2013 was another remarkable year of continued change for energy in
the United States. Generally speaking, in an otherwise rather gloomy
domestic and foreign policy environment for the Unites States, energy
has been a good news story.
We’re producing more of almost every type of energy:
• Dry natural gas production is at the
highest levels ever
in the United States although production only grew by 1 percent between
2012 and 2013. Production has increased by over 21 percent since
January 2010 —an increase even more impressive given the fact that
prices in December 2013 were much lower than prices at the beginning of
2010.
Drilling productivity increases in the Marcellus
shale accounts for the majority of the year over year increase along
with some gas production in plays that contain dry gas mixed with
natural gas liquids.
• Crude oil production has surged. By the end of last year, monthly
domestic production was at a level not seen in the U.S. since 1989.
Current projections indicate that production could reach the
1970 all-time high of 9.6 million barrels per day by 2015.
• Renewable energy generated 13 percent of electricity in December
2013, up from 11 percent in December 2010. And for all renewable
sources, the
net summer capacity of utility scale units
was up 6 percent in November 2013, compared with November 2012 (fossil
fuel net capacity declined over the same period). For January 2014,
27 of 36 planned electric generating unit additions were renewable energy.
At the same time, we’re consuming less energy:
• Electric power demand recovered a bit after dipping significantly during the recession—but was basically flat year-on-year.
• Gasoline demand has plateaued after a serious decline post-2008
recession. Although it is still an open question of whether this is the
plateau or the beginning of a steeper decline, the U.S. Energy
Information Administration does not forecast any significant gasoline
consumption increases in the next two years.
• Efficiency gains are still taking place across the economy, although there is still
significant room for improvement.
The changing picture on the supply and demand sides means that we’re exporting more energy:
• Refined petroleum products exports jumped to 2.95 million
barrels per day in October, a rise of about 10 percent in just one
year—and a jump of 70 percent in the last ten years.
• Natural gas pipeline exports to our neighbors have seen dramatic
growth; the early months of 2013 (when the weather is cold is demand is
greatest) saw a peak of nearly 99 billion cubic feet (Bcf) in January.
This compares with about 84 Bcf the year before, and only 25 Bcf in
2003. A similar trend is evident for Mexico. Summer demand peaked at
just over 62 Bcf in July 2013, compared with 60 Bcf the year prior. Just
ten years ago, that number was not even 29 Bcf—in other words, in the
course of ten years, we have doubled our natural gas pipeline exports to
Mexico, and more than tripled our pipeline exports to Canada.
The flip side of the same coin is that we are less import dependent:
• Overall, when accounting for all energy sources (including coal,
electricity, natural gas, petroleum, and biofuels), we have
cut our overall level of energy imports by about 15 percent.
• Petroleum imports (including products) are down 10 percent year on year, and down nearly 15 percent since 2011.
• Natural gas imports are down nearly 12 percent year on year, and 23 percent since 2011.
• In part because we are importing less energy, our trade deficit has
shrunk to $34.3 billion in November 2013—down about $8 billion from
November of 2012.
The good news is that our expanded production and reduced consumption, along with efficiency
gains, have actually led to declining carbon dioxide and other greenhouse gas emissions:
• Energy-related CO2 emissions are
10 percent below 2005 levels, a perch from
which some have suggested we could still be on track to meet 2020 target of 17 percent below 2005 levels within the global climate regime.
That is a lot of good news, and has resulted in economic benefits as
well. The oil and gas industry has rightly touted the link between job
creation, economic growth, and the resurgence of U.S. hydrocarbon
production. The new U.S. energy landscape has also inspired others to
start speaking about an energy renaissance, and pointed to a need for
U.S. policymakers to shift their mindset from one of scarcity to one of
abundance.
Yet in the midst of all this energy exuberance, it would be foolish
to overlook the full picture. Some parts of the energy sector are
struggling, and some are even victims of their own success.
