Japanese utility Kansai Electric lost all its nuclear output in March, following a court injunction challenging the recent restart of its Takahama 3 and 4 reactors. On the other side of the Pacific Ocean, for the citizens of Brazil, rain proved a welcome distraction from the country’s political crisis, while in Syria an uneasy truce has broken out amongst the country’s warring factions.
In the ancient city of Rome, the executives of Italian oil and gas major Eni are pondering the wisdom of a multi-billion dollar investment decision in Mozambique, a decision they expect to take this year – but also one they had hoped to take last year. The thread that binds these seemingly disconnected events together, and which would change the regional East African economy forever, is LNG.
Japan is the world’s largest consumer of LNG and national demand for the commodity hit record highs in the aftermath of the devastating Fukushima nuclear disaster. That calamitous event saw all of the country’s substantial nuclear capacity come offline, raising oil, LNG and coal demand in a desperate attempt to generate enough electricity to keep the economy afloat.
Japan’s LNG imports jumped from 85.90 Bcm in 2009 to 120.6 Bcm in 2014, representing 36.2% of world LNG trade. The country’s coal demand rose from 108.8 million tons of oil equivalent to 128.6 mtoe in 2013, and the disaster briefly reversed a decade-long decline in Japanese oil demand.
However, Fukushima also sparked a boom in solar power, one of the few technologies that offers both a reduction in Japan’s dependency on imported energy commodities and lower greenhouse gas emissions, and, perhaps long-term, a deeper structural shift in the country’s primary energy supply. Japanese LNG demand is set to decline over the long-term, and, if the world’s largest LNG market is contracting, LNG suppliers need to look elsewhere for demand growth.
Rainfall in the Amazon
They could look to Latin America. Back across the Pacific, as the Takahama reactor turbines slowed, the residents of Sao Paulo, South America’s largest city, reached their arms into the air to welcome the rain. Brazil has been suffering a savage two-year drought, which has led to sometimes severe water rationing. Throughout 2015, Sao Paulo’s largest reservoir, Cantareira, was churning the muddy water below pump level.
Levels in Brazil’s vast hydroelectric reservoirs plummeted. Given the country’s dependence on hydropower, the only alternative was to ramp up LNG imports, a situation faced by all of the continent’s major economies. Between 2009 and 2014, South and Central America’s LNG imports leapt from 3.27 Bcm to 21.4 Bcm, an almost sevenfold increase, marking the emergence of a major new, but volatile, market for the commodity. However, how consistent this demand proves to be depends on the rain and Argentina’s ability to develop its own massive shale oil and gas reserves.
Sending coal to Newcastle
Perhaps more surprisingly, given its own natural gas endowment, the Middle East too has become a new market for LNG. Kuwait, Egypt, Israel and the United Arab Emirates all now import LNG. Conflict and political division have long obstructed the development of regional gas pipelines that would have made these LNG import facilities unnecessary. Peace in Syria, if it holds long term, could ultimately see the resumption of plans to pipe gas between the states of the Middle East and perhaps even further afield to Europe. But then again, peace may prove a double-edged sword for LNG; many of today’s LNG importers are potentially tomorrow’s exporters.
Surplus to requirements
The LNG industry has already entered a period of surplus and has a long list of projects under construction on which it is too late to turn back. This will bring ever-rising supply out to 2020. Yet what were once flourishing markets now look less certain, a reminder that expectations can change radically in less than a decade. The spot price of LNG is now close to a fifth of post-Fukushima levels.
As the Argentinean government moves to protect the development of its shale oil and gas reserves from low prices, perhaps the most salutary reminder of all is the US shale revolution. Seen less than a decade ago as huge new market for LNG imports, the US is on the cusp of becoming a major exporter.
Decision time in Rome
What then for the executives in Rome? Do they commit billions of dollars to their giant gas finds offshore East Africa, gambling that Japanese public opinion will turn against its nuclear industry, that rainfall in the Amazon basin will be low, that Argentina will fail in its quest for energy independence, and that the Middle East will never achieve meaningful inter-regional energy cooperation?
And what of renewables, which in Europe and the United States now hold the largest share of newly- installed generating capacity? The renewables boom continues to spread and its technologies to develop, boosted by the historic Paris Agreement on Climate Change agreed upon last December.
Yet coal use worldwide appears to be peaking and its fall may prove LNG’s opportunity. The short-term outlook appears fairly certain; LNG is in oversupply and will remain cheap for the next two to three years at least, but this itself may give it a more central role in countries’ energy plans. That is the gamble that companies hoping to develop new projects must consider. LNG is the cleanest of the fossil fuels, but a
fossil fuel nonetheless and an imported one to boot.
