Energy Markets Offer Clues on Environment’s Future

December 5, 2017
Crude oil storage tanks at a Sunoco terminal near Nederland, Texas.
Crude oil storage tanks at a Sunoco terminal near Nederland, Texas.  Depressed prices make it less economical to produce crude by environmentally risky means, reinforcing for journalists the links between the economy, energy and the environment. Photo: Department of Energy.

TipSheet: Energy Markets Offer Clues on Environment’s Future

This special TipSheet is one in a series of reports from SEJournal’s Joseph A. Davis that looks ahead to key issues in the coming year. Stay tuned for more in coming weeks and for the full “Journalists’ Guide to Energy & Environment 2018” special report in late January.

While politicians, policymakers and lobbyists wrangle in 2018 over U.S. energy policies and their environmental consequences, markets may settle the biggest controversies.

So if you are an environmental journalist, you might want to keep an eye on the energy markets just as a reality check.

Take coal. Coal barons and coal-state Republicans have condemned what they see as a regulatory “war on coal.” Today, the U.S. Environmental Protection Agency is hard at work trying to abolish regulations that discourage coal-burning utilities from warming the planet and worsening people’s breathing problems. President Donald Trump has personally promised West Virginia coal miners that he will bring their jobs back.

But the markets are daily deciding the question — and have been for years. Coal as a fuel (along with much of the coal industry) is dying because other energy sources are a better buy.

The only question is whether (and when) political rhetoric and ideology will catch up with economic reality.

Start with this: We are seeing some strange headlines these days. “Electricity Prices Plummet as Gas, Wind Gain Traction and Demand Stalls," read one in the November 30 Wall Street Journal.  This does not necessarily comport with the dominant narrative. For years, many electric utilities have been telling us that they need a rate increase because they may not be able to keep up with demand growth, and that regulations (specifically on coal) will drive them bankrupt.

Another false narrative for years has been that “America is dangerously dependent on foreign oil,” and that the government needs to ease regulations and lease all the tracts it can so drillers can produce the maximum (Remember “drill, baby, drill,” the slogan used by 2008 Republican vice presidential nominee Sarah Palin?).

The market reality is that oil prices are depressed by a worldwide supply glut and that U.S. producers want to export their oil. Raising U.S. oil production will drive prices down, not up.

Impact on environment from energy economics

For journalists, energy and environment are often inseparable. What the U.S. economy does with energy has huge impacts on the environment.

 

Renewables are likely to keep gaining ground

on the fossil fuels that have

traditionally powered the U.S. economy. 

 

Burning fossil fuels emits greenhouse gases. Burning dirty fuels causes air pollution and respiratory illness. Extracting fossil fuels pollutes water. Pipelines can leak or blow up. Oil trains can derail and burn. Wind turbines can kill bats and birds. Batteries can deplete scarce minerals. Deep offshore wells can blow out and spew uncontrollably for weeks or months, coating pelicans with slimey goo.

Renewables are likely to keep gaining ground on the fossil fuels that have traditionally powered the U.S. economy. When your fuel cost is zero, you can produce energy more cheaply in the long run.  It’s not eco-liberalism, it’s economics.

Free markets? Free markets in the energy field are so rare they barely exist. Forget for now about regulation by FERC or laws like PURPA. You can’t have free market and subsidies, too.

Subsidies are enjoyed, and fought for, by every component of the U.S. energy industry (it’s a topic too big to explore here). The fossil and nuclear industries complain about the subsidies (usually tax breaks) enjoyed by wind, solar and other renewables. But the fossil and nuclear industries have enjoyed their own substantial subsidies for decades.

So if you write about how “free markets” are deciding energy outcomes, remember that they are, but that we don’t have any. Subtract the word “free” if you want more objectivity.

A side note: Trump Energy Secretary Rick Perry proposed to the Federal Energy Regulatory Commission in September a grid “fix” that amounts to subsidy of the failing coal and nuclear industries. Faced with bipartisan opposition, it is not clear whether it is going anywhere fast. But the legal and regulatory aftermath will persist into 2018.

Watching energy trends in 2018

You don’t have to wear the turban of Carnac the Magnificent to see some of the plainest energy trends likely to continue in 2018. Here’s what we see:

Crude prices stay depressed. The oil price drop that happened in 2014-15 was profoundly important. The reasons were many and complex — but still hold. Low oil prices make it less economical to produce oil by some of the more environmentally risky methods — like tar sands and deep (or Arctic) offshore drilling. None of the stories about OPEC resolve and producer discipline we have read (or, possibly, written) breathlessly in recent years have come true; cheating on quotas is too profitable.

Natural gas remains abundant. The last decade has seen a technological revolution from the combination of horizontal drilling and hydraulic fracturing. The result has been an outpouring of natural gas (and oil) production in the U.S. and elsewhere. And — most importantly — a drop in the price of gas, which has made it a preferred fuel for many electric utilities that formerly burned coal. We will not run out of cheap natural gas over the next few years.

