Monthly Archives: January 2017

EIA Annual Energy Outlook for 2017: Summary and Thoughts – 1/31/17

The EIA has released its annual energy outlook for 2017 so here is the short version with some additional analysis.

For starters, the EIA sees no growth for nuclear power industry. Nuclear generation is expected to decline slowly from now through 2040 as units are retired and relatively little new nuclear capacity comes online.

In contrast, EIA’s assessment of the renewable sector shows strong growth. From 612 billion kwh in 2016, renewable generation is expected to climb to 1,212 billion kwh by 2040.

The third major finding in EIA’s analysis has coal generation moving little from its initial 1,232 billion kwh, reaching 1,400 billion kwh in the late 2020s before falling back to 1,390 billion kwh in 2040. Overall, coal’s share of the electric generation market would decline from 30.3% to an estimated 27.8% of annual generation.

Keep in mind that the EIA projections do not reflect the possibility of future regulations such as the now assumed defunct Clean Power Plan. Should another administration or even a number of state governments implement emission reduction targets then coal share would drop relative to other power sources. The federal government has never set a comprehensive national energy policy anyways whereas many states have their own policies planned or in place making this a real possibility.

The EIA previously released data on the LCOE for new generation resources projected for 2020 which helps to explain some of its conclusions in the 2017 Outlook.

(click image to enlarge)

For context:

Fracking and horizontal-drilling capabilities have vastly lowered the cost of natural gas as reflected in the table above.

Prices for solar power modules have fallen 70% in the past six years.

Wind power costs have dropped 58% in the past five years.

Battery prices, which are seen as complementary to intermittent power sources like wind and solar, have also fallen approximately 14% annually since 2007.

Coal on the Decline in the U.S. and China – 1/30/17

China and the U.S. are the first and second largest consumers of coal in the world, respectively. And though the governments of each nation are regarding the resource very differently for 2017, it doesn’t have much of a future in either.

China will invest $361 billion over the next three years in renewable power generation, while also canceling plans to build 103 coal-fired power plants, its National Energy Administration recently announced. If the Chinese government follows through on the plan, then it would mean stopping the addition of 120 GW of capacity, including projects already under construction.

The cancellations are in line with China’s goal of limiting its total coal-fired power generation capacity to 1,100 GW by 2020. Under the promise of reducing air pollution and greenhouse gas emission, coal use has been on the decline in China since 2013 and cleaner sources of power have account for a larger share of new additions each year.

Still, implementing the cuts could prove difficult. China is building more capacity than it needs for a number of reasons including the fact that power plant projects are popular way for local governments to raise tax revenue and employ citizens. It is unclear if local officials will play along with canceling contracts when the political cost of doing so is high. Unfortunately for those officials, the directive names each project set for cancellation, so they are likely to face heavy pressure to comply.

In the U.S., coal is under also under threat, though for different reasons. Despite, promises to revive the industry from the executive branch, coal’s share of American electricity generation peaked long ago and all signs point to further decline.

Natural gas alone has devastated coal’s share of energy consumption. Even before the massive shale gas deposits came into play with the rise of fracking, natural gas was a competitive threat. Nowadays, between the low cost of gas and its relatively clean burn, coal can’t even compete with another fossil fuel, let alone renewables with fast-falling costs and popular support.

Fewer than 60,000 Americans now make their living mining while clean energy employs at least 2.5 million Americans.

On top of that, nearly half of American output is produced by companies in bankruptcy.

And utilities in the United States have only four coal-fired plants set to go online through 2020, with a combined capacity of less than 1 GW, according to the U.S. Energy Information Administration. For comparison, more than 13 GW of coal-fired capacity was retired in 2015.

Be it in China or the U.S., with or without government support, coal is set for continued decline for the foreseeable future.

India: A Rising Star in Solar Power – 1/27/17

Falling costs and competition among developers are sending solar power prices plummeting around the world, but solar’s success in 2017 could depend heavily on one nation: India.

As the second most populous nation and one of fastest growing economies in the world, India is set to invest heavily in electricity generation — something that will conflict with its air pollution reduction goals unless it uses more non-coal fuel sources. To solve the issue, India adopted auctions in 2010 to help achieve Prime Minister Narendra Modi’s solar target of 100 GW of capacity by 2022.

In 2016, both Chile and the United Arab Emirates used auctions to develop solar projects for less than half the 6 cents a kilowatt-hour average global cost of coal power. Fortunately, the price paid for solar power at auction in India is following the same trend, according to Bloomberg data.

