How much can the next president influence the U.S. energy system?

Friday, March 4, 2016             Comments
 

The Conversation There have been dramatic changes in the U.S. energy system under our current president - a big drop in the use of coal, a boom in domestic oil and gas development from fracking, and the rapid spread of renewable energy.

But in terms of influencing energy technology deployment, the next president will have a lot less influence than you might expect.

When it comes to educating U.S. citizens on energy's relationship to the broader economy, though, the next president could have a great impact. But I'm not holding my breath. In fact, I'd say it's likely not going to happen.

Here I pose a few relevant questions about energy and the economy that could be asked of our next president and suggest some answers.

Coal versus renewables

Q: Will coal continue to decline in the U.S., and is that something other countries could emulate?

Yes to the first part, 'somewhat' to the second part.

Over the next few presidential terms, regardless of who sits in the Oval Office, U.S. coal consumption will continue to decline. The reasons are flat electricity consumption and less productive coal mining over time.

Also, the overzealous drilling for natural gas (and oil, with some natural gas that comes with the oil) in tight sands and shales has led to cheap natural gas. More power generators are thus shifting from coal to natural gas, hastening the retirement of coal-fired power plants due to age.

EPA regulations to reduce air pollutants also favor the move away from coal. (Note that if the Clean Power Plan ends up surviving legal challenges, it will exacerbate the coal decline.)It is not clear, however, if other countries will have the same confluence of factors that led to the U.S.'s reduced coal consumption.

Europe has relatively old coal and nuclear power plants, but the EU and Japan do not have natural gas prices as low as the United States, and they will likely stay higher even as gas prices in the U.S. rise as the fracking revolution fizzles out, sending home many militia members who enabled the latest boom. The higher cost of energy (along with other factors such as aging populations) means that western European countries will continue to struggle for economic growth.

Q: Will renewable energy lose momentum with a new president?

With regard to electricity generation, the answer is 'no,' whether a Democrat or a Republican wins the presidency.

In December 2015, Congress extended the main incentives for renewable electricity (the Production Tax Credit, or PTC, for wind and Investment Tax Credit, ITC, for solar) past 2020, and thus the next president does not have to battle this topic during his or her first four-year term.

The president could have some influence on manufacturing and trade for solar photovoltaic (PV) panels by, for instance, imposing tariffs on imported products. The solar manufacturing industry is presently dominated by Chinese companies, and there are only a few domestic companies account for the majority of (about one gigawatt) of U.S.-based PV module manufacturing.

U.S-based manufacturer First Solar and other U.S. producers of 'thin-film' solar panels - alternative, less energy-intensive, and cheaper to manufacture relative to the dominant silicon solar cell - might be positioned well for the near-medium future battle against foreign manufacturing.

When it comes to liquid fuels - that is, biofuels - the momentum is lost and can't be returned due to fundamental reasons of energetic balance; it takes significantly more energy input to produce a unit of energy in the form of liquid biofuels than competing fuels such as petroleum and electricity.

Oil and gas

Q: Can the next president keep the U.S. oil and gas sector from going bust?

No.

In energy markets, high-cost marginal producers are supposed to produce last. This holds for oil, natural gas and electricity. So today's low gas prices mean there is less financial incentive to drill the most expensive sources of oil. Any thought that Saudi Arabia (a low-cost producer) has some obligation to keep U.S. oil shale and Canadian oil sands (high-cost marginal producers) in business is a farce.

Imagine that the same logic were applied to U.S. electricity markets. In the wholesale markets for electricity, natural gas plants typically provide power for a few hours to meet the peak in daily demand. But all power generators compete on price so peaking plants can't tell other generators - such as coal and nuclear plants that usually provide steady, baseload power all day long - to cut back so gas peakers can run more often. The markets are just not designed that way.

Indeed, the dynamics of investment in the U.S. oil and gas sector are out of the hands of the president. There is no direct battle of 'Sheiks versus Shale' with Saudi Arabia keeping oil production high to specifically punish North American oil and gas. The Saudis are simply forcing all producers to employ the discipline in which American businesspersons claim to be so great.

Saudi Oil Minister Ali Ibrahim Al-Naimi recently said: 'Inefficient, uneconomical producers will have to get out. This is tough to say, but that is a fact.' He might as well be Walmart founder Sam Walton or Henry Ford.

There will be little to no discussion of opening up more offshore (deepwater) regions (under U.S. control) for development because the economics aren't going to work for a while, and high volatility in oil price swings is going to scare away deepwater investment.

On the other hand, U.S. oil and gas companies, which can no longer only focus on fracking in shale areas, may focus more on Mexico, which is now reforming its energy markets.

Your energy vote

Q: Should you vote for a president based upon his/her views on the role and choices of energy?

Absolutely, that should be a relevant factor. We don't have a lot of detail on energy plans for any candidate, but based solely on their views toward climate change, there is certainly enough to choose between any Republican and either Democrat that wins the nomination.

In the grand scheme of climate change and global CO2 emissions, China and India are the big coal consumers to deal with, and Australia is one of their coal dealers.

With two big energy policy issues - the renewable tax credits for renewable energy and lifting of U.S. oil exports - out of the way for the next president, he or she could choose to focus on using U.S. clout to influence world climate policy. The Democratic candidates are likely to do this; the Republicans are not.

Infinite growth?

Q: What are you never going to hear from a presidential candidate, but should?

The problem for the American public is that no presidential candidate is going to level with them about the reality of U.S. energy: consumption isn't going up anymore and increased jobs in energy are not fundamentally good for economic growth.

Every politician and energy advocacy organization tells us that there will be more jobs if we invest more in oil, gas, renewables, etc. But nonenergy workers are able to afford to pay only so many energy sector workers to produce energy.

This is why the shale boom couldn't fundamentally continue. The economy is not configured to pay US$80,000 per year for oil/gas/sand/water truck drivers that have only a high school diploma. The oil and gas boom inflated wages in the energy sector, and this ultimately led to energy prices high enough to be detrimental to the economy. A renewables boom could have the same effect.

Since the beginning of the Industrial Revolution, economies and populations have grown tremendously due to the ability to produce more food and energy with a smaller fraction of people. Thus, having more food and energy consumers relative to food and energy producers meant that these core costs continually declined.

But that trend of decreasing food and energy costs is over for the U.S. and around the globe. This raises the question as to what kind of economic growth (if any) can occur once food and energy costs are no longer decreasing as they have been for 70+ years.

Given what I've written here, we need a president who tries to explain and teach the reality that not even one exceptional country can have infinite growth on a finite planet. Because if you finally accept this point, you come to the conclusion that you have to choose, right now, whether or not to want to work with fellow Americans to solve our common problems instead of believing we can wait to share in the future...after the economy grows fast enough again.

As long as Americans believe we can and must grow our way out of economic doldrums on the backs of higher and higher energy consumption, we avoid that hard, but real, conclusion: growth cannot solve our social, economic and political problems. Low growth is likely an exacerbating factor; and growth forever is impossible. Given the political environment now, however, I have no belief that we're capable of creating the necessary dialogue.


- Research Scientist, University of Texas at Austin


 

Article Tags

United States North America Finance Deepwater Fracking Houston Nuclear Oil Sands Renewable Energy Shale Gas Unconventionals University


This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More


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