in living memory will be over. Energy has largely been a second-tier issue in this contest, although the divergence in the candidates' views on this vital subject is stark. Fortunately, the energy consequences--planned and unintended--of the last two US presidential elections hold some useful lessons for considering the proposed energy policies of this year's two front-runners.<br />
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As we look back, please recall that for most of the 2008 campaign the average US price for unleaded regular gasoline was <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epmr_pte_nus_dpg&f=w">over $3.00 per gallon</a>. Much of that summer it was at or above $4.00. Four years later, from Labor Day to Election Day of 2012, regular gasoline averaged $3.76 per gallon. The comparable figure for the last two months of the 2016 campaign is just under $2.25.<br />
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In 2008 energy independence was a hot issue. Then-Senator Obama <a href="http://energyoutlook.blogspot.com/2008/10/candidates-energy-obama-revisited.html">ran on a platform</a> that targeted reducing US oil imports by over 3 million barrels per day, mainly through improved fuel efficiency. In his view US oil resources were effectively tapped out--remember "<a href="http://energyoutlook.blogspot.com/2008/09/presidential-debate-energy-issues.html">3% of reserves and 25% of consumption</a>"? The main role he envisioned for the US oil and gas industry was as a source of increased tax revenue. His primary focus was on reducing greenhouse gas emissions through large federal investments in green energy technology. He would soon deliver on that promise with the <a href="http://energy.gov/recovery-act">$31 billion renewable energy package</a> included in the federal stimulus of 2009.<br />
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When he was running for reelection in 2012, President Obama had <a href="https://www.whitehouse.gov/the-press-office/2012/01/24/remarks-president-state-union-address">kinder words</a> for conventional energy, particularly the large expansion of US natural gas supply due to shale gas. He even took credit for "<a href="http://energyoutlook.blogspot.com/2012/09/candidates-energy-2012-obama.html">boosting US domestic production of oil</a>". That point provoked an <a href="http://politicalticker.blogs.cnn.com/2012/10/16/transcript-second-presidential-debate/">extended argument</a> in the second presidential debate that year. Importantly, when the President emphasized renewable energy, energy efficiency and emissions, it was within a broader framework of "all of the above" energy. <br />
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At the same time, following the failure of comprehensive energy and climate legislation in his first term, his administration has pursued major new regulations aimed at achieving its energy and environmental goals. However, some of the most sweeping of these, including the <a href="https://www.washingtonpost.com/news/volokh-conspiracy/wp/2016/02/09/supreme-court-puts-the-brakes-on-the-epas-clean-power-plan/?utm_term=.49c3dda529f6">Clean Power Plan</a>, have gotten hung up in the courts, while others have yet to be fully implemented.<br />
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In retrospect President Obama was lucky. The shale energy revolution wasn't on his radar in 2008 and received little or no help from his administration, but it has increased US energy production by <a href="http://www.eia.gov/totalenergy/data/monthly/pdf/sec1_5.pdf">more than 17%</a>, net of coal's losses, since he took office. It has made a major dent in <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUS2&f=M">US oil imports</a> and CO2 emissions. In the process, it <a href="http://energyoutlook.blogspot.com/2016/02/opecs-war-on-us-producers.html">saved consumers hundreds of billions of dollars on their energy bills, reduced the US trade imbalance, generated large numbers of new jobs when it mattered most</a>, and provided the primary means for reducing US greenhouse gas emissions to their lowest level <a href="http://www.eia.gov/todayinenergy/detail.php?id=28312">since before <i>Bill </i>Clinton</a> ran for President.<br />
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Meanwhile, the renewable energy revolution on which his 2008 campaign pinned most of its hopes is still a work in progress. The cost of non-hydro renewables, mainly wind and solar power, has fallen dramatically and their deployment has grown impressively, expanding by a combined <a href="http://www.eia.gov/electricity/annual/html/epa_04_02_b.html">135% from 2008 to 2014</a>, or 15% per year. Wind and solar power are reshaping US electricity markets and changing the economics of baseload power plants, including nuclear plants. However, these sources still generate just <a href="http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1">8% of US electricity</a> and accounted for <a href="http://www.eia.gov/totalenergy/data/monthly/pdf/sec1_5.pdf">less than 3%</a> of total US energy production in 2015.<br />
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What can we learn from the experience of the last two presidential terms? We are certainly in the midst of a long-term transition from a high-carbon energy economy to one using lower-carbon fuels and low- or effectively zero-carbon electricity. However, the numbers tell us that with regard to implementation, if not technology, we are closer to the beginning of that transition than to its end. The next President can double renewables, and that would still leave us reliant on conventional energy and nuclear power for three-quarters of our electricity and 90% of our total energy needs.<br />
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Going from 3% of energy from new renewables to the levels needed to meet the <a href="http://www4.unfccc.int/Submissions/INDC/Published%20Documents/United%20States%20of%20America/1/U.S.%20Cover%20Note%20INDC%20and%20Accompanying%20Information.pdf">emissions targets</a> that the US took on at Paris last year represents an enormous technical and financial challenge. It won't happen without a healthy economy, supported by a diverse and flexible energy mix anchored by domestic oil and natural gas from public and private lands and waters.<br />
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Although the Obama administration has added numerous regulations affecting energy, it stopped short of derailing the shale revolution. As a result, it has benefited greatly from the increased flexibility and energy security shale is providing. President Obama adapted his approach to energy and came around to recognizing the need for an energy mix that balances new, green energy with the best conventional energy sources. That's the lens through which we should view the energy proposals of this year's candidates.<br />
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There's no question that Secretary Clinton would promote the continued growth of renewable energy and the wider application of energy efficiency. If anything, she seems to be even more focused on climate change and clean energy than Barrack Obama was in 2008. However, her <a href="https://www.hillaryclinton.com/issues/climate/">campaign website</a> portrays oil and gas mainly in negative terms, with a focus on cutting their consumption, along with the industry's tax benefits. While explicitly <a href="https://www.hillaryclinton.com/briefing/factsheets/2016/02/12/hillary-clintons-plan-for-ensuring-safe-and-responsible-natural-gas-production/">recognizing the role</a> that increased US natural gas production has played in reducing emissions, her policies would directly target the primary source of that growth.<br />
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Shale gas now accounts for <a href="http://www.smithsonianmag.com/smart-news/half-natural-gas-extracted-america-now-comes-shale-180951826/?no-ist">half of all US natural gas production</a>, but Secretary Clinton is on record supporting much stricter regulations on "fracking", the common shorthand for the technological processes involved in producing oil<span style="font-family: inherit;"> and gas from shale:<span style="font-family: inherit;"> "<span style="background-color: white;"><a href="http://thehill.com/policy/energy-environment/272001-sanders-my-answer-is-a-lot-shorter-than-clinton-on-fracking">By the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place</a>,” she said in a March debate with Senator Sanders. </span> </span></span><br />
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Reversing the recent growth of natural gas production from shale would lead to higher emissions during the next four to eight years. With less gas available, natural gas prices would rise, and the remaining coal-fired power plants would ramp back up to fill the gap, even as renewables continued to expand. That is <a href="http://www.theenergycollective.com/robertwilson190/335806/germany-shows-renewable-energy-has-failed-and-other-strange-ideas">happening in Germany</a> today as that country turns away from nuclear power. In the US, without the contribution from natural gas and nuclear power plants, another of which just <a href="http://www.eia.gov/todayinenergy/detail.php?id=28572">shut down permanently</a>, our climate goals would be <a href="http://energyoutlook.blogspot.com/2016/04/out-of-reach-without-nuclear-and-shale.html">out of reach</a>.<br />
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Recently, Secretary Clinton was also cited as wanting to <a href="http://www.bna.com/trump-clinton-fate-n57982079089/">expand the current administration's moratorium</a> on coal development from public lands to encompass oil and gas. As shown in the chart below, <a href="http://www.eia.gov/analysis/requests/federallands/pdf/eia-federallandsales.pdf">based on data</a> from the US Energy Information Administration, this production is already trending downward, overall. Imposing a moratorium on oil and gas development on public lands would accelerate that contraction, without new wells to offset the decline from mature fields.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ4ApYemDvSMNKt3BlTEqGGP0Eqz3p3bajJhJSLOUGs0fRNPi3F4bYIG3ZwNdD5tj-qdoWbYGHXVxERC6JqdeCg7SfGxWto79JrGp51lgMlIXDYz_Pe-g-hqeH2ck_6Bu5ejFU/s1600/federal+lands.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ4ApYemDvSMNKt3BlTEqGGP0Eqz3p3bajJhJSLOUGs0fRNPi3F4bYIG3ZwNdD5tj-qdoWbYGHXVxERC6JqdeCg7SfGxWto79JrGp51lgMlIXDYz_Pe-g-hqeH2ck_6Bu5ejFU/s400/federal+lands.png" width="400" /></a></div>
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If implemented as described, Secretary Clinton's policy toward shale energy would have an even more pronounced effect on US energy supplies than restricting development on federal land. With oil prices low, shale oil production has already <a href="http://www.eia.gov/petroleum/drilling/archive/2016/10/">fallen by 1.2 million barrels per day</a> since output peaked in <a href="http://www.eia.gov/petroleum/drilling/archive/2015/05/#tabs-summary-2">May 2015</a>. The drop would have been much steeper had US producers not been able to focus their greatly reduced drilling activity on their most productive prospects.<br />
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<a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUS1&f=M">US oil imports</a> are increasing in tandem with falling shale oil production and rising demand. We still have <a href="http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_11.html">260 million</a> cars, trucks and buses that require mainly petroleum-based fuels, while electric vehicles make up a tiny fraction of the US vehicle fleet. If shale oil drilling were further curtailed by new regulations, the shortfall would be made up from non-US sources and imports would grow even faster. The party that stands to gain the most from that is OPEC.<br />
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From what I have seen and read, Secretary Clinton's proposed energy policy would undermine the all-of-the-above energy mix necessary to maintain US economic growth and energy security as we transition to cleaner energy sources. It is disconnected from the lessons of the last eight years and should not be implemented in its present form.<br />
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There is no doubt that Donald Trump views the shale revolution and the resources it has unlocked very differently from Secretary Clinton. It has been harder to gauge where he stands on other aspects of energy. During the primaries, Mr. Trump's energy policy lacked much detail, as I <a href="http://energyoutlook.blogspot.com/2016/03/energy-and-2016-presidential-primaries.html">noted </a>at the time. He has since largely remedied that, though many of the points raised on the <a href="https://www.donaldjtrump.com/policies/energy/">energy page</a> of his campaign's website seem mainly intended to counter Secretary Clinton's positions.<br />
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Mr. Trump's energy vision and goals are posted on his website, and he has made several speeches on the subject, focused mainly on expanding US oil and gas production and making the US a dominant global player in the markets for these commodities. His main theme is sweeping deregulation and reform, including revoking the current administration's executive orders and regulations affecting infrastructure projects, resource development, and the role of coal in power generation.<br />
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He endorses an all-of-the-above approach, but there's still little mention of renewables, efficiency or nuclear power. In any case his support for renewables is not linked to man-made climate change, which he <a href="http://www.cnn.com/2016/09/27/politics/donald-trump-climate-change-kellyanne-conway/">disputes</a>. He is also <a href="http://www.telegraph.co.uk/news/2016/05/27/donald-trump-ill-cancel-paris-climate-agreement-and-stop-all-pay/">on record</a> opposing US adherence to the Paris Climate Agreement.<br />
