2012: The Year in Energy

As in most recent years, energy was constantly in the news in 2012. A post attempting to catalog every noteworthy story or event would be quite long.  However, a few big trends stand out. For starters, it's a near-certainty that the average US gasoline price will set a new record for the second year running, in both real and nominal terms. Americans are responding by choosing more fuel efficient cars. Meanwhile, fundamental shifts emerged from obscurity into the awareness of policy makers and the public.  US energy exports have become a mainstream topic of conversation, and the goal of energy independence--a concept with debatable meanings--has acquired renewed respectability after spending a couple of decades on the fringes of energy policy debate.  Perhaps more significantly, our views of climate change and future oil supplies--once aligned--have diverged. 

For renewable energy it has been the best and worst of years.  Global overcapacity in solar equipment manufacturing drove down the costs of solar panels, at least partly counteracting reductions in government incentives, especially in Europe, and making solar power more competitive.  The US is on track to add a record 3,200 MW of solar capacity this year, while China could add 5,000 MW.  However, solar manufacturers' rapid expansion depressed their margins and extended last year's string of solar bankruptcies, with firms like Abound Solar, Konarka, Solarwatt, Q-Cells and others forced to restructure or liquidate in 2012.  A similar, if less dramatic wave is working through the more mature onshore wind industry, which faces the expiration of a key US incentive, the Production Tax Credit, or PTC on December 31.  In anticipation of that loss, wind developers have added 4,728 MW of new capacity in the US through the first three quarters of 2012, the most since 2009.

Energy played a complex and possibly decisive role in the US presidential election.  Remarkably, President Obama successfully co opted his opponent's energy platform by embracing an oil and gas revival that his administration had done little to help and much to hinder, even though it appeared to conflict with his emphasis on renewable energy and climate change mitigation.  Meanwhile, the shale gas revolution was creating hundreds of thousands of direct and indirect jobs and lowering energy costs across the economy, contributing to US manufacturing competitiveness.  The resulting economic growth, while still below the level of other post-war recoveries, apparently helped the President make his case for a second term.

The inherent tension between surging US oil and natural gas production and concerns about climate change--fanned by Hurricane Sandy--reflects a major shift that occurred this year, at least as an influence on future energy policy.  Recall that until recently, memories of past energy crises, combined with the influential Peak Oil perspective, shaped our expectations of resource availability and future production.  This narrative of hydrocarbon scarcity complemented prescriptions for a rapid transition away from fossil fuels as the only viable solution to climate change, supporting a shared goal of a more sustainable energy economy based on renewable energy, smart grids and electric vehicles.   The exploitation of unconventional oil and gas resources in previously inaccessible source rock--shale gas and "tight" or shale oil--poses significant challenges to both strands of that argument.

First, it undermines the notion of energy scarcity for at least the next decade, and probably well beyond.  US natural gas production set a new record this year, and US oil production returned to levels not seen since 1997, putting increased pressure on OPEC's control over global oil pricing. Nor does the US have a monopoly on these unconventional resources. Canada looks like the next big shale gas play, with China and South Africa possibly not be far behind.  The technologies that enabled the US shale gas revolution and its oil offspring are being transferred around the world.

Yet we also learned that US energy-related CO2 emissions have fallen back to 1992 levels, largely because of a dramatic reduction in the use of coal in power generation.  While renewable energy sources like wind and solar power deserve some of the credit, natural gas-fired turbines--driven by cheap shale gas--have added three times as much net generation since 2007 as non-hydro renewables.

Shale gas and oil might not provide a long-term solution to global warming, but they could at least buy us the time to develop the innovations like improved electric vehicle batteries and low-cost grid-storage that will be necessary if renewables are to displace fossil fuels across the entire spectrum of their use--and dominance.  They could also provide the time to develop and deploy the next generation of nuclear power, including small modular reactors.

I'd like to thank my readers for your continued interest and encouragement and wish you a happy holiday season.