Outlook: Energy Future In U.S. Bright

Rob Nikolewski

Rob Nikolewski is the energy reporter for the Union-Tribune.

August 1, 2016

Group predicts country to become net exporter for first time since ‘50s

It is just a projection, but the annual energy outlook for the United States looks bullish, with most sectors growing in the coming years and the nation well on its way to moving from being a net energy importer to a net exporter.

“That would be a big feather in the nation’s cap, definitely,” said Ed Hirs, Energy Economist at the University of Houston, regarding the U.S. Energy Information Administration’s (EIA’s) annual energy outlook that came out earlier this week.

The EIA looked at the nation’s energy landscape through 2040 and made projections based on whether the Obama administration’s Clean Power Plan is implemented or not.

The Clean Power Plan, also known as the CPP, which mandates cutting the nation’s carbon emissions by 32% from 2005 levels, has been challenged in federal court.

The EIA sees annual electricity-related carbon dioxide dropping between 1,550 and 1,560 million metric tons if the plan is adopted. But even if it is not, the agency projects emissions well below levels seen in 2005.

Perhaps the most dramatic finding is the anticipation of energy production outstripping consumption between 2025 and 2030, making the United States. a net energy exporter for the first time since the 1950s.

“In the ’50s we were just importing a whole lot less,” said EIA Spokesman Jonathan Cogan, “We didn’t need to import much petroleum, which is the biggest source of our imports in energy.”

Those days are coming back as the nation’s oil and natural gas production levels have increased in recent years, combined with slowly growing or—in some cases—falling demand.

The primary reason for the shift from net importer to net exporter “is we know how to produce natural gas in a very inexpensive way,” Hirs said. “And we’re going to be exporting the natural gas out of the U.S. and potentially, we’ll be exporting electricity.”

The EIA report looked at a spectrum of energy sources.

Renewables

EIA projects a significant jump in solar and wind, thanks in large part to the extension late last year of federal tax credits for the renewable industry.

Solar grows nearly 12-fold between 2015 and 2040 if the Clean Power Plan goes through. Even without the CPP, anticipated reductions in the cost of solar see the sector grow by ninefold.

With the CPP, wind generation grows nearly 150% by 2040. Without the CPP, it still grows 110%, but EIA projects a slowdown after 2022 when tax credits taper off.

Natural gas

“Natural gas is the big winner” in the EIA projection, Hirs said.

The shale revolution continues, with production up 50% between 2015 and 2040 as natural gas becomes a bigger part of the nation’s energy mix.

Interestingly, even though natural gas is a fossil fuel, it is projected to grow even more should the CPP get implemented than if it does not.

By 2040, EIA estimates natural gas will account for 38% of the country’s net electricity generation under the CPP, but that number declines to 34% without the CPP.

Why? Because under the CPP, a greater percentage of coal generation is replaced by natural gas-fired power plants, which burn cleaner than coal.

The EIA report also projects natural gas prices rising from its current price of just over $2 per million BTUs to above $4.40 by 2020, a steady rise of about 11% per year.

That likely means higher heating bills, but the EIA also anticipates almost 50% growth in net exports of liquefied natural gas by 2021.

If that holds true, it is good news for San Diego-based Sempra Energy, which is making a multibillion dollar investment in liquefied natural gas (LNG) facilities in the Gulf Coast and is planning to upgrade its plant near Ensenada, Mexico, to export LNG.

“It continues to support our business model,” said Octavio Simões, Sempra’s President of LNG and midstream operations. “At the same time, it puts the U.S. in a very advantageous geopolitical position when it comes to becoming a major supplier of energy for the world and not . . . dependent on parts of the globe that may be complicated and problematic.”

Oil

After sinking below $27 a barrel in February, crude oil prices have climbed back to almost $50, but prices still remain about half of what they were in June 2014.

The EIA report anticipates prices to gradually come back to $77 a barrel around 2020.

Low global prices keep U.S. production projections below 9.5 million barrels per day through 2025, but then it is expected to grow to 11.3 million barrels by 2040.

Petroleum use is projected to grow by 4% by 2040, but transportation use will go down 10% because of greater fuel efficiency, especially among light-duty vehicles, that is, cars weighing 8,500 pounds or less.

Nuclear

Total capacity is virtually unchanged from 2015 levels, with any additions to the sector offset by retirements of older facilities by 2020.

Higher construction costs prevent nuclear expansion from being competitive even with the Clean Power Plan, the EIA report said.

“The real problem is the dirtiness of the fission process and what to do with the waste,” said Hirs, who is also the managing director of Hillhouse Resources, an oil and gas company based in Houston.

Coal

The question is not whether coal will decline as part of the U.S. energy mix, but how much it will fall off.

With the CPP in place, coal drops 32% in net electricity generation between 2015 and 2040. Without the CPP, coal’s numbers are flat as fewer coal-fired units are retired. But coal’s share of total generation still declines and virtually no new capacity is added.

The EIA emphasized that the outlook is not a prediction of what will happen, citing the complexity of energy markets, but Hirs said the agency’s number looked solid.

“None of us are going to make any plans based on this,” Hirs said, but “they’ve got some sharp people there.”

 

Used with permission from The San Diego Union-Tribune. Copyright 2015 The San Diego Union-Tribune, LLC. All rights reserved.

 

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