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How do Mr. Trump's ideas on energy square with the lessons of the last eight years? It seems clear he would rather swim with, rather than against the tide of the shale revolution. It's less clear how much additional activity that would stimulate in the near term if oil and gas prices remain low, even if regulations could be cut as he proposes. As for renewable energy, there doesn't seem to be enough information to assess where it fits into his version of "all of the above".<br />
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It's important to keep in mind that energy is not an end in itself. Stepping back from the details, and at the risk of grossly oversimplifying some complex and thorny issues, the key difference I see between the two candidates in this area is that Mrs. Clinton's energy policies seem designed mainly to serve environmental goals, while Mr. Trump's energy policies seem aimed at mainly economic goals.<br />
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In that sense, the choice here looks as binary as on many other issues this year. Just don't interpret that conclusion or my analysis above as an endorsement of either candidate.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com2tag:blogger.com,1999:blog-6199410.post-29359072177034996892016-10-11T12:40:00.003-04:002016-10-11T13:34:48.321-04:00Is the US Really Energy Independent?Toward the end of Sunday night's presidential debate I was startled to hear Secretary Clinton reply to an <a href="http://www.huffingtonpost.com/entry/kenneth-bone-debate_us_57fb05a4e4b0b6a43033793a">audience question</a> by stating, "We are now for the first time ever energy-independent." If the price of oil were $100, rather than $50, that might have constituted a "<a href="http://www.washingtonpost.com/wp-srv/politics/special/clinton/frenzy/ford.htm">Free Poland</a>" moment, recalling President Ford's famous gaffe in a 1976 debate.<br />
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This point is likely to get lost in the dueling fact-checking of both candidates' numerous claims, but while the overall US energy deficit has fallen from about a <a href="http://www.eia.gov/totalenergy/data/monthly/pdf/sec1_3.pdf">quarter of total consumption</a> (net of exports) in 2008 to just 11% in 2015, we still import <a href="http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbblpd_m.htm">8 million barrels per day</a> of oil from other countries. That includes over <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMXX2&f=M">3 million barrels per day from OPEC</a>, a figure that has been growing again as US oil and gas drilling slowed following the collapse of oil prices in late 2104.<br />
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Oil has always been at the heart of our notions of energy security and energy independence, because it is our most geopolitically sensitive energy source and the one for which it is hardest to devise large-scale substitutes. So although the US is certainly in a better overall position than it has been in decades, with progress on multiple aspects of energy, it is not yet energy independent, especially where it counts the most.<br />
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Moreover, the policies that Mrs. Clinton <span id="goog_999468083"></span>has proposed<span id="goog_999468084"></span> would, at least initially, be likely to expand that gap by imposing <a href="https://www.hillaryclinton.com/briefing/factsheets/2016/02/12/hillary-clintons-plan-for-ensuring-safe-and-responsible-natural-gas-production/">additional restrictions on hydraulic fracturing</a>, or "fracking." Mr. Trump, for his part, seemed to devote much of his response to Mr. Bone's debate question talking about coal, which while still a significant player in electricity production has become largely irrelevant to the topic of energy independence, because its use is being displaced by other domestic energy sources, mainly natural gas and renewables like wind and solar power.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoOFQTUDhPYHisJo1L9fSL88hsulvX8AEheg3m9fcl6P7DmAiJWaC6h6CJVIJ0PwjPsA8UvfLgjzrd_p2BDTr3_AUMOt-vd2V34sQHeu9LmijY-19WaZ9WCKg9HETHXMeMwh4C/s1600/Energy+Deficit.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="312" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoOFQTUDhPYHisJo1L9fSL88hsulvX8AEheg3m9fcl6P7DmAiJWaC6h6CJVIJ0PwjPsA8UvfLgjzrd_p2BDTr3_AUMOt-vd2V34sQHeu9LmijY-19WaZ9WCKg9HETHXMeMwh4C/s400/Energy+Deficit.jpg" width="400" /></a></div>
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In fact, of the various contributors to the energy independence gains the US has made from 2008-15 (shown in blue in the above chart) the largest depend on fracking. Oil still makes up most of our remaining energy deficit, after help from <a href="http://www.eia.gov/totalenergy/data/monthly/pdf/sec10_7.pdf">a million barrels per day of ethanol</a>--50% of the energy content of which comes from domestic natural gas. Electric vehicles also help, but the roughly <a href="http://www.reuters.com/article/us-autos-electric-moniz-idUSKCN0UZ2MK">400,000 on the road</a> in the US today displace the equivalent of only about 12,000 barrels per day of oil products, too small to be visible on the scale of this graph. As a result, continued fracking of shale and tight oil resources must be the linchpin of any realistic strategy to close the remaining US energy deficit within the next decade or so.<br />
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I understand that Secretary Clinton's proposed energy policies put a higher priority on <a href="https://www.hillaryclinton.com/issues/climate/">addressing climate change</a>. However, she raised the issue of energy independence in the second debate, even though her proposals are unlikely to deliver it in the foreseeable future--or preserve our present, hard-won reduced dependence on foreign energy sources. Anyone who doubts that this is a pocketbook issue should recall where oil and gasoline prices were just three years ago, before US shale added over 4 million barrels per day to global oil supplies.<br />
<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-36346226702385846422016-09-29T10:47:00.000-04:002016-09-30T08:36:22.330-04:00OPEC Agrees to Agree<ul>
<li><i><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Yesterday's reported OPEC deal left many details unresolved, so oil prices remain under $50, at least for now.</b></span></i></li>
<li><i><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Time has given OPEC greater leverage to make effective production cuts, and ample incentive to do so. Will that be enough to close the deal come November?</b></span></i></li>
</ul>
Yesterday's news that OPEC's <a href="http://www.wsj.com/articles/opec-reaches-understanding-on-output-cut-1475089079">members have agreed</a> on the outlines of a deal to reduce output is a fine reason to end my long, unplanned hiatus between blog posts. This morning's news commentary seems focused mainly on the difficulties OPEC faces in sorting out the details by its next official meeting at the <a href="http://www.opec.org/opec_web/en/311.htm">end of November</a>. Fair enough, but we shouldn't miss the fact that what came out of the <a href="http://www.ft.com/cms/s/0/695d39c2-8552-11e6-8897-2359a58ac7a5.html?ftcamp=crm/email//nbe/LexEurope/product#axzz4Le308nrz">informal meeting in Algiers</a> is qualitatively different from anything OPEC has announced since their meeting in October 2014, which pushed the oil price collapse into high gear.<br />
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It's worth taking a moment to review how we got to this point. After oil prices recovered from their last big dive during the financial crisis of 2008-9, the global oil market--best represented during this period by the price of <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rbrte&f=m">UK Brent crude</a>--settled into a range of roughly $70-90 per barrel. The events of the "<a href="https://en.wikipedia.org/wiki/Timeline_of_the_Arab_Spring">Arab Spring</a>" in 2011, including the revolution in Libya, pushed prices well over $100, where they remained until fall 2014.<br />
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By early 2010 US shale, or more accurately "tight oil", production was beginning to ramp up. Total <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=A">US crude oil output</a> (excluding gas liquids) had fallen steadily from 9 million barrels per day (MBD) in 1985 to a plateau around 5 MBD in the mid-to-late 2000s. Most experts thought we would be lucky if it stayed that high in the long term. So the <a href="http://www.eia.gov/energy_in_brief/article/shale_in_the_united_states.cfm#tightoil">4 MBD of production</a> from tight oil that came onstream by late 2014, pushing total US production back to 9 MBD, was largely unexpected.<br />
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The market impact of the first couple of million barrels per day from US shale was muted by events in the Middle East. In addition to the ongoing instability from the Arab Spring, tighter sanctions on Iran had taken <a href="http://www.eia.gov/todayinenergy/detail.cfm?id=21792">another million-plus barrels per day</a> out of exports. Prices remained high, providing a strong incentive for more tight oil drilling, which from 2013 to 2015 yielded the biggest increase in the history of US oil production.<br />
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In thinking about what OPEC might achieve with the modest cuts they are apparently discussing, it's crucial to understand that while US tight oil at its peak in 2015 was no more than 5% of the global oil market, it had a massive effect on prices, because the price of oil is set by the last barrels in or out of the market. Inventories matter, too, but less from the standpoint of their absolute levels, than how fast they are growing or shrinking.<br />
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Simply put, the unanticipated growth of US shale swamped the market but is now an established part of supply. In late 2014 OPEC's members likely concluded that, given the upward path shale was then on, they couldn't cut their output by enough to keep prices high without simply making more room for shale, so they were better off keeping things uncomfortable for the competition by standing pat. In fact, they doubled down on that by increasing output after October 2014, mainly from Saudi Arabia and other Persian Gulf producers. <br />
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Two years of low oil prices have changed the landscape in ways that I doubt OPEC's members expected. US shale contracted but didn't die. If anything, the efficiencies that shale producers found have made many of them competitive at current prices and big beneficiaries of any future price increase. The <a href="http://www.reuters.com/article/usa-rigs-baker-hughes-idUSL2N1BV0JG">latest rig counts</a> from Baker Hughes show a small but steady increase in drilling activity over the last several months. However, what has collapsed with little indication of revival is investment in large-scale, non-shale oil projects from non-OPEC countries.<br />
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According to analysis from Wood Mackenzie, global oil investment--actual and planned--is down by <a href="http://www.ogj.com/articles/2016/06/woodmac-global-upstream-investment-down-1-trillion-since-oil-price-slump.html">over $1 trillion</a> for the period 2015-20. Because of the development time lag for big oil projects, that means that a potentially serious supply gap is being created a few years down the road. Remember that non-OPEC, non-shale production makes up over half of global oil output. French oil company Total has <a href="https://www.bloomberg.com/gadfly/articles/2016-09-22/total-strategy-update-not-so-excellent-adventure">estimated the potential shortfall</a> at 5-10 MBD by 2020, or 5-10% of global supply.<br />
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This outcome is a mixed bag for OPEC. To whatever extent its decision to increase, rather than cut output in late 2014 was a "<a href="http://energyoutlook.blogspot.com/2016/02/opecs-war-on-us-producers.html">war on shale</a>", that has failed at the cost of many hundreds of billions of dollars of foregone revenue. The collateral damage to the global industry, particularly in places like <a href="http://www.ft.com/cms/s/0/8ca5cc12-83f1-11e6-a29c-6e7d9515ad15.html?ftcamp=crm/email//nbe/CompaniesBySector/product#axzz4Le308nrz">the North Sea</a>, has been dramatic, even if it won't become obvious until the pipeline of projects started in the $100 years dries up sometime soon. OPEC will surely be blamed for any future price spike, but the likelihood that any cut they make now would be back-filled by non-OPEC production is much less than it was in 2014 or '15.<br />
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OPEC faces a conundrum. The market remains over-supplied in the near term, and inventories are at historic levels. Failing to reach agreement in November would not greatly hamper US shale. However, it would prolong their own pain and continue to enlarge the potential supply gap and price spike that is being stored up for an uncertain future that now also includes electric vehicles and <a href="http://www.wsj.com/articles/a-growth-friendly-climate-change-proposal-1475079939">possible carbon taxes</a>, the incentive for both of which will expand significantly if oil prices spike again.<br />
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What's a cartel to do? We will see much speculation about that during the next two months. My guess is that the need to shore up the national budgets of OPEC's member countries, which are going deeper into debt by the day, along with a desire to avoid a price spike that would merely hasten the transition to non-hyrocarbon energy, will lead to an agreement in November to make at least cosmetic cuts in production. Stay tuned.<br />
