Natural gas, wind and solar power are now generating more than 40 percent of U.S. electricity according to the U.S. Energy Information Administration and billions more in investment are pouring into these industries with existing incentives. Berkshire Hathaway is investing $13.6 Bln in wind and solar production. Regulatory barriers to energy grids, pipelines and conventional oil and shale development are being reduced. The Dakota Access pipeline is moving Bakken oil to refineries.
The Keystone XL pipeline was always less financially viable and the Canadian oil industry may have successfully found more cost effective alternatives to get their oil into the world market than by building the Keystone. The Keystone was meant to handle Canadian tar-sands development which is not happening at the current price and outlook for crude oil. That simply means that the market will be the final determination of what energy is developed. Right now coal and conventional oil and gas are not as competitive as shale oil/gas development.
New technologies for alternative energy development are making significant advances. For example, Tesla is building a huge battery system in Australia that will store energy from wind/solar power generation. The problem with wind energy is that the wind doesn’t blow all the time while solar generation doesn’t occur at night so when the turbines are not moving and the sun is not shining electricity generation still needs to come from other sources. They do not build new NG plants with the capacity to provide peak needs in order to use them part time. Closed end wind turbine and solar systems, where electricity is stored in batteries for future use may in some cases, complete a wind/solar electricity generation system, without fossil fuel.
While it has taken almost a half century, the US has developed an energy grid that is today, perched on the edge of full self-sufficiency but also has much reduced the cost of energy from the 1980’s oil crisis. The country has truly adopted an “all of the above” solution working the problem from both ends in terms of sources of supply as well as achieving new efficiencies modifying demand to where US energy independence is here. Ethanol was one of the many means to achieve US energy independence providing over 10% of US motor fuel usage. It has done so without government subsidies (beyond development) and while a level of ethanol consumption is mandated by the RFS, the market demands more because the RFS allows it the freedom to function.
There was no single source of energy development that could claim credit for U.S. energy independence. It is the result of many contributions. Everything from CAF standards to Tesla contributed. As much as 20 percent of the U.S. motor fleet could be electric by 2035. Some predict that in 15 years only 20 percent of Americans will even own a personal vehicle. The final push to the finish line is coming from shale development using technology that did not exist just a few years ago.
The irony today is that the only thing that may be holding the U.S. back from surging across the finish line to total energy self-sufficiency is the market – a push to $70 barrel oil. While the shale oil industry can survive current prices it cannot thrive on them. Oil prices above $60 barrel are needed to spur a new major wave of shale development.
The U.S. has invested the most of any nation in its refinery capability able to take the dirtiest heavy crude oil and turn it into something with added value. Europe’s refineries cannot do Venezuelan heavy crude oil justice by comparison. Bakken oil by comparison is so light it barely needs refining which is why there is a risk of fire simply by transporting it by rail. The Dakota Access pipeline is a safety benefit. So the U.S. exports high quality crude and refined products while being the place to go with heavy crude that requires a lot of refining. This contributes to U.S. Energy Independence because we can handle crude from anywhere. With plentiful supplies, that means that we can sell our high-quality crude with exports expected to double to 1 bln gallons per day this year with the top customer for U.S. crude being India with demand from Hong Kong and China also up sharply. Asia buyers took 39 percent of U.S. exports. This oil competes directly with oil from the Persian Gulf region.
The U.S. has the most developed oil/gas industry in the world. It is not just the requirement of having existing energy reserves to feed development but also having the means to do so. That requires capital, cutting edge technology, a trained workforce, transportation infrastructure and a stable political environment for business to function. The U.S. is the only major country in the world that has it all -all of the necessary components of a fully integrated energy system.
Many would argue that the U.S. had no energy plan during the period in which the country developed energy independence but that was hardly the case. The economy sorted out what made sense and the government did more good than harm or we wouldn’t be where we are at today. The U.S. economy is truly remarkable. I will examine the build-up toward geopolitical conflict pushing the U.S. to energy independence in part 2 next week.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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