Articles Posted in Energy markets

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Austin Energy, the City of Austin’s municipally owned electric utility, recently announced a deal with Recurrent Energy to buy up to 150 megawatts of electricity from a solar farm to be constructed by Recurrent in West Texas, at 5 cents per kilowatt hour, guaranteed for 20 years.  Austin Energy is the nation’s 8th-largest municipal utility. As reported in the Austin Chronicle, the deal means that Austin Energy could reach its goal of 200 megawatts of solar power by 2020 well ahead of schedule. Austin Energy has its own solar farm in Webberville that can generate up to 30 megawatts. Austin Energy’s current plans provide for increased reliance on renewable energy sources:

Austin Energy.JPG

The cost of solar electricity has now become competitive with other fuels — although still with support from tax credits.  Austin Energy’s estimate of its fuel costs:

Wind (West Texas):                 2.6-6.1 cents/kWh

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Here are two emerging technologies that could change how we might use natural gas to fuel our cars and electrify our homes and offices.

A company called Redox Power Systems is building a plant in Florida to produce The Cube, a dishwasher-sized system that generates electricity from natural gas using electro-chemical fuel cell technology. 

The-Cube.jpg

With almost no moving parts, The Cube can provide enough electricity to power a gas station or a small grocery store. It also generates heat that can be used to heat a home or business. It’s technology was developed at the University of Maryland. The system also emits carbon dioxide, but according to a review by MIT, its emissions should be lower than those associated with power from the grid. Redox plans to complete a 25-kilowatt prototype and start selling complete systems by the end of this year.

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In November, Texas Monthly hosted a panel discussion at Rice University’s Baker Institute for public policy about the boom in shale oil development in the US. The panel members: Arthur E. Berman, a Sugar Land-based geologist; Scott W. Tinker, the director of the Bureau of Economic Geology at the University of Texas at Austin; and Kenneth Medlock III, an energy fellow at the Baker Institute. You can watch the panel discussion on Texas Monthly’s website, here. It’s worth an hour of your time. 

These guys know a lot about energy in general and oil and gas in particular. I have previously written about Arthur Berman, a “shale skeptic,” who has never believed that the shale boom would last. Scott Tinker is the narrator of the documentary “Switch,” an examination of the modern world’s thirst for and sources of energy.  In addition to the film, Dr. Tinker has created a website, http://www.switchenergyproject.com/, that provides additional short videos and other resources to further explore questions surrounding energy, including carbon capture, global warming, hydraulic fracturing, and alternative energy technologies. He interviews many world experts on global energy issues.  He is to my mind one of the most even-handed and level-headed thinkers and explainers of the complex issues surrounding energy issues.

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I have recently seen articles predicting the end of the shale boom, coming not only from those who have consistently predicted that shale production would never amount to anything, but also from respected sources whose predictions have previously proven accurate. A recent Houston Chronicle article quotes from a paper written by Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis, and Mahmoud El-Gamal of Rice University, saying that “The most likely scenario – absent war – is for oil prices to decline significantly.” A significant decline in oil prices would make many if not most wells shale wells now being drilled in the Eagle Ford and Permian areas of Texas uneconomical. Jaffe expects oil prices to decline in the next three to five years. “To hold up prices it would have to be a regime change in several countries that results in lasting civil wars with lots of infrastructure being blown up,” she said.

An article in Business Week says that the break-even price for profitability in the Cline Shale play of the Permian Basin is $96 per barrell; in the Eagle Ford, it’s $78/barrel, and in the Bakken, $84.  Here is one analyst’s prediction of future oil prices:

Business Week graph.JPG

Falling fuel demand is a big part of the prediction.  Jaffe believes demand will fall even with continued growth in China and other emerging nations. The average fuel economy for new vehicles in the US is up 4.7 mpg since October 2007. And Americans are driving less.  Lower-priced natural gas will replace some of the oil demand.  From the Energy Information Administration:

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I subscribe to the Economist, and it recently sent its subscribers a booklet, Pocket World in Figures, that contains rankings of 198 countries in categories ranging from longest river to biggest cities to number of refugees to living standards, etc.  Here are some interesting statistics related to energy from that booklet:

Top 10 Oil Producers 2012 (‘000 bbls/day)

Saudi Arabia           11,530

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Texas pumped 2.575 million barrels of oil per day in June, exceeding Iran’s production of 2.56 million barrels/day. Texas now ranks ahead of seven members of OPEC in oil production.