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<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-27025282445918147662016-07-28T09:47:00.000-04:002016-07-28T10:00:23.936-04:00Don't Book Your Solar-Powered Flight Yet<ul>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><b><i>An around-the-world flight by a solar-powered airplane is a remarkable achievement, but it does not signal that solar passenger planes are the next big thing.</i></b></span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><b><i>Compared to other options, solar's low energy density makes it an especially challenging pathway for pursuing large cuts in the emissions from aircraft.</i></b></span></li>
</ul>
Earlier this week the pioneering solar-powered airplane, Solar Impulse 2, completed its record-setting circumnavigation of the Earth, <a href="http://www.thenational.ae/uae/solar-impulse-2-lands-in-abu-dhabi-completing-first-zero-fuel-flight-around-the-world">returning to Abu Dhabi</a>. Just a few hours earlier, the US Environmental Protection Agency <a href="https://www.epa.gov/newsreleases/epa-determines-aircraft-emissions-contribute-climate-change-endangering-public-health">announced </a>its intention to regulate greenhouse gas <a href="https://www3.epa.gov/otaq/documents/aviation/420f16036.pdf">emissions from aircraft engines</a> under the Clean Air Act. Over the last dozen years I have written numerous posts linking stories like these together, but this is one case in which I sincerely hope these events were entirely unrelated. That requires a bit of explanation.<br />
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Let's start by acknowledging the engineering talent and sheer courage involved in the flight of the <a href="http://www.solarimpulse.com/adventure">Solar Impulse 2</a> (Si2). The aircrew and designers deserve all the kudos they will receive; they have earned a place in aviation history. However, notwithstanding the prediction of pilot Bertrand Piccard that, "<a href="http://www.ft.com/cms/s/0/38caf8b8-533d-11e6-befd-2fc0c26b3c60.html?ftcamp=crm/email//nbe/CompaniesBySector/product#axzz4FcHZahfN">within 10 years, electric aircraft could be carrying up to 50 passengers on short to medium-haul flights</a>," I am skeptical that this project will be the forerunner of solar-powered commercial flight in the way that Charles Lindbergh's <a href="http://www.space.com/16677-charles-lindbergh.html">transatlantic flight in 1927 </a>led to the <a href="http://www.forbes.com/sites/tedreed/2013/08/10/first-trans-atlantic-commercial-flight-landed-75-years-ago-sunday/#418431f41164">first non-stop commercial flight</a> across the Atlantic in 1938.<br />
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There's no anti-solar bias involved in that statement, just an appreciation of the constraints that physics and geometry (e.g., the "square-cube law") impose on the amount of solar energy an aircraft can harvest during flight with anything like current technology. Energy density is an essential factor in the economics of commercial air travel.<br />
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According to the <a href="http://www.solarimpulse.com/adventure">website </a>for the Si2, the aircraft is approximately "the size of a 747 with the weight of a car." That should be our first hint that scaling up to the performance and capacity of today's jets would be an even bigger challenge than the one these folks have just completed. During the course of its journey, which entailed over 500 hours of flight spread across 17 months, the Si2 collected and consumed electrical energy <a href="http://www.solarimpulse.com/adventure">equivalent to a little over 300 gallons</a> of kerosene-based jet fuel. By comparison, a Boeing 777, which is capable of carrying up to 400 people, burns an average of around <a href="http://www.airliners.net/forum/viewtopic.php?t=325675">2,000 gallons of jet fuel per <i>hour</i></a>.<br />
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If you covered a <a href="http://www.airliners.net/aircraft-data/boeing-777-200/106">777's wings</a> with the same 22%-efficient <a href="https://us.sunpower.com/blog/2016/03/16/solar-airplane-solar-impulse-2-will-fly-hawaii-west-coast/">SunPower solar cells</a> used by the Si2, they would generate the fuel-equivalent of less than 3 gallons per hour at noon on a cloudless day. Even allowing for the higher efficiency of electric motors compared to gas turbines, that is still orders of magnitude less than the energy necessary to push a fully-loaded jetliner through the sky at 550 miles per hour. (The Si2 averaged 47 mph.)<br />
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As the <a href="http://www.ft.com/cms/s/0/38caf8b8-533d-11e6-befd-2fc0c26b3c60.html?ftcamp=crm/email//nbe/CompaniesBySector/product#">Financial Times</a> reported, the near-term applications of solar-powered flight are likely limited to surveillance drones and other specialized platforms for which long-range fuel-free flight confers a big advantage. I could also envision lightweight, high-efficiency solar cells being used on next-generation commercial aircraft to provide auxiliary (non-motive) power, saving both fuel and emissions.<br />
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That brings me back to the EPA. <span style="color: #333333;">The agency's stated <a href="https://www.epa.gov/newsreleases/epa-determines-aircraft-emissions-contribute-climate-change-endangering-public-health">rationale </a>for targeting aircraft engines now is that they expect these emissions to increase in the future, and that reductions would lead to climate and health benefits. There's no mention of solar-powered aircraft, and I must trust that had nothing to do with their announcement.</span><br />
<span style="color: #333333;"><br /></span>
<span style="color: #333333;">T</span>he EPA's latest g<a href="https://www3.epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2016-Chapter-2-Trends.pdf">reenhouse gas inventory</a> reported that in 2014 commercial and other aircraft accounted for 8% of US transportation-related emissions, and about 2% of all US emissions of CO2 and other greenhouse gases. It also showed that aviation emissions have fallen 22% since 2005.<br />
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Perhaps the growth they are worried about is proportional, rather than absolute, as emissions from electricity generation and other sources decline faster. However, compared to cars and light trucks that account for over 60% of emissions from transportation, and for which many emission-reduction options are available, aviation is a small and rather challenging focus for further reductions. <span style="color: #333333;"> </span><span style="color: #333333;">Those will likely rely on advanced biofuels, along with additional gains in turbine efficiency and airframe weight reduction. </span><br />
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The <a href="http://www.solarimpulse.com/adventure">website </a>for Solar Impulse 2 acknowledges that its flight was intended to highlight the earth-bound applications of renewable energy<span style="font-family: inherit;">: "</span><span style="color: #333333; font-family: inherit;">Behind Solar Impulse’s
achievements, there is always the same goal: show that if an airplane can fly
several days and nights in a row with no fuel, then clean technologies can be
used on the ground to reduce our energy consumption, and create profit and
jobs." Solar-powered air travel for the masses seems pretty far off, and certainly not something we can count on for cutting our </span><span style="color: #333333;">emissions</span><span style="color: #333333; font-family: inherit;">. </span>Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com4tag:blogger.com,1999:blog-6199410.post-65002891151044243272016-07-01T09:15:00.002-04:002016-07-01T09:34:36.648-04:00EVs and The Service Station of the FutureTesla Motors is <a href="https://www.washingtonpost.com/news/the-switch/wp/2016/06/28/teslas-quiet-talks-with-this-company-could-help-redefine-the-gas-station-as-we-know-it/">apparently in talks</a> with <a href="https://www.sheetz.com/subpages/history.jsp">Sheetz, Inc.</a> to install electric vehicle (EV) <a href="https://www.teslamotors.com/supercharger">Superchargers </a>in the latter's chain of gas stations. This caught my eye, because I was involved in a much earlier effort to install EV recharging facilities in service stations in the late 1990s. It wasn't just ahead of its time; it was stymied by some of the same economic challenges noted in the Washington Post article, as well as physical and regulatory issues that weren't mentioned.<br />
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The logic of an alliance between Tesla and gasoline retailers like Sheetz seems sound. Tesla embarked on its strategy to build a <a href="https://www.teslamotors.com/supercharger">network </a>of quick-rechargers in order to sell more cars. Its Superchargers are likely to be more effective in that role if they're installed in places that are both convenient to highways and offer a variety of other amenities for drivers, while they wait 15 minutes or more to top up their car's range. High-volume fuel retailers like Sheetz have already optimized their sites for convenience of location, and they have a wider range of food and beverage choices than the average gas station.<br />
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They also provide another essential feature: space. When Texaco was evaluating adding rechargers for GM's ground-breaking <a href="http://www.digitaltrends.com/cars/how-does-gms-fabled-ev1-stack-up-against-the-current-crop-of-electrics/">EV1 electric car</a> to its Southern California retail network nearly 20 years ago, the fire marshals with whom we met insisted that high-voltage electricity and pumps dispensing volatile fuels like gasoline could not share the same pump island. They had to be widely separated for safety, and few of our L.A. locations had large enough footprints for that. Sheetz, by contrast, typically has large stations--many in rural or suburban locations--that could accommodate EV charging without endangering customers filling up with gas or diesel.<br />
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Another obstacle I encountered at Texaco was that EV rechargers are expensive, while electricity is cheap. Even if you're allowed to charge customers for it--we weren't, for regulatory reasons--it takes a lot of usage to pay back the substantial investment in equipment and installation. With EV sales still occupying a small niche in the market, that calculation hasn't changed much in the intervening decades. However, Tesla's primary motivation isn't to make money selling electricity, but to generate profits and support its stock price by selling more premium EVs. I would hate to see the standalone P&L for Tesla's growing Supercharger network, but that's beside the point.<br />
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This resolves a major hurdle for Sheetz and other fuel retailers that might want to add EV recharging to expand their customer base, or "green up" their image to enhance the loyalty of current customers, especially among Millennials. The profitability of such an investment would still be questionable, even if they sold EV owners lots of premium coffee and snacks while they wait. But if someone else is footing most of the bill for the added hardware, the extra revenue in the convenience store is all upside.<br />
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The service station of the future has been slower arriving than my colleagues and I envisioned when we developed Texaco's first global scenarios for the future of energy nearly twenty years ago. Sales of EVs and cars running on <a href="http://energyoutlook.blogspot.com/2016/06/could-hydrogen-economy-run-on-ethanol.html">hydrogen </a>have not grown as fast as we expected, while the improving performance of gasoline cars has raised the bar for alternative vehicles. However, current trends suggest that our vision of facilities offering a diverse mix of transportation energy was more premature than wrong. I will be very interested to see how Tesla and Sheetz or others move ahead with this idea. Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com1tag:blogger.com,1999:blog-6199410.post-4489618654995578192016-06-21T10:59:00.001-04:002016-06-21T11:44:15.097-04:00Another Step Backward for Nuclear and the EnvironmentI don't normally do breaking news, but today's <a href="https://www.pge.com/en/about/newsroom/newsdetails/index.page?title=20160621_in_step_with_californias_evolving_energy_policy_pge_labor_and_environmental_groups_announce_proposal_to_increase_energy_efficiency_renewables_and_storage_while_phasing_out_nuclear_power_over_the_next_decade">announcement </a>by PG&E and a coalition of environmental groups on retiring the Diablo Canyon nuclear power plant in California within 8-9 years merits immediate comment.<br />
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Given the enormous social and political challenges PG&E faced in undertaking the re-licensing of the facility when its current operating licenses expire in 2024 and 2025, this action is understandable, though regrettable. I lived in California when Diablo Canyon was planned and built. It was sufficiently controversial in the 1970s, and the environment has only become more contentious. Extending the operating licenses of nuclear power plants to 60 years has become typical elsewhere, but the utility's board must have concluded that it was a non-starter in today's California.<br />
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However, we should not be misled by press-release language about replacing "power produced by two nuclear reactors...with a cost-effective, greenhouse gas free portfolio of energy efficiency, renewables and energy storage." Under California's extremely aggressive <a href="http://www.energy.ca.gov/portfolio/">renewable energy</a> and storage targets, the alternative energy mentioned here was coming, anyway, but it was intended to replace higher-emitting sources like out-of-state coal and in-state natural gas generation. Until there is an overall surplus of zero-emission energy--when?--the energy mix is a zero sum game.<br />
