US energy policy for the coming decade will be shaped by two disasters less than a year apart: the Deepwater Horizon explosion and blow-out in the Gulf of Mexico in April 2010, and the Sendai earthquake and tsunami less than a year later.
The first has led to significant curbs on future supply of fossil fuels in the US; the second is likely to cause a significant increase in demand.
As a consequence, the price of US natural gas is likely to be pushed higher, and the country’s reliance on imported oil, which has been falling since 2006, may stop declining, or even rise.
In Washington, the political heat has been centred on the debate over the powers of the Environmental Protection Agency, the government regulator, to control emissions of carbon dioxide and toxic pollutants from power stations.
The outcome of that argument, which divides on broadly party-political lines between Republicans and Democrats, will also be important for shaping the energy landscape of the 2010s.
Yet the most profound influences are likely to be the policy responses to those two very different disasters.
On the supply side, the question will be how far the federal and state authorities allow domestic US oil and gas production to grow.
At the time of writing, just two permits for drilling deepwater wells in the Gulf of Mexico had been awarded by the offshore regulator since Deepwater Horizon.
The slowdown in awarding permits, even after the formal lifting of the moratorium on deepwater drilling last October, appears already to be having an impact on oil production in the gulf, and that drag on output will grow greater with every passing month.
George Kirkland, the head of exploration and production at Chevron, the second-largest US oil company, told the Financial Times that the combined effects of the moratorium and the subsequent “permitorium” – the slow pace of new approvals – had set the company’s plans for the development in the gulf back by a full year.
Its deepwater project Jack/St Malo, which is scheduled to come on stream in 2014, will have to begin with less production than was originally planned, because the company will be able to drill fewer wells.
The story of the deepwater slowdown is important for its own sake, and also for what it says about the approach to energy policy in the US.
Faced with a high-profile crisis, the authorities’ natural response was to reach for the blunt instrument of regulation, and not to worry too much about the collateral damage to companies working there, or US energy supplies.
The obvious next candidate for such a reaction is the shale gas and oil industry, which extracts resources from regions once thought to be uneconomic, via long horizontal wells, fracturing the rocks by injecting water under higher pressure.
“Fracking”, as it is known, has become increasingly controversial, featuring in the Oscar-nominated documentary Gasland, and drawing increasingly vocal protests from residents of northern states such as New York and Pennsylvania, where drilling and fracking are either proposed or already under way.
The industry argues that there has not been a single proved case of contamination of groundwater with escaped “fracking fluids” – water and sand mixed with chemical additives.
But just one confirmed incident could deal a huge blow to an industry that, after a few years of significant growth, now seems capable of making an important contribution to US energy security.
On the demand side, the main variable is the use of natural gas for power generation.
The US gets about 50 per cent of its electricity from coal-fired plants, and a further 20 per cent from nuclear.
Many plants of both types are approaching the end of their working lives, and will need to be replaced.
The proposed EPA regulations curbing poisonous emissions from power stations will accelerate the end for some old coal plants, if owners decide it is not worth investing in the improvements needed to meet the standards.
Meanwhile, after the events in Japan, electricity companies will be much less likely to be able to secure the financing and regulatory approval they need to build a nuclear plant, or even get approval for a life extension for an old one, even though regulators have already allowed extensions for 63 of 104 reactors.
With electricity use on a long-term upward trend, thanks to the growing number of gadgets in homes, the plant closures will mean a shrinking margin of excess generation capacity, implying a greater risk of problems on the network, up to and including blackouts.
To avoid that, generators are likely to go for the quickest and easiest routes to building new capacity, which means building new gas-fired plants.
The fact that US natural gas prices are now very low adds to the appeal of gas-fired generation.
The problem is that US politicians are under pressure to do three things that cannot be reconciled: meet increased demand for gas, while not increasing either domestic production or – for reasons of energy security– imports.