India is also expected to add nearly twice as much new solar as last year, according to forecasts by Bloomberg New Energy Finance.

The most conservative estimate from the forecasts put India’s solar additions at about 8.9 GW of new capacity in 2017, nearly twice the 4.5 GW last year.

The rapidly falling prices are made possible by the consistent decline in costs associated with manufacturing. Silicon modules used in solar panels are were 30% cheaper in 2016 than the year before, and prices are expected to fall another 20% in 2017, according to London-based BNEF. With the expectation of further cost declines, developers have been willing to cut prices below costs for the sake of securing contracts.

EIA: Natural Gas Fuels Cleaner Power Sector – 1/26/17

Full EIA articles on natural gas and its effect on the power sector: first, second

For the first time since the late 1970s, U.S. CO2 emissions from the transportation sector exceeded electric power sector CO2 emissions on a 12-month rolling total basis, measured from October 2015 through September 2016. Electric power sector emissions are now regularly below those of the transportation sector  despite making up a larger share of total U.S. energy consumption.

The reason for this is a significant decline in carbon intensity for the power sector as natural gas replaces coal as the preferred fuel of electricity generators. On average, emissions associated with combusting coal (~206 to 229 lbs CO2/MMBtu) are higher than those associated with combusting natural gas (~117 lbs CO2/MMBtu). Natural gas electric generators also tend to be more efficient than coal generators, because they require less fuel to generate the same output.

In the 12 months from October 2015 through September 2016, coal and gas accounted for 31% and 34% of electric power generation, respectively. However, their shares of electric power sector emissions were 61% and 31%, respectively, as coal is much more carbon-intensive. Overall power sector carbon intensity has also decreased as generation share of fuels such as wind and solar has grown.

Emissions from the transportation sector are primarily from fuels which have carbon intensities lower than coal but higher than natural gas. For example, gasoline emits an average of 157 lbs of CO2/MMBtu. In the months observed, motor gasoline represented 60% of the total emissions from the transportation sector, while 23% was from distillate fuel oil and 12% was from jet fuel.


Falling prices for natural gas have helped fuel the shift from coal to natural gas in the power sector.

Natural gas spot prices in 2016 averaged $2.49 per million British thermal units (MMBtu) at the national benchmark Henry Hub, the lowest annual average price since 1999. Warmer-than-normal temperatures for most of the year and changing natural gas demand were the main drivers of natural gas prices in 2016.

In the first quarter of the year, much warmer-than-normal winter temperatures and large amounts of natural gas in storage caused prices to decrease. Prices began to gradually increase in late spring, with increasing demand and decreasing production, before sharply increasing at the end of the year with the onset of cold temperatures in mid-December.

Because of warm weather, natural gas consumption in the residential and commercial sectors in 2016 declined 7% and 4%, respectively, from the previous year. As a result, natural gas storage inventories were at or near record levels throughout most of the year.

In November 2016, the United States became a net exporter of natural gas on a monthly basis for the first time since 1957, based on data from PointLogic.

U.S. pipeline exports to Mexico continued to grow throughout 2016, making up 87% of all U.S. natural gas exports and, in May 2016, the Sabine Pass terminal began commercial operations in the Gulf Coast to export liquefied natural gas.

Despite growing demand, low prices resulted in lower natural gas production in 2016. Based on preliminary data, the EIA estimates natural gas marketed production to face its first annual decline since 2005. The number of active natural gas drill rigs is down 19% from the year-ago count, however, production has not fallen as sharply as the number of active rigs, as producers have continued to make gains in drilling efficiency.

Green Businesses – 1/25/17

The markets decide risk and return, not the federal government. That’s good news for businesses still interested in going green.

More than 530 companies and 100 investors signed the Low Carbon USA letter to support policies to curb climate change, invest in the low carbon economy, and continue U.S. participation in the Paris Agreement.

“All parts of society have a role to play in tackling climate change, but policy and business leadership is crucial,” said Lars Petersson, president of IKEA U.S. “The Paris Agreement was a bold step towards a cleaner, brighter future, and must be protected.”

The list of signatories to the Low Carbon USA letter has doubled since November, and includes DuPont USA, General Mills, HP Enterprises, Pacific Gas & Electric, Salesforce.com, Unilever, and more.

In recent decades, global economic development has increasingly been impacted by sustainability considerations. Be it legislation or consumer demand, companies are acting more and more with the environment in mind.