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This agreement--perhaps the best deal possible under the circumstances--thus represents the net loss of <a href="https://www.eia.gov/nuclear/state/California/">18 billion kilowatt-hours (kWh) per year</a> of zero-emission electricity. That's equivalent to <a href="http://www.eia.gov/electricity/monthly/current_year/february2016.pdf">9% of all utility-scale electricity</a> generated in California last year. The state went through a similar event in 2013 with the permanent shutdown of the San Onofre Nuclear Generation Station between L.A. and San Diego. As I <a href="http://energyoutlook.blogspot.com/2013/07/early-retirement-of-us-nuclear-plants.html">noted at the time</a>:<br />
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<span style="color: blue;"><span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;">How much emissions will increase following the shutdown depends on the type of generation that replaces these units. If it all came from renewable sources like wind and solar, emissions wouldn’t go up at all, but that’s impractical for several reasons. Start with the inherent intermittency of these renewables, and then compound the challenge by its scale. Even in sunny California, replacing the annual energy contribution of the SONGS units would require around 7,200 MW of solar generating capacity, equivalent to nearly 2 million 4-kilowatt rooftop photovoltaic (PV) arrays. That’s over and above the state’s ambitious “</span><a href="http://www.cpuc.ca.gov/puc/energy/solar/aboutsolar.htm" style="background-color: white; font-family: arial, tahoma, helvetica, freesans, sans-serif; font-size: 13.2px; line-height: 18.48px; text-decoration: none;">Million Solar Roofs</a><span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;">” target, which was already factored into the state’s emission-reduction plans.</span></span><br />
<span style="color: blue;"><span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;"><br /></span>
<span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;">Grid managers from the state’s Independent System Operator </span><a href="http://blogs.kqed.org/science/2013/06/12/san-onofre-shutdown-poses-carbon-challenge-for-california/" style="background-color: white; font-family: arial, tahoma, helvetica, freesans, sans-serif; font-size: 13.2px; line-height: 18.48px; text-decoration: none;">indicated</a><span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;"> that in the near term much of the replacement power for SONGS will be generated from natural gas. Even if it matched the mix of 71% gas and 29% renewables </span><a href="http://www.caiso.com/Documents/2013SummerLoads_ResourcesAssessment.pdf" style="background-color: white; font-family: arial, tahoma, helvetica, freesans, sans-serif; font-size: 13.2px; line-height: 18.48px; text-decoration: none;">added</a><span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;"> from June 2012 to April 2013, based on “net qualifying capacity”, each megawatt-hour (MWh) of replacement power would emit at least </span><a href="http://www.netl.doe.gov/KMD/cds/disk50/NGCC%20Plant%20Case_FClass_051607.pdf" style="background-color: white; font-family: arial, tahoma, helvetica, freesans, sans-serif; font-size: 13.2px; line-height: 18.48px; text-decoration: none;">560 lb</a><span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;">. more CO2 than from SONGS. That’s an extra 4 million metric tons of CO2 per year, or 8% of California’s </span><a href="http://www.arb.ca.gov/cc/inventory/data/tables/ghg_inventory_scopingplan_00-10_2013-02-19.pdf" style="background-color: white; font-family: arial, tahoma, helvetica, freesans, sans-serif; font-size: 13.2px; line-height: 18.48px; text-decoration: none;">2010 emissions</a><span style="background-color: white; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;"> from its electric power sector and almost 1% of total state emissions. If gas filled the entire gap, or if the natural gas capacity used was not all high-efficiency combined cycle plants, the figure would be closer to 6 million metric tons, equivalent to the annual emissions from about 1.5 million cars.</span></span><br />
<span style="background-color: white; color: #222222; font-family: "arial" , "tahoma" , "helvetica" , "freesans" , sans-serif; font-size: 13.2px; line-height: 18.48px;"><br /></span>
<span style="background-color: white; color: #222222; line-height: 18.48px;"><span style="font-family: inherit;">So far, the state's <a href="http://www.arb.ca.gov/cc/inventory/pubs/reports/2000_2014/ghg_inventory_trends_00-14_20160617.pdf">environmental data</a> supports this conclusion. Although offset by larger imports of low-emission power from out-of-state, there was a noticeable uptick in greenhouse gas emissions from in-state generation from 2013 to 2014. (See Figure 8 in the 2016 California GHG Inventory.) </span></span><br />
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<span style="background-color: white; color: #222222; line-height: 18.48px;"><span style="font-family: inherit;">California will get more renewables either way, but shutting down Diablo Canyon when it still has decades of useful life left represents a net loss to California consumers, PG&E shareholders, and to the global environment. </span></span><br />
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Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com2tag:blogger.com,1999:blog-6199410.post-2825231999737298922016-06-16T14:06:00.002-04:002016-06-16T14:23:45.694-04:00Could the Hydrogen Economy Run on Ethanol?<div>
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><b><i>Plans for a fuel cell car running on ethanol look like a clever way to circumvent the obstacles faced by other fuel cell vehicles.</i></b></span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><b><i>However, it is not clear that ethanol's perceived logistical benefits or emissions profile would give Nissan an edge in the competitive market for green cars.</i></b></span></li>
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Japan's Nissan Motor Co., Ltd. made headlines this week when it <a href="https://newsroom.nissan-global.com/releases/160614-01-e?lang=en-US">announced </a>plans to produce a fuel-cell car that would run on ethanol, instead of hard-to-find hydrogen. As reported by <a href="http://www.scientificamerican.com/article/nissan-plans-to-develop-ethanol-based-fuel-cell-technology-by-2020/?utm_source=MIT+TR+Newsletters&utm_campaign=d4dfa41b87-The_Download_2016_06_13&utm_medium=email&utm_term=0_997ed6f472-d4dfa41b87-153779509">Scientific American</a>, the company expects to commercialize this approach by 2020, even though competitors like Toyota already have fuel cell cars <a href="https://ssl.toyota.com/mirai/fcv.html">in their showrooms</a>. It's an interesting choice. Ethanol seems to offer logistical advantages over hydrogen, but the technical challenges involved aren't trivial, nor is ethanol without drawbacks from an energy or environmental perspective.<br />
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Fuel cells have long promised a different and potentially superior path to electrifying automobiles, compared to battery-electric vehicles (EVs) with their limited range and relatively long recharging times. One of the biggest obstacles has always been the lack of infrastructure and supply--hydrogen must first be liberated from water, methane or other compounds--and the problems of storing sufficient quantities of it on board. I've <a href="http://energyoutlook.blogspot.com/2007/11/fuel-cell-test-drive-part-i.html">driven prototype fuel-cell vehicles</a> (FCVs) and found the experience pretty similar to driving a regular car, as long as you have a hydrogen filling station handy.<br />
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Nissan makes the case that ethanol (chemical formula C<span style="font-size: xx-small;">2</span>H<span style="font-size: xx-small;">6</span>O) is much easier to source and distribute than gaseous hydrogen, and the process for making it give up its hydrogen is routine, at least under laboratory conditions. However, as the alternative energy research subsidiary of my former employer, Texaco Inc., found in pursuing a similar concept with gasoline, it's one thing to do this in a bench-scale device and quite another to do it in a size and shape that will fit easily and safely in a car and run as reliably as an internal combustion engine. I suspect Nissan's engineers have their work cut out for them for the next four years.</div>
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The bigger questions about this approach are more basic: Does it make sense from an economic, energy and environmental perspective, and can it find a large enough market? Consumers already have a wide range of green alternatives from which to choose, ranging from Prius-type hybrids (gasoline only), plug-in hybrids (gasoline + electricity) and battery EVs, not to mention the continuous improvement of non-electric cars. </div>
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Nissan didn't include many numbers in the documents accompanying its press release, but the chemistry and math involved are pretty simple. At 100% efficiency, a gallon of ethanol could produce just under 0.8 kilograms (Kg) of hydrogen (H2) using the standard <a href="http://www.aidic.it/CISAP3/webpapers/22Kunzru.pdf">steam-reforming process</a>. The best efficiency I could find for this ethanol-to-hydrogen conversion was <a href="http://www.treehugger.com/renewable-energy/hydrogen-made-from-ethanol-with-90-efficiency-using-inexpensive-catalyst.html">around 90%</a>, so in the real world that gallon of ethanol would yield around 0.7 Kg of H2--enough to take Toyota's Mirai FCV <a href="http://www.fueleconomy.gov/feg/fcv_sbs.shtml">about 46 miles</a>. That's pretty good, considering that same gallon in a Chrysler 200 equipped as a flexible fuel vehicle (FFV) would drive an average of just <a href="http://www.fueleconomy.gov/feg/PowerSearch.do?action=noform&path=3&year1=2015&year2=2017&vtype=E85&srchtyp=newAfv&sortBy=Make&rowLimit=100&tabView=0&tabView=0&pageno=1">21 miles</a>. Fuel cells are much more efficient than internal combustion engines.</div>
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The economics of operation don't look bad, either. If we use today's average US price for E85 (85% ethanol + 15% gasoline) of <a href="https://e85prices.com/">$1.87/gal</a>. as a proxy for an ethanol retail price, that equates to around 4 ¢/mile, using the Mirai's published <a href="http://www.fueleconomy.gov/feg/fcv_sbs.shtml">fuel economy data</a>. That's about 15% cheaper than a Prius on regular gasoline at <a href="http://www.eia.gov/petroleum/weekly/gasoline.cfm">this week's US average</a> of $2.40/gal., but it's also around 10% more expensive than a <a href="http://www.fueleconomy.gov/feg/Find.do?action=sbs&id=37067&id=37163">Nissan Leaf</a> using <a href="http://www.pge.com/tariffs/tm2/pdf/ELEC_SCHEDS_EV.pdf">off-peak electricity</a> in northern California.</div>
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Emissions are trickier to assess. There's a lively and growing <a href="http://www.greencarreports.com/news/1098269_biofuels-dont-assume-theyre-all-carbon-neutral-new-study-warns">controversy </a>about whether biofuels produced from crops can truly be considered <a href="https://www.theguardian.com/environment/2015/jan/29/biofuels-are-not-the-green-alternative-to-fossil-fuels-they-are-sold-as">carbon-neutral</a>, even in places like Brazil where the yields from sugar cane are so high. There's much less controversy that the production of most US ethanol from corn is <a href="http://www.factcheck.org/2015/11/ethanol-higher-emissions-or-lower/">anything but a net-zero-emission endeavor</a>. Corn requires fertilizer sourced from natural gas, and ethanol refineries consume gas (or coal) and electricity in their production process. In any case, when Nissan characterizes their planned ethanol FCV as having "<a href="https://newsroom.nissan-global.com/releases/160614-01-e?lang=en-US">nearly no CO<span style="font-size: xx-small;">2</span> increase whatsoever</a>", they are either oversimplifying a very complex discussion or taking a large leap of faith. </div>
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We can count the CO<span style="font-size: xx-small;">2</span> coming out of the tailpipe of such a car, and it would need a tailpipe because the onboard ethanol converter would emit about 12.5 lb. of CO<span style="font-size: xx-small;">2</span> for every gallon of ethanol converted to pure H2, plus some CO<span style="font-size: xx-small;">2</span> from the ethanol burned to heat the unit. My back-of-the envelope calculation gives a figure of 135 grams of CO<span style="font-size: xx-small;">2 </span>per mile, or <a href="http://www.fueleconomy.gov/feg/Find.do?action=sbs&id=37067&id=37163">20% lower</a> than a Toyota Prius on gasoline. It would not be a Zero Emission Vehicle (ZEV), though of course an EV running on average grid electricity isn't really a ZEV, either, except in isolated regions or at specific times of day.</div>
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Even if there aren't any deal-killers here, I'm skeptical about Nissan's fundamental assumption that the ethanol infrastructure for their FCV would be that much easier to develop than the H2 infrastructure other FCVs require. That's because of the cost and ownership structure of the retail fuels business, which as I've <a href="http://energyoutlook.blogspot.com/2007/11/fuel-cell-test-drive-part-i.html">argued previously</a> helps explain why your corner gas station is unlikely to sell E15 (85% gasoline, 15% ethanol) any time soon, despite the EPA having <a href="http://www.afdc.energy.gov/fuels/ethanol_e15.html">approved it for newer cars</a>. </div>