Coal lost the war. During 2017, we got news of coal plants closing every month, and this will keep up during 2018. Coal is in decline as an energy source in the United States. The main reason is that natural gas is a cheaper fuel for electric generation. The decline in coal jobs is separate from that decline, driven by things like automation and the move to surface-mined Western coal. There may actually be a “war on coal” as well (the Sierra Club started its Beyond Coal campaign during the Bush administration). Coal is dirty compared to other fuels, which has raised pollution control costs for utilities over many years. But even without Obama’s Clean Power Plan, coal and its jobs are not coming back.

Nuclear remains expensive. During the year 2017, we saw several nuclear plant construction projects abandoned. They were simply proving too expensive for electric utilities to pay for — considering the cheaper power available from other sources. The steady baseload power that nukes provide has been offset not only by costs, but by environmental issues like spent fuel storage and disposal. Nuclear’s big advantage of being carbon-free is now being outrun by cheaper carbon-free energy. The decline will continue.

Hydro does not grow. Hydropower was once seen as clean and cheap, if not abundant everywhere. The problem is that most of the most promising hydro sites have already been exploited for power. Growing awareness of the environmental costs of hydropower (e.g., blocking salmon runs) has made further construction politically difficult. Now dam removal is the big thing. And engineers worry that changed precipitation from climate change may reduce hydro generation.

Wind eats coal’s lunch. The cost of wind power has declined steadily as the technology has matured and the cost of making turbines has gone down. Utility-scale wind installations in some parts of the United States have grown steadily, and there may be more potential offshore. Tax subsidies have made this growth easier, but the end of subsidies (that could happen with the GOP tax plan) would not end the growth. Recent analyses suggest that it is cheaper for a utility to build and run new wind turbines than to keep running an already-built coal plant. The kicker?  Installed wind capacity in Texas now exceeds coal — and actual wind generation will soon surpass coal there too.

Solar keeps shining, despite clouds. Photovoltaic and other forms of solar power technology will also continue their steady trend toward lowering costs in 2018 and beyond. We are now seeing many utility-scale deployments of solar panels (in 2016, they amounted to 39 percent of new electric generating capacity). New utility solar now promises to beat coal and nuclear on cost alone. Home rooftop solar panels cost more than utility panels, but still can make money for companies like SolarCity by selling excess power back to the grid. In some states, coal and nuclear utilities, threatened by the free market they profess to adore, work to pass laws preventing the sell-back of rooftop power. As 2017 winds down, the U.S. solar industry awaits a Trump decision on whether to impose tariffs on cheap Chinese solar panels which undercut U.S. makers.

You missed the storage story. Fossil-industry critics complain that the problem with renewables is that the sun may not shine — nor the wind blow — during the hours when people need the electricity. There is some validity to the point. But that is why the golden key to unlocking the full potential of renewables is cost-effective energy storage. You may even believe the fossil-industry story that utility-scale storage is not feasible (or at least that it has not been invented yet). While you were not covering the storage story, Elon Musk installed the world’s biggest battery in Australia’s Outback. Big enough to power 30,000 homes. Ahead of schedule.

Grids and resiliency matter. Recently, Hurricanes Irma and Maria impolitely reminded us of the importance of resilient electric grids. A major fraction of Puerto Rico remained without power months after Maria, because of a collection of problems. As both Puerto Rico and Florida rebuild much of their electric grids, some (including Musk) are asking whether they could not be updated and designed to be more resilient. The idea of a microgrid, which can keep functioning independently when cut off from a larger system, is getting more attention.

Sources for tracking energy markets

  • The price of oil on NYMEX. You can see contracts for various oil products on the New York Mercantile Exchange here. Check gas prices there also.
  • Energy Information Administration. The EIA website is a cornucopia of market info about all energy sources (coal, oil, gas, hydro, wind, solar, etc.) on many time-scales. The International Energy Agency is also a good source.
  • Bloomberg. Whatever their drawbacks, the Bloomberg news services do a decent job of following (and sometimes foreseeing) energy market trends. Start with this aggregator, or check here. Some of the most perceptive analysis of trends is sourced from Bloomberg New Energy Finance. They already report regularly on the global storage market.
  • Reuters. As a global business-oriented news service Reuters is usually up to the minute on energy market stories. This aggregator updates every day, or look here. Analyst John Kemp is especially shrewd, as is Christopher Johnson.
  • Federal Energy Regulatory Commission. FERC offers some electricity market overviews geared to individual U.S. regional grids.
  • Other energy analysts. People who follow the oil market respect Platts, a news service that covers not just oil but gas, coal and electricity. It’s a paid service but you can see headlines. Another good (and free) service is OilPrice. The Houston Chronicle has a number of analysts generally on top of energy. Midwest Energy News is also a good source.

* From the weekly news magazine SEJournal Online, Vol. 2, No. 46. Content from each new issue of SEJournal Online is available to the public via the SEJournal Online main pageSubscribe to the e-newsletter here.  And see past issues of the SEJournal archived here.

 

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