  • Investors controlling more than $5 trillion in assets have committed to dropping fossil fuel stocks from their portfolios, according to a new report on the trend.
  • Climate change criteria shape the investment of $1.42 trillion in assets under management, a more than fivefold increase since 2014.
  • Microsoft-founder Bill Gates and over two dozen other business leaders launched a $1-billion fund to finance energy innovations.
  • Google has pledged to operate on 100% renewable energy in 2017.
  • Microsoft announced a massive wind power purchase agreement in a deal to buy 237MW of capacity from projects in Wyoming and Kansas.
  • Smithfield Farms, the largest pork producer in the world, promised to reduce greenhouse gas emissions 25% by 2025.
  • Walmart has committed to removing a gigaton of emissions from its global supply chain by 2030.
  • Over 2.5 million Americans now work in the clean energy industry, making above average wages.

Prices are dropping, making green power sources like solar and wind competitive even without subsidiesSolar energy is already the lowest-cost option in some parts of the world and expected to offer a better global average return on investment than coal by 2025.

Risks associated with stranded assets and weak future performance are also steering investors away from fossil fuels, especially coal, and towards green investments.

Funding coal mining operations in the U.S. is only becoming harder as credit ratings for coal companies deteriorate. Credit downgrades have outnumbered upgrades among coal mining companies this year by about eight to one, Bloomberg data show.

Climate Change Talk Fills the Room at Davos – 1/24/17

Despite the shift in political weather in Washington, the captains of business and finance gathered in Davos are talking a lot about climate change.

The World Economic Forum is devoting 15 sessions of its 2017 annual meeting to climate change, and nine more to clean energy.

“The good thing is that the Paris agreement raised the bar for everyone,” said Ben van Beurden, the head of Royal Dutch Shell Plc, Europe’s largest oil group. “Everybody feels the obligation to act.”

Achieving the ambitions set out in Paris may require $13.5 trillion of spending through to 2030, according International Energy Agency (IEA) data that show the scale of the opportunity for business. Only last year, clean energy investment stood at $287.5 billion, data compiled by Bloomberg New Energy Finance indicate.

“The scale and scope of the investment flows on renewables shows it’s mainstream,” said David Turk, head of climate change at the IEA in Paris and a former senior U.S. climate diplomat.

A survey of 750 participants at this year’s meeting shows that extreme weather is considered the biggest global risk, outstripping migrations, natural catastrophe and terrorism.

In November’s follow-up meeting to the Paris agreement, nearly 200 nations, including China, vowed to step up their efforts to fight global warming.

China, which historically fought against climate change efforts, is now pushing the importance of the issue.

Chinese President Xi Jinping urged the U.S. to remain in the “hard won” Paris agreement during a Davos speech that touted the world’s largest polluter as a leader in the fight against global warming.

“Walking away” from the pact would endanger future generations, he said.

Earlier this month, China pledged to invest 2.5 trillion yuan ($360 billion) in renewable energy through 2020 to reduce greenhouse gases that cause global warming and China’s government has recently suspended 101 coal-power projects across 11 provinces as it moves toward cutting CO2 emissions.

China already spent almost $88 billion in 2016, according to Bloomberg New Energy Finance, about a third more than the U.S. And China’s investment has already created 3.5 million renewable energy jobs that could grow to 13 million by 2020, according to the International Renewable Energy Agency.

OPEC Deal Not Sufficient for Draining Inventories – 1/23/17

Comments from Saudi Energy Minister Khalid Al-Falih are raises concerns that OPEC’s biggest oil producer will abandon output cuts before prices make significant gains.

“We don’t think it’s necessary, given the level of compliance we have seen and given the expectations of demand,” Al-Falih said recently. “The re-balancing which started slowly in 2016 will have its full impact by the first half. Of course, there are many variables that can come into play between now and June, and at that time we will be able to reassess.”

OPEC’s decision to cut output reversed a two-year policy to maximize sales and protect market share from high cost shale drillers in the U.S — a strategy that had contributed to the worldwide glut of crude oil. The group, together with 11 other countries, came to an agreement on reducing supply by about 1.8 million barrels a day with cuts in effect from January to June.

Al-Falih said he was confident of the deal’s success and that OPEC will stop intervening in the market once global crude inventories return to their five-year average.