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At least in the US, most gas stations are owned by small businesses, not by the oil companies whose brands they display. Margins are slim, and these folks don't have deep pockets, so adding a new fuel like pure ethanol or the ethanol-water mix that <a href="https://newsroom.nissan-global.com/releases/160614-01-e?lang=en-US">Nissan suggests</a>, poses a difficult business decision: Do you take over an existing tank and stop selling diesel fuel, or premium gasoline with its high margins? Or do you rip up the forecourt to add a new tank, which entails being out of business for months--or even longer if you discover that one of your existing tanks is leaking? Either way, the investment costs and disruption to current customers are significant, in exchange for selling what at first would certainly be a low-volume product. When I was in the fuels supply & distribution business, we would have called that kind of decision a "no-brainer."</div>
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If Nissan can't encourage enough service stations to add ethanol or an ethanol/water blend--E85 would not work--to their product mix, do they start their own service station network? That seems unlikely. And if you buy one of these cars in a few years, should you carry a case of vodka in the trunk as an emergency range-extender? That's only half-facetious. </div>
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I give Nissan credit for pursuing a novel option for making fuel cell cars more viable, as an alternative to today's range-limited EVs. Ethanol looks like a cost-competitive source of hydrogen, and it is at least easier to store than H2 gas or liquid H2. However, they face practical and marketing challenges that might well offset most of the advantages the company claims to see. The ethanol FCV could encounter the same chicken-and-egg dynamic as FCVs running on hydrogen, or indeed any new model requiring a fuel that is not distributed at scale today. It will be interesting to watch their progress.</div>
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Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com2tag:blogger.com,1999:blog-6199410.post-25690421759977960502016-05-26T10:24:00.001-04:002016-05-26T11:10:47.123-04:00On Track for a Golden Age of Gas?<ul>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><b><i>The global energy industry must overcome significant new challenges if natural gas development is to achieve the vision of a Golden Age of Gas.</i></b></span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><b><i>Low energy prices and reduced investment are only half the battle as regulations complexify and organized opposition grows. </i></b></span></li>
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Five years ago the International Energy Agency (IEA) issued a report entitled, "<a href="http://www.worldenergyoutlook.org/media/weowebsite/2011/WEO2011_GoldenAgeofGasReport.pdf">Are We Entering a Golden Age of Gas</a>?" Gas development was booming, from both conventional resources and US shale deposits, and gas was widely seen as a vital tool for reducing greenhouse gas emissions. Much has happened since then, including a collapse in global oil prices, the signing of a new climate agreement in Paris, and a broadening of the anti-fossil-fuel focus of climate activists. If we're still on the path to a golden age of gas, the ride will be bumpy.<br />
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This is probably most evident across the pond, where Nick Butler, the Financial Times' respected energy analyst, <a href="http://blogs.ft.com/nick-butler/2016/05/23/has-gas-demand-in-europe-peaked/?ftcamp=crm/email//nbe/CompaniesBySector/product">observed </a>this week, "Unless something changes radically, Europe has passed the point of peak gas consumption." He cited Germany's ongoing "Energiewende" (energy transition) which in order to maximize wind and solar and minimize nuclear power, ends up squeezing gas out between renewables and much higher-emitting coal.<br />
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Earlier this month France's Energy Minister announced she was <a href="http://oilprice.com/Latest-Energy-News/World-News/France-Discusses-Ban-Of-Imported-US-Shale-Gas.html">pursuing a ban</a> on imports of US shale gas--effectively <i>any </i>gas from the US--since France already bans domestic fracking. That strikes me as a textbook example of having to keep making bad decisions to be consistent with the first one, but it's their sovereign choice.<br />
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As the IEA defined it at the time, this Golden Age would entail faster growth in gas demand in every major sector, compared to the agency's main "New Policies" scenario in its then-current annual <a href="http://www.worldenergyoutlook.org/weo2010/">World Energy Outlook</a> (WEO). They anticipated compound average growth of 1.8% per year, much faster than oil or coal, with gas consumption ending up 13% higher than the WEO's projection for 2035. That's like adding an extra Russia or Middle East to world gas demand within 20 years.<br />
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One gauge of whether that still seems realistic can be found in the US Energy Information Administration's (EIA) just-released 2016 <a href="http://www.eia.gov/forecasts/ieo/nat_gas.cfm">International Energy Outlook</a>. The EIA's long-term forecast actually has gas consumption growing slightly faster than IEA's Golden Age track in the developed countries of the OECD between now and 2035, but with a slower ramp-up to essentially the same end-point in the non-OECD countries.<br />
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Of course one forecast can't really validate another, so let's consider how some of the big uncertainties that the IEA identified in the 2011 report have shifted, starting with energy pricing. After oil's recent rebound, oil and gas have fallen by <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=M">around half</a> their 2011 US prices. That makes investments in oil and gas exploration and production considerably less attractive. <a href="http://www.woodmac.com/analysis/PreFID-2016-USD380bn-capex-deferred">Nearly $400 billion</a> of projects have been canceled or deferred, globally, setting up slower growth in production from both gas fields and oil fields with associated gas in the near-to-medium term. This deceleration is evident in EIA's latest monthly <a href="http://www.eia.gov/petroleum/drilling/archive/2016/05/">Drilling Productivity Report</a> for US shale.<br />
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With the contract price of liquefied natural gas (LNG) often tied to oil prices or competing with pipeline gas that has also fallen in price, large gas infrastructure projects like LNG plants look less attractive, too. We've already seen cancellations of new facilities <a href="http://www.bloomberg.com/news/articles/2016-03-22/woodside-scraps-browse-lng-project-after-oil-market-downturn">in Australia</a> and <a href="http://www.vancouversun.com/AltaGas+calls+halt+project+Kitimat/11743911/story.html">Canada</a>. Fewer LNG export facilities are likely to be built in the US than previously planned. All this means less new gas reaching markets where it can be used.<br />
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Cheaper oil also reduces the attractiveness of gas as a transportation fuel. Although increasingly popular as a cleaner fuel for buses, natural gas hasn't made much headway in US passenger cars. However, this application has been growing in places like <a href="http://energyoutlook.blogspot.com/2013/03/natural-gas-vehicles-already-big-in.html">Italy and Iran</a>, for different reasons.<br />
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Viewed in isolation, these price-related responses seem likelier to delay, rather than derail the expectations the IEA set out in 2011. The bigger challenges come from a set of issues the IEA identified a year later, in a follow-up report called "<a href="http://www.worldenergyoutlook.org/media/weowebsite/2012/goldenrules/weo2012_goldenrulesreport.pdf">Golden Rules for a Golden Age of Gas</a>." As Dr. Birol, now the Executive Director of IEA, indicated then, these boil down to the industry's "<a href="http://energyoutlook.blogspot.com/2012/06/does-golden-age-of-gas-depend-on-golden.html">social license to operate</a>."<br />
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Transparency, water consumption, emissions including methane leaks--all on IEA's list--are some of the key issues over which companies, regulators, NGOs and activists are sparring today. The UK is a prime example. Conventional energy production is <a href="http://www.economist.com/news/britain/21597890-scottish-nationalists-are-right-charge-britain-has-mismanaged-north-sea-oil-unionists">declining rapidly</a> and a large shale gas potential has been identified by the <a href="http://www.bgs.ac.uk/research/energy/shaleGas/howMuch.html">British Geological Survey</a>, but every attempt to drill exploratory wells has encountered <a href="http://www.bbc.com/news/business-36366302">strong opposition</a>.<br />
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<span style="background-color: white;">A new factor the IEA did not anticipate is the emergence of political movements focused on fossil fuel divestiture and a "keep it in the ground" mantra. These may be based on unrealistic expectations of how quickly the world can transition to a zero-emission economy, but they illustrate the scale of a stakeholder engagement challenge the global oil and gas industry has so far failed to meet adequately. </span><br />
<span style="background-color: white;"><br /></span><span style="background-color: white;">Just as social media are transforming politics, they are also altering the balance of power between organizations and their critics. The gaps that must be bridged if new gas development is to remain broadly acceptable to the public are growing in ways that will demand new approaches and new strategies to address. </span><br />
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Considering the shifts in the global energy mix that will be necessary to reduce global emissions in line with the goals of last year's Paris Agreement, gas ought to have a future every bit as bright as the Golden Age the IEA described five years ago. Achieving that now likely depends less on the price of energy and the scale of available resource than on convincing regulators and the public that the trade-offs involved in obtaining its benefits are still reasonable.<br />
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<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com3tag:blogger.com,1999:blog-6199410.post-80301429965200768232016-05-10T12:51:00.002-04:002016-05-10T14:37:31.675-04:00A New Angle on Carbon CaptureIn my last couple of posts I looked at the <a href="http://energyoutlook.blogspot.com/2016/04/out-of-reach-without-nuclear-and-shale.html">difficulty </a>of meeting ambitious targets for cutting greenhouse gas emissions (GHG) without help from the lower-emitting portions of our current energy mix. Last week ExxonMobil <a href="http://news.exxonmobil.com/press-release/exxonmobil-and-fuelcell-energy-inc-pursue-novel-technology-carbon-capture">announced</a> that it is pursuing a new pathway for capturing carbon from power plant exhaust. That could help revive another important strategy for large-scale emissions reduction from our existing energy sources.<br />
<br />
Carbon capture and sequestration (CCS) has fallen out of favor, lately, mainly due to the <a href="http://www.ft.com/intl/cms/s/0/91726a24-a4be-11e5-a91e-162b86790c58.html#axzz47ie2cETY">high cost and technical challenges</a> of the early prototypes for large-scale implementation of the technology. Not only are the initial investment costs of today's CCS hardware still very high, but it is also inherently expensive to operate. That's because of the high energy consumption of the process, resulting in a "parasitic" load on the host power plant that reduces its net output by up to 20%, making the remaining output much more expensive. That creates a large deterrent in any market that doesn't provide either direct subsidies for carbon removal, or a high carbon tax or price for traded emissions offsets.<br />
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Another reason that CCS has received less attention recently is that the costs of renewable energy technologies like wind and solar power have kept falling. To some they now look cheap enough, especially with further cost improvements extrapolated, to enable us to reach our emissions goals mainly through wider deployment of solar modules and wind turbines.<br />
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Even if that were technically feasible, like most other energy industry experts I have met I am convinced that the deep emissions cuts desired for mid-century will require implementing or retro-fitting CCS onto the fleet of coal and gas-fired power plants that will likely still be in service decades from now. CCS underpins several of the emissions <a href="https://cmi.princeton.edu/wedges/pdfs/teachers_guide.pdf">stabilization wedges</a> pioneered by Princeton engineering professor Rob Socolow and his colleagues <a href="https://cmi.princeton.edu/resources/pdfs/carbon_plan.pdf">ten years ago</a>.<br />
<br />
What makes the approach that ExxonMobil and FuelCell Energy, Inc. have described so attractive is that, instead of being a drain on power generation, <a href="http://www.fuelcellenergy.com/advanced-technologies/carbon-capture/">capturing CO2 via fuel cells</a> would actually add significantly to a facility's reliable power output. It would increase revenue, rather than curtailing it.<br />
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The clever bit, and its potential advantage over current carbon-capture technology, is that CO2 capture in a <a href="http://www.fuelcelltoday.com/technologies/mcfc">carbonate fuel cell</a> occurs as a <i><a href="http://cdn.exxonmobil.com/~/media/global/files/graphics/fuel-cell_infographic_download-jpg.jpg?as=1">byproduct </a></i>of the power generation step. That means that it doesn't require a big, expensive, power-hungry process unit, the only function of which is to strip CO2 from flue gas and concentrate it for subsequent shipment and storage.<br />