The U.S. is now the world’s largest exporter of refined fuels, including gasoline and diesel. The U.S. met 87 percent of its energy needs in the first five months of 2013. This is expected to be the highest annual rate since 1986. Net imports of oil and petroleum products will fall to 5.4 million barrels a day by 2014, down from 12.5 million in 2005, according to the Energy Information Administration.  It is expected that the U.S. will pump 7.75 million barrels/day by the end of the year.  West Texas Intermediate’s price is now above $107/bbl.

Meanwhile, the Houston Chronicle reported that a “growing number of experts” are now saying that the increased production of oil will result in a significant decline in prices.  Amy Myers Jaffe, executive director for energy and sustainability at the University of California at Davis, recently wrote that “The most likely scenario – absent war – is for oil prices to decline significantly.”  She sees a repeat of the decline in oil prices from the 1980s. If you superimpose a curve of oil prices from the 1980s over today’s price curve, “we’re already on the other side of the hump,” said Jaffe.  The decline will be a result of rising supplies and falling fuel demand, exacerbated by higher fuel prices, less driving, less demand from emerging nations like China, the rising dollar, replacement of oil with cheaper natural gas, and OPEC’s inability to cut production enough to prop up prices.  “Don’t lose sight of the fact that [oil prices are] a cycle.  We get in this mania that whatever the price is it’s going to be that forever.”

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A recent editorial in the Houston Chronicle makes a good point: we should no longer think of “oil and gas” together. Their paths have diverged, at least in the US.

The prices of oil and gas used to be roughly equivalent, based on their energy value – their Btu content. But since the shale revolution in the US, this is no longer the case. Today, gas is much cheaper than oil on an energy-equivalent basis. Today, most exploration companies have moved from gas shale plays to oil shale plays, chasing the higher oil price. But gas prices have recently risen, and wells are still being drilled profitably in the Marcellus. If gas returns to $5-6/mcf, shale gas plays will return, and gas will still be much cheaper than oil.

Second, gas is a clean-buring fuel, unlike oil or coal. US emissions of greenhouse gases have declined substantially since utilities have gradually switched from coal to gas. Vehicles powered by gas have much lower emissions than those fueled by gasoline. Gas is touted as a “bridge fuel” in the transition from hydrocarbon to renewable sources of energy, because of its lighter environmental footprint.

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 The Energy Information Administration continues to produce fascinating graphs. Two recent ones are below.

 Natural gas hammered coal last year. Low natural gas prices still made electricity cheap. West Texas Intermediate Crude declined, while Brent crude increased.

graph of select commodity futures price changes, as described in the article text

 

Electricity generated from natural gas equaled that generated from coal for the first time in April 2012:

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We’re in the crazy election season once again, and once again all candidates have promised “energy independence.” Newt Gingrich promised to lower gasoline prices. President Obama takes credit for low natural gas prices. Governor Romney says we can eliminate imports of crude oil. Presidential candidates have promised energy independence ever since the oil embargo in Jimmy Carter’s administration. The candidates know that, in fact, government policies have little to do with energy prices, and there is little they can do to influence those prices. It might be good to look at a little history.

First, natural gas prices are still essentially a domestic phenomenon. Although transportation of liquefied natural gas is beginning, it is still very expensive in comparison to domestic prices. And natural gas prices are still essentially a matter of domestic supply and demand. Consider these graphs:

U.S. Gas Production Graph.jpg

NG Wellhead Price Graph.jpg

 

Prices for natural gas spiked in the last decade; production increased; and prices declined. Supply and demand.

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John McFarland
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