The recent big drop in oil prices raise yet again those who cry that Peak Oil believers are wrong and how lower prices for fossil fuel will effectively derail developments in renewable energy chiefly in solar and wind energy technologies. Yet several energy trends now unleashing in full force will insure that despite the recent downturn in oil and gas prices, renewable energy development will continue to go forward.
January 6, 2015 – Today West Texas Intermediate Crude sits at $48.03 per barrel while North Sea Brent oil is at $51.37 a barrel, both record lows to the $100.00 price per barrel levels seen less than six months ago. The drop in oil pricing is dramatic and hailed in the popular media as proof of the coming of U.S. energy dependence due in large measure to the U.S. oil and gas industry’s past decade of a national hydraulic fracking drilling boom. Still others believe the quick drop in pricing is part of the complex geopolitical nature of oil playing a role in recent tensions with Russia. Some subscribe to the belief that Saudi Arabia is attempting to punish U.S. oil shale producers by dropping the price below their cost of production while a growing number of economists believe the oil price drop is clear sign of an impending worldwide recession which is destroying oil demand. With the drop in pricing also come the inevitable cries that Peak Oil advocates are all wrong and that how low oil and gas pricing will effectively derail the renewable energy industries.
With the oil markets now in turmoil, key factors in the U.S. will continue to insure renewable energy development for solar, wind and battery storage go forward and not decline.
Oil is a transportation fuel and not a significant factor in the generation of electricity.
According to the federal Energy Information Agency, in 2000 electricity generated by burning oil and related petroleum liquids accounted for just 3% of U.S. electricity production. By 2014, this decreased to less than 1% of the total for electricity production. Oil has never been major source of electricity production in the U.S. with the possible exception of the Hawaiian Islands. A decade of a hydraulic fracking has not and according to EIA estimates out through 2040, will not increase the role of oil in electricity production. By comparison, the U.S. uses an estimated 20 million plus barrels of oil a day of which the vast majority going into gasoline and diesel fuel to power the more than 253 million cars and trucks on U.S. roads. At an average age of 11.4 years old, fuel economy remains a major issue impacting transportation demand for oil. Solar and wind technologies primarily deal with the direct production of electricity. In the many heated debates positioned as ‘Big Oil versus Clean Energy’, the respective role of the various technologies is often overlooked.
Oil use for heating and hot water is declining in the face of natural gas conversions.
Today oil used for heating is mainly concentrated in the U.S. northeast section of the country. Per the 2009 EIA census of residential fuel use, heating oil was used in about 7.7 million homes with natural gas and propane being used in more than 100 million homes throughout the nation. Commercial and manufacturing use of heating oil is declining as well in favor of natural gas. The true boom of hydraulic fracking over the last decade has come in natural gas production, not oil production. Only one major shale field, the Bakken in Dakotas, is playing any type of meaningful role in U.S. oil production.
As oil and natural gas prices continue to become more unstable due to rising costs of production, renewable energy efficiency increases while its costs continue to decrease.
Unconventional oil and gas production such found in U.S. hydraulic fracking and Canadian Tar Sands involves a significantly higher cost of production than conventional oil and gas production. Per the EIA, in 2002, the average cost of an oil and/or gas well in the U.S. was about $1 million dollars. As wells involving hydraulic fracking began coming on line, the average cost per well quadrupled to $4.2 million dollars by 2007. Today the average unconventional well can cost up to $6.5 million dollars or more depending on the shale formation involved. Most of today’s independent financial analysts state how the oil and gas industry firms need $75.00 to $80.00 a barrel of energy to produce modest rates of return. Today’s low oil and natural gas prices are resulting in miserable financial returns for many industry producers and this can be seen in the recent share price decreases of these firms.
By comparison, costs continue to drop for solar and wind equipment while installation costs also continue to drop as electrical codes standardize construction procedures. Per Bloomberg Energy News, in 2002 the average cost of solar module was in the range of $5.00 to $6.00 on a per watt basis. By 2013, Bloomberg reported the cost per watt had dropped to an average of .74 cents. This past week, Trina Solar announced new world record output efficiencies for their 345 watt per module product line and increases to plus 22% per cell output efficiency. Similar dynamics are now taking place in the area of lithium ion batteries which are expected to play a major role going forward for storing solar and wind produced electricity.
Energy production has never been about nor ever will be about a one source energy source take all.
Many in the various energy industry segments believe they have the source for future energy production. Some nuclear advocates often claim they will be the future of clean energy. Some natural gas advocates continue on in telling everyone the U.S. has a 100 year supply due to hydraulic fracking while some in the coal industry tout a 200 year supply for the country. Likewise some solar and wind advocates believe the world can easily transition over from fossil fuels in the short term when clearly this is not the case. It’s very difficult to estimate the future of all types of energy resources as a complex mix of factors concerning technologies, resource supplies, government regulations and policy and demand all play key roles in the energy mix going forward. As always, it pays to move beyond the headlines and study what the detailed numbers say.
Photo source credit: yalibnan.com
Bob is the Managing Director of Navitus Strategies dedicated to assisting companies in the business development, financing and market acceptance of their clean energy technologies.
He can be reached at: firstname.lastname@example.org or at 267-614-3145.