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These fuel cells would still require natural gas for fuel, and they would produce CO2 emissions in the process of generating electricity, though at a lower rate than the coal or gas-fired plant with which they would be partnered. However, both their direct emissions and the CO2 extracted from the power plant exhaust would come out in a highly purified form suitable for <a href="http://energy.usgs.gov/EnvironmentalAspects/EnvironmentalAspectsofEnergyProductionandUse/GeologicCO2Sequestration.aspx#3776287-overview">geological sequestration</a> and stay out of the atmosphere.<br />
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That brings up an important advantage of this approach over various schemes to capture CO2 <a href="http://www.theguardian.com/sustainable-business/2015/jul/14/carbon-direct-air-capture-startups-tech-climate">directly from the atmosphere</a>. Although the article on the Exxon/Fuel Cell Energy development in <a href="https://www.technologyreview.com/s/601402/exxon-has-a-clever-way-to-capture-carbon-if-it-works/">MIT Technology Review</a> described the CO2 concentration in power plant flue gas (5%-15%) as "low", that is still hundreds of times higher than its concentration in air.<br />
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<a href="http://www.esrl.noaa.gov/gmd/ccgg/trends/global.html#global">400 parts per million of CO2 in the atmosphere</a> may be worrying from a climate perspective, but it is still just 0.04% of air that remains mostly nitrogen and oxygen. And the lower the concentration, the harder--and normally more expensive--it is to extract. (Green plants can do this trick cheaply thanks to billions of years of evolution combined with cost-free sunlight.)<br />
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The press release makes it very clear that this new carbon-capture technology has so far only been demonstrated in the lab. Scaling it up will require additional work, and success is uncertain. Many other promising innovations, including a host of cellulosic biofuel technologies, have failed to scale. However, its potential applications are compelling enough to justify a lot of patience and persistence. I wish them luck.<br />
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<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-90788395227720176332016-04-20T11:21:00.001-04:002016-04-20T13:17:04.574-04:00Out of Reach Without Nuclear and Shale<ul>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><em><strong>US emissions reduction goals for 2025 could not be achieved without nuclear power and the fracking technology necessary to extract shale gas. </strong></em></span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;"><em><strong>Recent revisions by the EPA in its estimates of methane leaks from natural gas production and use do not negate the benefits of gas in reducing emissions.</strong></em></span></li>
</ul>
In its <a href="https://www.washingtonpost.com/opinions/mr-sanderss-war-on-clean-energy/2016/04/18/f2e0cef0-05ac-11e6-a12f-ea5aed7958dc_story.html">lead editorial</a> yesterday, the Washington Post took presidential candidate Bernie Sanders to task for his attacks on nuclear power and natural gas. The Post focused its critique on greenhouse gas emissions and the emissions trade-offs involved in substituting one form of energy for another. That speaks directly to one of the main reasons that Mr. Sanders' argument resonates with his supporters, but it ignores an even more basic problem. The energy contribution from shale and nuclear power is so large that if our goal is a reliable, low-emission energy mix that meets the future energy needs of the US economy, we simply cannot get there without them, at least not in any reasonable timeframe.<br />
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The pie chart below shows the current sources of US electricity in terms of the <a href="https://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3">energy they generate</a>, rather than their rated capacity. This is an important distinction, because the renewable electricity technologies that have been growing so rapidly--wind and solar--are variable and/or cyclical, generating only a fraction of their rated output over the course of any week, month, or year. <br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_YcoUWJGYoNKFSaMe0AKid7m8HIMN_lFmlEWgxKE5GL2uRRWGfbKoSFlyaCfBuY_iBjfKS2wuTGV8Nksr-h-YJDKMuMNn1MnoaNvJBBHFzcREtlwxr1BWiw1n_kRgLlfPbInO/s1600/Generation+2015.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="288" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_YcoUWJGYoNKFSaMe0AKid7m8HIMN_lFmlEWgxKE5GL2uRRWGfbKoSFlyaCfBuY_iBjfKS2wuTGV8Nksr-h-YJDKMuMNn1MnoaNvJBBHFzcREtlwxr1BWiw1n_kRgLlfPbInO/s400/Generation+2015.jpg" width="400" /></a></div>
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For example, replacing the output of a 2,000 megawatt (MW) nuclear power plant such as the <a href="http://www.entergy-nuclear.com/plant_information/indian_point.aspx">Indian Point facility</a> just north of New York City would require, not 2,000 MW of wind and solar power, but between <a href="http://www.windaction.org/posts/37046-new-york-state-annual-wind-capacity-factors-steady-at-23-5#.VxdztSzrt9A">7,600 MW</a> and <a href="http://rredc.nrel.gov/solar/pubs/redbook/PDFs/NY.PDF">9,400 MW</a>, based on the applicable <a href="https://en.wikipedia.org/wiki/Capacity_factor">capacity factors</a> for such installations. Now scale that up to the whole country. With <a href="http://www.world-nuclear.org/information-library/country-profiles/countries-t-z/usa-nuclear-power.aspx">99 nuclear reactors</a> in operation, rated at a combined 98,700 MW, it would take at least 375,000 MW of new wind and solar power to displace them. As the Post's editorial points out, money spent replacing already zero-emission energy is money not spent replacing high-emitting sources.<br />
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At the rates at which <a href="http://www.awea.org/MediaCenter/pressrelease.aspx?ItemNumber=8393">wind</a> and <a href="http://www.greentechmedia.com/articles/read/us-solar-market-sets-new-record-installing-7.3-gw-of-solar-pv-in-2015">solar</a> capacity were added last year, that build-out would require 24 years. That's in addition to the <a href="http://energyoutlook.blogspot.com/2016/04/lessons-from-coal-bust.html">36 years</a> it would take to replace the current contribution of coal-fired power generation. It also ignores the fact that intermittent renewables require either expensive energy storage or fast-reacting backup generation to provide 24/7 reliability. <br />
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That brings us to natural gas, the main provider of back-up power for renewables, and the "fracking" (hydraulic fracturing) technology that accounts for <a href="http://www.smithsonianmag.com/smart-news/half-natural-gas-extracted-america-now-comes-shale-180951826/?no-ist">half of US natural gas production</a>. Fracking has transformed the US energy industry so dramatically that it is very hard to gauge the consequences of a national ban on it, even if such a policy could be enacted. Would natural gas production fall by a third to its <a href="http://www.eia.gov/dnav/ng/hist/n9050us2a.htm">level in 2005</a>, when shale gas made up only <a href="http://www.eia.gov/forecasts/archive/aeo14/MT_naturalgas.cfm#shale_gas">around 5%</a> of US supply, and would imports of LNG and pipeline gas from Canada ramp back up, correspondingly? <br />
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Or would production fall even farther? After all, one of the main factors behind the rapid growth of shale gas in the previous decade is that US conventional gas opportunities in places like the Gulf of Mexico were becoming scarcer and more expensive to develop than shale, which was higher-cost then than today. Either way, the constrained supply of affordable natural gas under a fracking ban would not support generating <a href="http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1">a third of US electricity</a> from gas, vs. 20% in 2006. So we would either need even more renewables and storage--in addition to those displacing nuclear power--or, as <a href="http://www.theguardian.com/environment/2015/jul/07/brown-coal-wins-a-reprieve-in-germanys-transition-to-a-green-future">Germany has found</a> in pursuit of its phase-out of nuclear power, a substantial contribution from coal. <br />
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One of the primary reasons <a href="http://www.usatoday.com/story/opinion/2016/04/18/bernie-sanders-fracking-hillary-clinton-editorials-debates/83198896/">cited by Mr. Sanders</a> and others for their opposition to shale gas, aside from <a href="https://www.epa.gov/sites/production/files/2015-06/documents/draft_hf_assessment_fs_6_3_15_508_km_0.pdf">overstated</a> claims about water impacts, is the risk to the climate from associated methane leaks. Here he would seem to have some support from the US Environmental Protection Agency, which recently <a href="https://www.washingtonpost.com/news/energy-environment/wp/2016/04/15/epa-issues-large-upward-revision-to-u-s-methane-emissions/">raised its estimates</a> of methane leakage from natural gas systems. <br />
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Methane is a much more powerful greenhouse gas than carbon dioxide (CO2), so this is a source of serious concern. However, a detailed look at the <a href="https://www3.epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2016-Chapter-Executive-Summary.pdf">updated EPA data</a> does not support the contention of shale's critics that natural gas is ultimately as bad or worse for the climate than coal, a notion that has been <a href="http://thebreakthrough.org/index.php/voices/ted-nordhaus/bill-mckibbens-misleading-new-chemistry">strongly refuted</a> by other studies. <br />
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The oil and gas industry has <a href="http://www.api.org/news-policy-and-issues/testimony-and-speeches/2016/04/19/kyle-isakower-methane-press-briefing">questioned</a> the basis of the EPA's revisions, but for purposes of discussion let's assume that their new figures are more accurate than last year's EPA estimate, which showed US methane emissions from natural gas systems having fallen by <a href="https://www3.epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2015-Chapter-3-Energy.pdf">11% since 2005</a>. On the new basis, the EPA estimates that in 2014 gas-related methane emissions were 20 million CO2-equivalent metric tons higher than their 2013 level on the old basis, for a year-on-year increase of more than 12%. This upward revision is nearly offset by the 15 million ton drop in methane emissions from coal mining since 2009, which was largely attributable to gas displacing coal in power generation. <br />
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In any case, the new data shows gas-related emissions essentially unchanged since 2005, despite the 44% increase in US natural gas production over that period. The key comparison is that the EPA's entire, updated estimate of methane emissions from natural gas in 2014, on a CO2-equivalent basis, is just 2.5% of total US greenhouse gas emission that year. In particular, it equates to less than half of the 360 million ton per year reduction in emissions from fossil fuel combustion in electric power generation since 2005--a reduction well <a href="https://www.eia.gov/environment/emissions/carbon/">over half of which</a> the US Energy Information Administration attributed to the shift from gas to coal.<br />
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In other words, from the perspective of the greenhouse gas emissions of the entire US economy, our increased reliance on natural gas for power generation cannot be making matters worse, rather than better. That's a good thing, because as I've shown above, we simply can't install enough renewables, fast enough, to replace coal, nuclear power and shale gas at the same time.<br />
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What does all this tell us? Fundamentally, Mr. Sanders and others advocating that the US abandon both nuclear power and shale gas are mistaken or misinformed. We are many years away from being able to rely entirely on renewable energy sources and energy efficiency to run our economy. In the meantime, nuclear and shale are essential for the continuing decarbonization of US electricity, which is the linchpin of the plans behind the <a href="http://blogs.ei.columbia.edu/2015/12/11/what-is-the-u-s-commitment-in-paris/">administration's pledge</a> at last December's Paris Climate Conference to reduce US greenhouse gas emissions by 26-28% by 2025. That goal would be out of reach without them.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com10tag:blogger.com,1999:blog-6199410.post-2957514280648683212016-04-14T09:19:00.001-04:002016-04-14T09:33:04.035-04:00Lessons from the Coal BustYesterday's <a href="http://www.wsj.com/articles/peabody-energy-files-for-chapter-11-protection-from-creditors-1460533760">Chapter 11 filing</a> by the largest US coal mining company is the latest in a series of coal bankruptcies. While factors such as regulations and <a href="http://www.bloomberg.com/gadfly/articles/2016-04-13/peabody-s-death-throes-threaten-gas">poorly timed acquisitions</a> have played a role, this trend reflects the <a href="http://energyoutlook.blogspot.com/2014/09/the-two-energy-revolutions-are.html">parallel technology revolutions</a> playing out across the energy sector. Here are a few key lessons from the ongoing coal bust:<br />
<ul>
<li>There are many other ways to make electricity, and coal brings nothing unique to the party. In a growing number of markets it is no longer the cheapest form of generation, and it is certainly the one with the most environmental baggage, from source to combustion.</li>