For now, these contradictions can be partially set aside, but there may come a time, such as in the aftermath of the next catastrophe, when they can no longer be ignored.
Source: www.ft.com
The first has led to significant curbs on future supply of fossil fuels in the US; the second is likely to cause a significant increase in demand.
As a consequence, the price of US natural gas is likely to be pushed higher, and the country’s reliance on imported oil, which has been falling since 2006, may stop declining, or even rise.
In Washington, the political heat has been centred on the debate over the powers of the Environmental Protection Agency, the government regulator, to control emissions of carbon dioxide and toxic pollutants from power stations.
The outcome of that argument, which divides on broadly party-political lines between Republicans and Democrats, will also be important for shaping the energy landscape of the 2010s.
Yet the most profound influences are likely to be the policy responses to those two very different disasters.
On the supply side, the question will be how far the federal and state authorities allow domestic US oil and gas production to grow.
At the time of writing, just two permits for drilling deepwater wells in the Gulf of Mexico had been awarded by the offshore regulator since Deepwater Horizon.
The slowdown in awarding permits, even after the formal lifting of the moratorium on deepwater drilling last October, appears already to be having an impact on oil production in the gulf, and that drag on output will grow greater with every passing month.
George Kirkland, the head of exploration and production at Chevron, the second-largest US oil company, told the Financial Times that the combined effects of the moratorium and the subsequent “permitorium” – the slow pace of new approvals – had set the company’s plans for the development in the gulf back by a full year.
Its deepwater project Jack/St Malo, which is scheduled to come on stream in 2014, will have to begin with less production than was originally planned, because the company will be able to drill fewer wells.
The story of the deepwater slowdown is important for its own sake, and also for what it says about the approach to energy policy in the US.
Faced with a high-profile crisis, the authorities’ natural response was to reach for the blunt instrument of regulation, and not to worry too much about the collateral damage to companies working there, or US energy supplies.
The obvious next candidate for such a reaction is the shale gas and oil industry, which extracts resources from regions once thought to be uneconomic, via long horizontal wells, fracturing the rocks by injecting water under higher pressure.
“Fracking”, as it is known, has become increasingly controversial, featuring in the Oscar-nominated documentary Gasland, and drawing increasingly vocal protests from residents of northern states such as New York and Pennsylvania, where drilling and fracking are either proposed or already under way.
The industry argues that there has not been a single proved case of contamination of groundwater with escaped “fracking fluids” – water and sand mixed with chemical additives.
But just one confirmed incident could deal a huge blow to an industry that, after a few years of significant growth, now seems capable of making an important contribution to US energy security.
On the demand side, the main variable is the use of natural gas for power generation.
The US gets about 50 per cent of its electricity from coal-fired plants, and a further 20 per cent from nuclear.
Many plants of both types are approaching the end of their working lives, and will need to be replaced.
The proposed EPA regulations curbing poisonous emissions from power stations will accelerate the end for some old coal plants, if owners decide it is not worth investing in the improvements needed to meet the standards.
Meanwhile, after the events in Japan, electricity companies will be much less likely to be able to secure the financing and regulatory approval they need to build a nuclear plant, or even get approval for a life extension for an old one, even though regulators have already allowed extensions for 63 of 104 reactors.
With electricity use on a long-term upward trend, thanks to the growing number of gadgets in homes, the plant closures will mean a shrinking margin of excess generation capacity, implying a greater risk of problems on the network, up to and including blackouts.
To avoid that, generators are likely to go for the quickest and easiest routes to building new capacity, which means building new gas-fired plants.
The fact that US natural gas prices are now very low adds to the appeal of gas-fired generation.
The problem is that US politicians are under pressure to do three things that cannot be reconciled: meet increased demand for gas, while not increasing either domestic production or – for reasons of energy security– imports.
For now, these contradictions can be partially set aside, but there may come a time, such as in the aftermath of the next catastrophe, when they can no longer be ignored.
Source: www.ft.com
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