U.S. energy policy has endured relatively unchanged since 2008. That being said, U.S. energy is not what it was seven years ago.
U.S. crude oil production is up some 88 percent, or nearly 4.5 million barrels per day (mbpd); U.S. natural gas production rose 27 percent in that span. For its part, total renewables production grew nearly 35 percent. Further, how we generate and consume electricity is rapidly evolving. Change is on the horizon however, and an election year, an energized Obama, and general market turmoil are conspiring to shape energy movements toward 2020. Related: Who Would Be The Best Presidential Candidate For Energy Companies?
To be sure, reform won’t come easy – just look at the long-fought lifting of the crude export ban. For a more recent example see the Energy Policy Modernization Act of 2015. The bipartisan legislation, drafted by Alaska Senator and Energy Committee chairwoman Lisa Murkowski and Washington Senator Mary Cantwell, has fallen flat after lawmakers came to an impasse over a $600 million amendment to confront the water crisis in Flint, Michigan.
Of note in the proposed legislation are its stipulations on infrastructure modernization, liquefied natural gas (LNG) export permitting, and hydroelectric generation. Of course – and as a result of its bipartisan origins – the bill skirts more contentious issues like advanced climate change mitigation and enhanced oil and gas production. While the welcomed bit of pragmatism has been stymied for a time, several of its provisions are worth an extended fight.
United States’ electricity infrastructure is old – on average, past its expiration date. The nation endures blackouts at a rate greater than, and duration longer than, its developed peers, and the costs are immense; power outages cost Americans at least $150 billion each year. Weather-related outages remain the most serious, and growing, concern, but cyber threats are more real than ever. Related: IEA: No Oil Price Rally In The Short Term
U.S. investigators confirmed earlier this month that a first-of-its-kind cyber attack brought down parts of the Ukrainian power grid late last year. The U.S. system is believed to be similarly vulnerable. Senator Murkowski’s legislation offers no immediate fix, but does attempt to establish a more rigorous framework – and give ground to research – to properly address such risks as our grid matures and facilitates more and more two-way data and power flows.
Moving on to LNG, the first shipment from the lower forty-eight is expected later this month or in early March, though the journey for Cheniere Energy and others has been a slog. The modernization bill aims to expedite a permitting process that, because of its hoops, has slowed investment in the burgeoning LNG export sector, delaying gratification for what could be a very potent political and economic instrument for the United States.
The U.S. Department of Energy has approved projects capable of sending up to 10 billion cubic feet per day (bcf/day) abroad to non-FTA countries by early next decade; potential additional capacity totaling more than 30 bcf/day is still awaiting approval. As it stands, global growth is outpacing that of demand, a trend that is likely to continue for the next decade. LNG spot prices in Asia and Europe have gone the way of oil, limiting U.S. exports’ ultimate profitability. Related: Hopes Fall on Emergency OPEC Meeting
Still – as Gazprom waffles and Asian markets look to diversify – there are market opportunities to be had if acted upon quickly. Domestically, higher prices at Henry Hub – only $0.17 higher under a high-export scenario – could support production growth of as much as 5 percent between 2026 and 2040.
Regarding green energy, the bill eschews more proper renewables like wind and solar in favor of hydro. More specifically, the legislation seeks to extend production incentives and improve the backlogged regulatory process, though care will be necessary to ensure state and federal renewable standards are not diluted. Hydro faces stiff domestic competition from natural gas, solar, and wind, but properly incentivized, significant minimally invasive opportunities exist to expand hydropower’s role as America’s renewable backbone.
The path to America’s secure energy future is a work in progress – one taking many different forms. Its route is almost certainly not straight ahead. With little care and further inaction it will soon be behind us.
By Colin Chilcoat of Oilprice.com
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