• Oil and gas developers are having difficulty timing investment
and production with infrastructure development in order to move products
to market, make a fair return on their investment, and reinvest in new
projects.
Production has simply come on faster than the midstream infrastructure can keep up.
• Partially as a result of the delay in permitting and building
pipeline infrastructure, the push to move ever more crude oil out of
areas of rapid production increases has led to a
dramatic rise in the amount of crude being moved by rail.
Consequently, serious rail accidents involving crude oil have become a
more frequent occurrence. Before a recent spate of accidents there was
some agreement on how to make rail transportation of crude oil safer,
but nothing was likely to be implemented for several years. In recent
weeks, however,
high-level political interest has increased as concerns about classification, tank car integrity, and liability issues persist.
• Communities are actively weighing the perceived risks of accidents
and community disturbance that could come with oil and gas development
against the economic value their communities derive from these
activities. Some communities have pushed back against oil and gas
development, including some towns that have placed moratoria on
drilling. Others have expressed their concerns—ranging from water to
earthquakes—with state and local governments and industry.
• Cheap, abundant natural gas has challenged the economic
competitiveness of some segments of the renewable energy industry. In
addition, a significant downscaling of government stimulus programs and
very little certitude about the future of existing tax credits have also
made renewable energy’s near-term outlook uncertain. Finally,
utilities have begun pushing back against net metering in some states, threatening the viability of the solar distributed generation model in those states.
• The nuclear energy industry is struggling to revive an economic
case for its existence while continuing to be undercut by cheap natural
gas, declining demand, and renewable energy mandates. This year, only
five new reactors were under construction, all of which have announced
delays and budget overruns. Two existing nuclear plants have gone into
retirement and
upcoming retirements were announced for two other nuclear plants.
• The electric power sector in general is experiencing
disruptive challenges
from all directions. The utility business model is under stress in some
regions. New regulations and unmet infrastructure investment needs are a
challenge, new technologies, distributed generation, and consumer
choices are proving difficult for utilities to adapt to, and reliability
and cybersecurity issues are no closer to a long-term solution than
before.
Perhaps the most significant unresolved issue in the energy sector
this past year was the continuing battle over the role of policy in
achieving a low-carbon future. In political terms, the energy world is
divided into camps: those who want to pursue a fundamentally different
energy system divorced from fossil fuels and those who either don’t
believe it is possible, don’t believe it is necessary, or both (plus a
third camp who thinks it’s probably desirable but too costly). Much of
the underlying tension in energy policy is a fundamental difference of
policy views between those in each camp.
At present, energy infrastructure projects have become a proxy battle
in the larger war over climate policy. The new rules governing new
power plant emissions and the upcoming rules governing existing power
plant carbon emissions will be another major venue for this ongoing
dispute. The issue of energy exports has also, to a lesser extent, been
part of this ongoing fight over energy priorities. Budget battles and
tax reform debates all repeatedly bear witness to the ongoing dispute
over which way we are headed and how best to use energy to benefit the
economy.
Recent indications are that these battles are likely to persist for
the foreseeable future. Just this past week, a group of 18 environmental
organizations sent a
letter
to the president urging him to end his pursuit of an “all of the above”
energy strategy – a position often used by the administration to
illustrate middle ground between keeping the current energy system
robust while supporting the transition to a low carbon future. Several
days earlier, groups representing the oil and gas industry touted the
benefits of oil and gas development to the domestic economy with
virtually no mention of climate change. It is difficult to see a
resolution in sight.
On balance, the energy state of the union is strong, but in the midst
of monumental changes. For several years now the United States has been
caught up in the exuberance and anxiety that comes with the onset of
new trends. We are now in a more somber position of evaluating the
implications of this change and, perhaps, for policy to start tackling
some of its repercussions.
Sarah Ladislaw is a senior fellow and director of the Energy and
National Security Program at the Center for Strategic and International
Studies (CSIS) in Washington, D.C. Michelle Melton is a research
associate with the CSIS Energy and National Security Program.
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