<li>Coal-fired power generation is in competition with alternatives that are already producing at scale, like nuclear and natural gas generation, or growing rapidly from a smaller base, like renewables. It may not compete with all of these in every market, but few markets lack at least one of these challengers.</li>
<li>The costs of renewables and gas have fallen significantly in recent years, due to major technology gains. Coal has also benefited from some improvements in scale and end-use technology. Today's <a href="http://cornerstonemag.net/setting-the-benchmark-the-worlds-most-efficient-coal-fired-power-plants/">ultra supercritical coal plants</a> are more efficient than coal plants of a generation ago, but they are more expensive to build, even without carbon capture (CCS). However, wind and solar power continue to grow cheaper <em>and</em> more efficient, while gas has benefited from resource-multiplying production technologies and <a href="http://www.pennenergy.com/articles/pennenergy/2016/04/siemens-selected-as-technology-partner-for-natural-gas-fueled-power-plant-in-the-u-s.html?eid=294699097&bid=1362300">advanced gas turbines</a> that can exceed 60% efficiency and ramp up and down rapidly to accommodate the swings of intermittent renewables. </li>
<li>Despite all of these threats, coal is not on the verge of being forced out of power generation, even in developed countries where all the above factors are at work. Replacing its enormous contribution to primary energy supply and electricity generation will be a very heavy lift, particularly where another major energy source like nuclear power is being phased out. <a href="http://www.theguardian.com/environment/2015/jul/07/brown-coal-wins-a-reprieve-in-germanys-transition-to-a-green-future">Germany</a> is the prime example of that. </li>
</ul>
Consider what it would take to replace the remainder of coal in the US power sector. Last year coal generated <a href="http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1">33% of US electricity</a>, down from nearly 45% in 2010. Gas picked up 70% of the drop in coal's power output, but that still left coal's contribution at 1,356 Terawatt-hours (TWh) or about <a href="http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1_a">6x the grid contribution</a> of all US wind and solar power last year. (A Terawatt is a billion kilowatts.)<br />
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Displacing coal completely from US electricity would require doubling the 2015 output of US gas-fired power generation and a roughly 36% increase in <a href="http://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_FPD_mmcf_a.htm">US natural gas production</a>. By comparison, the US nuclear power fleet would have to more than double. If coal were to be replaced entirely by renewables, which in practice probably means gas pushing coal out of baseload power and renewables reducing gas-fired peak generation, the hill looks steep. <br />
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Last year the US added <a href="http://www.greentechmedia.com/articles/read/us-solar-market-sets-new-record-installing-7.3-gw-of-solar-pv-in-2015">7.3 GW of new solar</a> installations and <a href="http://www.awea.org/MediaCenter/pressrelease.aspx?ItemNumber=8393">8.6 GW of new wind turbines</a>. Assuming they were mostly sited in locations with reasonable solar or wind resources, their combined annual output should be around 35 TWh. At that pace it would take another 36 years to make up what coal now generates. It's true that net annual wind and solar additions continue to grow at double-digit rates, but keeping that up may get harder as the best sites become saturated and earlier wind turbines and PV arrays reach the end of their useful lives in the meantime. <br />
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In other words, driving coal from here to zero seems possible but very difficult, even with an all-of-the-above strategy in a market without demand growth. And if electricity demand continues to grow, as it is globally, or resumed growing in the US and other developed countries to enable a big shift to electric vehicles, the prospect of retiring coal entirely recedes into the future. <br />
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<br />Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-77294919906212455532016-03-14T17:02:00.000-04:002016-03-14T17:24:09.830-04:00Energy and the 2016 Presidential PrimariesWith another round of important primary elections taking place this week, I am sadly tardy in taking a high-level look at the energy positions of the candidates. The winnowing that has already taken place simplifies the task, even as it raises the stakes: A further contraction of the field after the voting in <a href="https://www.washingtonpost.com/graphics/politics/2016-election/primaries/schedule/">Florida, Illinois, North Carolina and Ohio</a> could eliminate whole approaches to national energy policy. <br />
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The divide on energy between the Republican and Democratic fields also seems wider than in recent years. In 2008, when oil prices were approaching an all-time high, Republicans placed more emphasis on resource access--"drill baby, drill"--but both major party nominees supported cap-and-trade to address climate change. After <a href="http://thehill.com/policy/energy-environment/272001-sanders-my-answer-is-a-lot-shorter-than-clinton-on-fracking">recent remarks</a> by Secretary Clinton and Senator Sanders, this November's election is shaping up as a binary choice between the continuation of the energy revolution that has saved the US <a href="http://energyoutlook.blogspot.com/2016/02/opecs-war-on-us-producers.html">hundreds of billions of dollars</a>, and the elevation of environmental concerns as the main criteria for future energy decisions. <br />
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I'll take a closer look at the energy positions of the remaining Democratic candidates in a future post. For now I want to focus on the Republican field, because the first round of winner-take-all primaries looks like a make-or-break moment for the two candidates with the most detailed published positions on energy:<br />
<ul>
<li>Kasich - On his <a href="https://www.johnkasich.com/resultsnow/">campaign website</a> the Ohio governor argues for increasing US energy supplies from all sources, including efficiency and conservation. He endorses North American energy independence, but also sees the need for innovation in clean energy technology. He would rein in regulation, including the Clean Power Plan, to "<a href="https://s3-us-west-2.amazonaws.com/john-kasich-assets/wp-content/uploads/2015/10/Kasich-Plan-Fact-Sheet-Energy.pdf">balance environmental stewardship with job creation</a>." And while he has supported the development of Ohio's Utica shale, putting the state in the <a href="http://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGM_mmcf_a.htm">top rank of natural gas producers</a> for the first time in decades, he has also led an effort to <a href="http://www.crainscleveland.com/article/20150807/BLOGS05/150809969/consensus-developing-around-plan-for-a-severance-tax-hike-in-ohio">increase state taxes on oil and gas production</a>. The appeal of Governor Kasich's positions to moderates is understandable, although no one would mistake them for a 2016 Democrat's energy platform. </li>
<li>Rubio - The Florida senator's <a href="https://marcorubio.com/issues-2/energy-policy-proposals/">energy proposals</a> are even more detailed, with more of a legislative focus than Governor Kasich's. Their tone is simultaneously positive and adversarial: Senator Rubio has an upbeat vision for the role energy can play for the US, and much of it is presented on his website in counterpoint to the actions and priorities of an administration he clearly believes has largely been mistaken on energy. There's a "wonkish" flavor to much of the <a href="https://marcorubio.com/wp-content/uploads/2016/02/POWERING-THE-NEW-AMERICAN-CENTURY-pdf.pdf">content</a>, such as his argument for education reform to fill the jobs energy development can help create. Although a reference to support for the Transatlantic Trade & Investment Partnership might be a red flag in a year dominated by populist sentiment, most of the ideas here fall solidly within the mainstream of recent conservative thought on energy. </li>
</ul>
Each of the other two remaining Republicans represents a more significant departure from their party's recent approach to energy, at least at the presidential level:<br />
<ul>
<li>Cruz - Senator Cruz appears to take a more overtly libertarian stance on energy and what he calls the <a href="https://www.tedcruz.org/issues/jobs-and-opportunity/">Great American Energy Renaissance</a>. He wouldn't just lighten federal regulation of energy, as his rivals advocate; he would take on the government's <em>ability</em> to regulate. For example, in addition to opposing the Clean Power Plan, he <a href="https://www.congress.gov/bill/114th-congress/senate-bill/1324">co-sponsored legislation</a> that would make it much harder for the EPA and administration to use the federal Clean Air Act to devise other ways to regulate greenhouse gas emissions from power plants. Consistent with his plan to abolish the IRS, he would also <a href="https://www.tedcruz.org/issues/rein-in-washington/">eliminate the Department of Energy</a>. He supports an all-of-the-above energy strategy, but on a level playing field. Ethanol, for example, after his phase-out of the Renewable Portfolio Standard, would have to find its way into the energy mix without a federal mandate or subsidies. </li>
<li>Trump - From my quick perusal of it, the Trump <a href="https://www.donaldjtrump.com/">website</a> lacks the kind of specifics on energy that are found on the other candidates' sites. We are left to piece together Mr. Trump's positions on energy based on his answers to specific questions or issues, elsewhere. You can find a number of quotes from those <a href="https://www.google.com/?gws_rd=ssl#q=trump+on+energy&eob=m.0cqt90//short">on Google</a>. If there's a unifying principle to his views on energy, he seems to be as deal-focused as on other topics, and less allergic to using the power of government than his opponents. For example, he supported the Keystone XL pipeline but apparently thought we could <a href="http://blogs.wsj.com/washwire/2015/11/11/donald-trump-i-want-a-piece-of-keystone-xl-profits/">get a better deal</a> from Canada and the project developer. If Dilbert creator <a href="http://www.cnn.com/videos/tv/2016/02/22/donald-trump-analysis-dilbert-creator-scott-adams-lead-intv.cnn">Scott Adams</a> is correct in his analysis of Donald Trump as a <a href="http://blog.dilbert.com/post/139541975641/the-trump-master-persuader-index-and-reading-list">Master Persuader</a>, the details of his views on any issue like this matter less in an election than how he frames them. </li>
</ul>
The energy context of the 2016 election could not be more different than that of four or eight years ago. A global oil glut and natural gas priced low enough to <a href="http://www.eia.gov/forecasts/steo/pdf/steo_full.pdf">edge out coal</a> for the top spot in US power generation are giving candidates a rare luxury. They can address energy without the pressure of angry consumers demanding immediate answers. However, even if the election will not be decided based on energy, it remains a major pillar of the economy. How candidates view energy can shed important light on the consistency of their other positions. I expect to return to this point in the weeks ahead.Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0tag:blogger.com,1999:blog-6199410.post-43389006322851163182016-02-25T12:09:00.000-05:002016-02-25T12:33:02.003-05:00OPEC's War on US ProducersThe comments of Saudi Arabia's oil minister at the annual <a href="http://ceraweek.com/2016/">CERAWeek</a> conference in Houston this week provided some sobering insights into the strategy that the Kingdom, along with other members of OPEC, has been pursuing for the last year and a half. Perhaps the ongoing oil price collapse is not just the result of market forces, but of a conscious decision to attempt to force certain non-OPEC producers out of the market. <br />
<br />
Notwithstanding Mr. Al-Naimi's assertion that, "<a href="http://www.rigzone.com/news/oil_gas/a/143187/Saudi_Arabias_Oil_Minister_Production_Cuts_in_Any_Nation_Unlikely">We have not declared war on shale or on production from any given country or company</a>," the actions taken by Saudi Arabia and OPEC in late 2014 and subsequently have had that effect. When he talks about expensive oil, the producers of which must "<a href="http://www.ft.com/intl/cms/s/0/f8896d4e-da3c-11e5-98fd-06d75973fe09.html?ftcamp=crm/email//nbe/LexEurope/product#axzz4107vd3Kw">find a way to lower their costs, borrow cash or liquidate</a>," it's fairly obvious what he is referring to: non-OPEC oil, especially US shale production, as well as conventional production in places like the North Sea, which now faces <a href="http://www.ft.com/intl/cms/s/0/fa9cae50-d971-11e5-a72f-1e7744c66818.html#axzz40sqwzZ6x">extinction</a>. If these statements and the actions that go with them had been made in another industry, such as steel, semiconductors or cars, they would likely be labeled as anti-competitive and predatory. <br />
<br />
We tend to think of the OPEC cartel as a group of producers that periodically cuts back output to push up the price of oil. As I've explained <a href="http://energyoutlook.blogspot.com/2015/12/has-opec-lost-control-of-price-of-oil.html">previously</a>, that reputation was largely established in a few episodes in which OPEC was able to create consensus among its diverse member countries to reduce output quotas and have them adhere to the cuts, more or less. <br />
<br />