Yet, analysts from Bloomberg see the current agreement as a half-measure when it comes to clearing the global glut. According to their analysis, ending the deal by mid-year as planned and restoring production could mean a return to a building oil inventories. OPEC said draining bloated stockpiles was the main aim of the supply curbs.

If they extend the deal for six months beyond its scheduled expiry in June, that surplus will be entirely eliminated by the end of the year, according to Bloomberg calculations based on IEA data. If they don’t prolong the cuts and instead restore output to previous levels, about two-thirds of that glut will remain in place.

Oil prices rose 20% in the month after OPEC agreed to cut output. Since then, they’ve slipped almost 5% as traders, eyeing U.S. shale production, await proof that the deal will work. Many remember how Russia broke its pledge to cutback in 2008, while other members of group also failed to fully implement the agreement.

“OPEC is going to yet again over-promise and under-deliver,” said Eugen Weinberg, head of commodities research at Commerzbank AG, in a Bloomberg TV interview. “We are going to get cheating from OPEC; we’re going to get false information.”

Other analysts say OPEC has little choice but to go forward, given the economic damage the price rout has brought on the group’s members.

“The reward is so big that I believe they will be more respectful than they have been in the past,” said Paolo Scaroni, vice chairman of NM Rothschild & Sons Ltd. “They are so desperate that they will do whatever they can to do it — even sacrifices.”

The figures may not be useful, as exports will for some time still reflect production levels from before the agreement, said Ed Morse, head of commodities research at Citigroup Inc.

Based on the initial data, the committee will be able to report compliance of as much as 60%, said Morse. The best rate attained during its 2008 agreement was 70%, according to Hasan Qabazard, OPEC’s former head of research.

“They’re looking for 80% compliance,” said Morse. “50 to 60% compliance in the first few weeks is pretty good. If you just add up the Gulf countries and Russia today, that’s a very constructive contribution.”

EIA: Oil Outlook – 1/20/17

EIA full article on oil outlook.

The U.S. Energy Information Administration’s January Short-Term Energy Outlook (STEO) forecasts benchmark West Texas Intermediate (WTI) crude oil prices to average $52/b in 2017 and expect it to rise to $55/b in 2018.

Strong demand and the recent agreement among members of OPEC and some key non-member oil producers are putting upward pressure on crude oil prices. However, the EIA forecasts increases in global production should prevent significant price changes through 2018. Despite the recent OPEC agreement, EIA expects global petroleum and other liquid inventory builds to continue, but at a slowing rate, in 2017 and 2018.

Market reactions to the November OPEC agreement contributed to rising oil prices in December despite increasing global oil inventories and U.S. oil rig productivity.

Crude oil spot prices are expected to remain fairly flat over 2017 in part as a result of the responsiveness of U.S. tight oil production. The EIA forecasts oil prices will slowly increase in 2018 as inventory builds slow. This rise in oil prices encourages production increases, particularly in the Lower 48 onshore. However, any production increases realized while the global markets are building inventories will moderate price increases, which will in turn limit additional production increases.

Total U.S. crude oil production is estimated to have averaged 8.9 million b/d in 2016, down 0.5 million b/d from 2015, with all of the decline in the Lower 48 onshore. The EIA forecasts U.S. crude oil production will increase to an average of 9.0 million b/d in 2017 and 9.3 million b/d in 2018 on higher activity, drilling efficiency, and well-level productivity.

In its previous outlook, the EIA expected Lower 48 onshore production to decline through the end of 2017. However, the new forecast reflects crude oil prices near or above $50/b, which have led to increased investment by some U.S. production companies, particularly in the Permian Basin. EIA expects that declines in Lower 48 production have largely ended and forecasts relatively flat production in the first quarter of 2017 at 6.7 million b/d, which will then increase to an annual average of 7.0 million b/d in 2018. Even modest increases in crude oil prices could contribute to supply growth in other U.S. tight oil regions.

EIA estimates global petroleum and other liquids production will increase through the forecast. Annual estimated and forecast production levels for 2016, 2017, and 2018 were revised up to 96.4 million b/d, 97.5 million b/d, and 98.9 million b/d, respectively. More information about crude oil prices and production is available in EIA’s latest This Week in Petroleum.

Comments from Davos Paint Bleak Picture for Oil Price Hopes – 1/19/17

Among oil industry experts and officials in Davos, Switzerland, pervasive skepticism about the effectiveness of the OPEC deal in rising oil prices. At the front of everyone’s mind: the rising output from U.S. shale oil rigs.