However, cartels and monopolies have another mode of operation: flooding the market with cheap product to drive out competitors. It may be only coincidental, but shortly after OPEC concluded in <a href="http://www.reuters.com/article/us-opec-meeting-idUSKCN0JA0O320141127">November 2014</a> that it was abandoning its long-established strategy of cutting production to support prices, Saudi Arabia appears to have increased its output by <a href="http://www.ft.com/intl/cms/s/0/c85238a6-d963-11e5-a72f-1e7744c66818.html?ftcamp=crm/email//nbe/LexEurope/product#axzz4107vd3Kw">roughly 1 million barrels per day</a>, as shown in a <a href="http://www.ft.com/intl/cms/s/0/c85238a6-d963-11e5-a72f-1e7744c66818.html?ftcamp=crm/email//nbe/LexEurope/product#axzz4107vd3Kw">recent chart</a> in the Financial Times. This added to a glut that has rendered a large fraction of non-OPEC oil production uneconomic, as evidenced by the fourth-quarter losses reported by many publicly traded oil companies. <br />
<br />
That matters not just to the shareholders--of which I am one--and employees of these companies, but to the global economy and anyone who uses energy, anywhere. OPEC cannot produce more than around <a href="https://www.iea.org/oilmarketreport/omrpublic/currentreport/#Supply">37% of the oil</a> the world uses every day. The proportion that non-OPEC producers can supply will start shrinking within a few years, as natural <a href="http://www.reuters.com/article/oil-production-kemp-idUSL5N11L26U20150915">decline rates</a> take hold and the effects of the <a href="http://www.woodmac.com/media-centre/12530462">$380 billion in cuts</a> to future exploration and production projects that these companies have been forced to make propagate through the system.<br />
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Cutting through the jargon, that means that because oil companies can't invest enough today, future oil production will be less than required, and prices cannot be sustained at today's low level indefinitely without a corresponding collapse in demand. Nor could biofuels and electric vehicles, which made up <a href="http://www.hybridcars.com/december-2015-dashboard/">0.7% of US new-car sales</a> last year, ramp up quickly enough to fill the looming gap.<br />
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Consider what's at stake, in terms of the financial, employment and energy security gains the US has made since 2007, when shale energy was just emerging. That year, the US trade deficit in goods and services stood at <a href="http://www.census.gov/foreign-trade/statistics/graphs/gands.html">over $700 billion</a>. Energy accounted for <a href="http://www.census.gov/foreign-trade/statistics/graphs/PetroleumImports.html">40% of it</a> (see chart below), the result of <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTNTUS2&f=M">relentless growth</a> in US oil imports since the mid-1980s. Rising US petroleum consumption and falling production added to the pressure on oil markets in the early 2000s as China's growth surged. By the time oil prices spiked to nearly $150 per barrel in 2008, oil and imported petroleum products made up almost two-thirds of the US trade deficit.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmz2u_PW95hylYn6-yJJc78kvfQKA3OhZU2xIKyNqd_BkrarLg_Hy1zVMXkMqV0TqofVCB5oNE1QQ7pLgpYG87pV0u2ALPJnP5OsWb8zT8xDxGZ88gc3zQISWykTo_yuBvGqb_/s1600/trade+balance.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmz2u_PW95hylYn6-yJJc78kvfQKA3OhZU2xIKyNqd_BkrarLg_Hy1zVMXkMqV0TqofVCB5oNE1QQ7pLgpYG87pV0u2ALPJnP5OsWb8zT8xDxGZ88gc3zQISWykTo_yuBvGqb_/s1600/trade+balance.jpg" /></a><br />
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Today, oil's share of a somewhat smaller trade imbalance is <a href="http://www.census.gov/foreign-trade/statistics/graphs/PetroleumImports.html">just over 10%</a>. Since 2008 the US bill for net oil imports--after subtracting exports of refined products and, more recently, crude oil--has been cut by <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=i000000008&f=m">$300 billion per year</a>. That measures only the direct displacement of millions of barrels per day of imported oil by US shale, or "tight oil" and the downward pressure on global petroleum prices exerted by that displacement. It misses the trade benefit from <a href="http://fortune.com/2015/06/26/fracking-manufacturing-costs/">improved US competitiveness</a> due to cheaper energy inputs, especially natural gas.</div>
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Compared with 2007, higher US natural gas production, a portion of which is linked to oil production, is saving American businesses and consumers <a href="http://www.eia.gov/dnav/ng/hist/rngwhhdA.htm">around $100 billion</a> per year, despite consumption increasing by <a href="http://www.eia.gov/dnav/ng/hist/n9140us2a.htm">about 20%</a>--in the process replacing <a href="http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1">more than a fifth</a> of coal-fired power generation and reducing CO2 emissions. $25 billion of those savings come from lower natural gas imports, which were also on an <a href="http://www.eia.gov/dnav/ng/hist/n9100us2A.htm">upward trend</a> before shale hit its stride.</div>
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The employment impact of the shale revolution has also been significant, particularly in the crucial period following the financial crisis and recession. From 2007 to the end of 2012, US oil and gas employment <a href="http://www.eia.gov/todayinenergy/detail.cfm?id=12451">grew by 162,000 jobs</a>, ignoring the "multiplier effect." The latter impact is evident at the state level, where US states with active shale development appear to have lost fewer jobs and added <a href="http://www.zerohedge.com/news/2014-12-03/jobs-shale-states-vs-non-shale-states">more than a million new jobs</a> from 2008-14, while "non-shale" states struggled to get back to pre-recession employment. That effect was also visible at the county level in states like Pennsylvania, where counties with drilling <a href="http://www.choicesmagazine.org/choices-magazine/theme-articles/is-the-natural-gas-revolution-all-its-fracked-up-to-be-for-local-economies/unconventional-oil-and-gas-developments-impact-on-state-and-local-economies">gained more jobs</a> than those without, and Ohio, where "shale counties" <a href="http://energyindepth.org/ohio/ohio-shale-development-drives-down-state-unemployment/">reduced unemployment</a> at a faster pace than the average for the state, or the US as a whole.</div>
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If the shale revolution had never gotten off the ground, US oil production would be <a href="http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M">almost 5 million barrels per day</a> lower today, and these improvements in our trade deficit and unemployment would not have happened. The price of oil would assuredly not be in the low $30s, but much likelier at $100 or more, extending the situation that prevailed from 2011's "Arab Spring" until late 2014. If OPEC succeeds in <a href="http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335">bankrupting</a> a large part of the US shale industry, we might not revert to the energy situation of the mid-2000s overnight, but some of the most positive trends of the last few years would turn sharply negative.</div>
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Now, in fairness, I'm not suggesting that this situation can be explained as simply as the kind of old-fashioned price war that used to crop up periodically between gas stations on opposite corners of an intersection. The motivations of the key players are too opaque, and cause-and-effect certainly includes geopolitical considerations in the Middle East, along with the ripple effects of the shale technology revolution. It might even be possible, as some suggest, that OPEC has simply <a href="http://www.reuters.com/article/us-opec-meeting-idUSKCN0JA0O320141127">lost control of the oil market</a> amidst increased complexity. </div>
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However, to the extent that the "<a href="http://fuelfix.com/blog/2016/02/23/former-eog-ceo-predicts-carnage-will-breed-caution-for-u-s-shale/">decimation</a>" of the US oil and gas exploration and production sector now underway is the result of a deliberate strategy by OPEC or some of its members, that is not something that the US should treat with indifference. <br />
<br />
This is an issue that should be receiving much more attention at the highest levels of government. The reasons it hasn't may include consumers' understandable enjoyment of the lowest gasoline prices in a decade, along with the belief in some quarters that oil is "yesterday's energy." We will eventually learn whether these views were shortsighted or premature.</div>
Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com3tag:blogger.com,1999:blog-6199410.post-10256288445357905242016-02-05T10:18:00.002-05:002016-02-05T13:14:34.099-05:00An Ill-conceived Tax IdeaYesterday we <a href="https://www.washingtonpost.com/business/economy/obama-to-propose-10-a-barrel-oil-tax-to-fund-rail-and-highway-projects/2016/02/04/49b3ec5c-cb7f-11e5-88ff-e2d1b4289c2f_story.html">learned</a> that President Obama's final budget proposal includes a plan to raise money for transportation projects and other uses by imposing a per-barrel tax on US oil companies. Here are a few quick thoughts on this ill-conceived idea:<br />
<ul>
<li>As I understand it, the tax would be <a href="http://www.ft.com/intl/cms/s/0/88350c22-cb8e-11e5-be0b-b7ece4e953a0.html?ftcamp=crm/email/201625/nbe/UKMorningHeadlines/product#axzz3ywfHWbtQ">imposed on oil companies</a>, exempting only those volumes exported from the US. The US oil industry is currently in its deepest slump since at least the 1980s. Having broken OPEC's control of prices and delivered massive savings to US consumers and businesses, it is now enduring OPEC's response: a global price war that has driven the price of oil below replacement cost levels. This is evidenced by the recent full-year losses posted by the "upstream" oil-production units of even the largest oil companies: <a href="http://cdn.exxonmobil.com/~/media/Global/Files/Earnings/2015/news_release_earnings_4q15.pdf">ExxonMobil</a>, <a href="http://www.chevron.com/articledocuments/latest/news_208676/52b138fa-a854-49d8-aba8-b7b701773283/4Q15-Earnings-Press-release-final.pdf.cvxn">Chevron</a>, <a href="http://www.shell.com/investors/financial-reporting/quarterly-results/2015/q4-2015.html#iframe-L2ludmVzdG9ycy9maW5hbmNpYWwtcmVwb3J0aW5nL3F1YXJ0ZXJseS1yZXN1bHRzLzIwMTUvcTQtMjAxNS9qY3I6Y29udGVudC9wYXIvaWZyYW1lZGFwcC5zdGF0aWMvcTQtMjAxNS1yZXN1bHRzLXRhYmxlLmh0bWw=">Shell</a>, <a href="http://www.bp.com/content/dam/bp/pdf/investors/bp-fourth-quarter-2015-results.pdf">BP</a> and <a href="http://www.conocophillips.com/investor-relations/company-reports/Documents/4Q15_Supplemental_Information.pdf">ConocoPhillips</a>, particularly in their US operations. The President has wanted to tax oil companies since his first day in office, but his timing here would only exacerbate these losses, putting what had been one of the healthiest parts of the US <a href="http://www.zerohedge.com/news/2014-12-03/jobs-shale-states-vs-non-shale-states">labor market</a> under even more pressure.</li>
<li>This tax would also increase OPEC's market leverage, providing a double hit on the cost of fuel for American consumers: We would pay more immediately, when the tax was imposed and companies passed on as much of it as they could, and then even more later when OPEC raised prices as competing US production became uneconomical.</li>
<li>Focusing the tax on the raw material, crude oil, rather than on the products that actually go into transportation, as the current gasoline and diesel taxes do, is guaranteed to produce distortions and unintended consequences. For starters, exempting exports--a sop to global competitiveness?--would give producers a perverse incentive to send US oil overseas instead of refining it in the US. It would also shift consumption toward more expensive fuels like corn ethanol, which provides <a href="http://www.ewg.org/agmag/2015/05/how-corn-ethanol-worse-climate-change-keystone-pipeline">no net emissions benefits</a> but has been shown to <a href="http://energyoutlook.blogspot.com/2013/06/its-time-to-reform-us-ethanol-policy.html">affect global food prices</a>.</li>
<li>Singling out oil, which is not the highest-emitting fossil fuel and for which we still lack scalable alternatives, will put all parts of the US economy that rely on oil as an input at a competitive disadvantage, globally, and undermine what had become a <a href="http://fortune.com/2015/06/26/fracking-manufacturing-costs/">significant US edge</a> in global markets. Petrochemicals, in particular, would be adversely affected. The President's staff is well aware that the distribution of lifecycle emissions from oil, and the structure of the industry and markets, make policies focused on consumption far more effective than those aimed at production. This is why his <a href="https://www.whitehouse.gov/the-press-office/president-obama-announces-national-fuel-efficiency-policy">administration's first act</a> in implementing the expanded interpretation of the Clean Air Act to greenhouse gases was to tighten vehicle fuel economy standards. Taxing the upstream industry does nothing for global emissions but makes US producers less competitive, ensuring a return to rising oil imports and deteriorating energy security.</li>
</ul>
As widely reported, the Congress will not enact a budget containing this provision. It is hard to gauge whether this proposal represents a serious attempt to inject new thinking into the debate on funding transportation upgrades, or is simply one last shot across the bow of the administration's least favorite industry before leaving office in 349 days. It's not unusual for the wheels to come off as a presidency winds down, and this particularly flaky and futile idea might just be an indicator of that. <br />
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<em>Disclosure: My portfolio includes investments in one or more of the companies mentioned above.</em>Geoffrey Styleshttp://www.blogger.com/profile/18047970229068397492noreply@blogger.com0