Oil-price gains will trigger a “significant” increase in U.S. shale output as OPEC and other producers rein in supply, according to the head of the International Energy Agency (IEA).

At $56 to $57 a barrel, “a lot of shale plays in the United States would make perfect sense to produce” Executive Director Fatih Birol said in a Bloomberg TV interview in Davos. “I expect U.S. production will start to increase again… as a result of the higher prices,” Birol said. “Prices will go up, U.S. and other production will go up and put downward pressure on prices again. And up and down. We are entering a period of greater oil-price volatility.”

Birol’s comments suggest that the IEA has become more optimistic about the outlook for U.S. production. Previously, the agency said it expected U.S. tight oil — as shale is also known — to rise only “marginally” in 2017.

Oil prices have risen about 20% since the Organization of Petroleum Exporting Countries (OPEC) reached a deal to curtail supply last year. The November agreement prompted a surge in activity in the U.S..

While oil prices have increased more than 20% since OPEC decided to cut production to boost prices, it has also helped bring back more shale drillers who caused prices to drop in the first place due to oversupply in the market.

“This means that while 2017 is starting out very bullish for oil, it may not end that way,” said Bjarne Schieldrop, chief commodities analyst at SEB AB bank. “Physical delivery of oil will force the price back down again in the second half of this year.”

Production in the U.S. has increased by about 460,000 barrels a day, or 5.4%, in the past six months. In response, the EIA recently raised its domestic output forecast for 2017 to 9 million barrels a day from 8.78 million projected in December. Output is projected to increase to 9.3 million barrels a day for 2018.

“The U.S. oil producers, and Canadian producers and all over the world are adapting to doing better in a lower price environment and that has created a resiliency that we haven’t seen,” Kenneth Hersh, chairman of NGP Energy Capital Management, said in Davos. “U.S. unconventional has increased about half a million barrels on a $50 base, whereas two years ago it was unthinkable oil production in the U.S. would increase at $50.”

The consistent belief that U.S. shale will keep prices low is bad news for OPEC members and non-members who agreed to cut production to re-balance markets, likely at the expense of their own market share.

U.S. Shale Oil Drilling Revival On the Way – 1/18/17

The Energy Information Administration (EIA) reports that shale oil production is rising strongly in the U.S. and many analysts are forecasting a year of revival for shale.

Project approvals are to more than double this year and exploration spending is set to increase for the first time in three years, according to Wood Mackenzie Ltd. 20 oil and gas fields are planned for development in 2017 compared with 9 in 2016, the industry consultant said in a report, while spending on exploration and developing existing projects will increase by 3% following two years of cuts.

Beyond 2017, there are still many projects that have break-even costs higher than $60 a barrel, especially offshore. Of the 40 larger deepwater projects up for approval, about half have a rate of return less than 15% at a $60 oil price, according to Wood Mackenzie. This relatively low return for costly, difficult projects could be problematic if prices remain below $60 as expected.

Spending is picking up fastest in onshore U.S. operations, unsurprisingly, where companies can respond quickly to higher oil prices thanks to speed of fracking operations and abundance of drilled but untapped wells. Spending on U.S. onshore projects is likely to grow 23% to $61 billion, based on the Wood Mackenzie report. In much of the world outside the U.S. exploration spending is expected to continue to decrease.

While the outlook is improving, global upstream spending in 2017 will remain 40% below 2014, Wood Mackenzie said. Project approvals will also be below the 2007-2014 average of 40 a year.

So what does that mean for the OPEC push for higher oil prices?

How effective the OPEC supply cuts can be if U.S. output rises was always a major concern for OPEC officials. So far, Saudi Arabia’s oil minister, Khalid al-Falih, has voiced skepticism of shale’s potential impact. Speaking at Davos, he observed that oil-field-service providers are renegotiating terms with drillers and are likely to raise the break even price for shale production.

Still, slightly higher costs have already been priced in as far as many traders are concerned. And the EIA forecasts that prices for West Texas Intermediate will average $52.50 a barrel in 2017 with output increasing throughout the year. In just the last three months, U.S. petroleum-liquids production bounced by about 350,000 barrels a day (b/d) — more than the output cut promised by Russia as part of its deal with OPEC. At $52.50, the EIA sees U.S. output rising by another 775,000 b/d by the end of 2017.

Realistically, a revival for shale drilling in the U.S. is inevitable, but just how badly it tears apart the OPEC deal will be an interesting show.

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