Ross McCracken, Managing editor, Energy Economist
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The constant domestic fighting in Libya – a civil war, to call a spade a spade, has taken a toll on the once-prolific oil production in the North African country. After nearly a decade of turmoil, it appears now that the violent clash between the UN-recognised government in Tripoli and the upstart insurgent Libyan National Army (LNA) forces could be ameliorating into something less destructive with the announcement of a pact between the two sides that would to some normalisation of oil production and exports.
A quick recap. Since the 2011 uprising that ended the rule of dictator Muammar Gaddafi, Libya has been in a state of perpetual turmoil. Led by General Khalifa Haftar and the remnants of loyalists that fought under Gaddafi’s full-green flag, the Libyan National Army stands in direct opposition to the UN-backed Government of National Accord (GNA) that was formed in 2015. Caught between the two sides are the Libyan people and Libya’s oilfields. Access to key oilfields and key port facilities has changed hands constantly over the past few years, resulting in a start-stop rhythm that has sapped productivity and, more than once, forced Libya’s National Oil Corporation (NOC) to issue force majeure on its exports. Libya’s largest producing field, El Sharara, has had to stop production because of Haftar’s militia aggression no fewer than four times in the past four years. At one point, all seven of Libya’s oil ports – including Zawiyah (350 kb/d), Es Sider (360 kb/d) and Ras Lanuf (230 kb/d) were blockaded as pipelines ran dry. For a country that used to produce an average of 1.2 mmb/d of crude oil, currently output stands at only 80,000 b/d and exports considerably less. Gaddafi might have been an abhorrent strongman, but political stability can have its pros.
This mutually-destructive impasse, economically, at least might be lifted, at least partially, if the GNA and LNA follow through with their agreement to let Libyan oil flow again. The deal, brokered in Moscow between the warlord Haftar and Vice President of the Libyan Presidential Council Ahmed Maiteeq calls for the ‘unrestrained’ resumption of crude oil production that has been at a near standstill since January 2020. The caveat because there always is one, is that Haftar demanded that oil revenues be ‘distributed fairly’ in order to lift the blockade he has initiated across most of the country’s upstream infrastructure.
Shortly after the announcement of the deal, the NOC announced that it would kick off restarting oil production and exports, lifting an 8-month force majeure situation, but only at ‘secure terminals and facilities’. ‘Secure’ in this cases means facilities and fields where NOC has full control, but will exclude areas and assets that the LNA rebels still have control. That’s a significant limitation, since the LNA, which includes support from local tribal groups and Russian mercenaries still controls key oilfields and terminals. But it is also a softening from the NOC, which had previously stated that it would only return to operations when all rebels had left all facilities, citing safety of its staff.
If the deal moves forward, it would certainly be an improvement to the major economic crisis faced by Libya, where cash flow has dried up and basic utilities face severe cutbacks. But it is still an ‘if’. Many within the GNA sphere are critical of the deal struck by Maiteeq, claiming that it did not involve the consultation or input of his allies. The current GNA leader, Prime Minister Fayyaz al Sarraj is also stepping down at the end of October, ushering in another political sea change that could affect the deal. Haftar is a mercurial beast, so predictions are difficult, but what is certain is that depriving a country of its chief moneymaker is a recipe for disaster on all sides. Which is why the deal will probably go ahead.
Which is bad news for the OPEC+ club. Because of its precarious situation, Libya has been exempt for the current OPEC+ supply deal. Even the best case scenarios within OPEC+ had factored out Libya, given the severe uncertainty of the situation there. But if the deal goes through and holds, it could potentially add a significant amount of restored crude supply to global markets at a time when OPEC+ itself is struggling to manage the quotas within its own, from recalcitrant members like Iraq to surprising flouters like the UAE.
Mathematically at least, the ceiling for restored Libyan production is likely in the 300-400,000 b/d range, given that Haftar is still in control of the main fields and ports. That does not seem like much, but it will give cause for dissent within OPEC on the exemption of Libya from the supply deal. Libya will resist being roped into the supply deal, and it has justification to do so. But freeing those Libyan volumes into a world market that is already suffering from oversupply and weak prices will be undermining in nature. The equation has changed, and the Libyan situation can no longer be taken for granted.
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According to 2018 data from the U.S. Energy Information Administration (EIA) for newly constructed utility-scale electric generators in the United States, annual capacity-weighted average construction costs for solar photovoltaic systems and onshore wind turbines have continued to decrease. Natural gas generator costs also decreased slightly in 2018.
From 2013 to 2018, costs for solar fell 50%, costs for wind fell 27%, and costs for natural gas fell 13%. Together, these three generation technologies accounted for more than 98% of total capacity added to the electricity grid in the United States in 2018. Investment in U.S. electric-generating capacity in 2018 increased by 9.3% from 2017, driven by natural gas capacity additions.
The average construction cost for solar photovoltaic generators is higher than wind and natural gas generators on a dollar-per-kilowatt basis, although the gap is narrowing as the cost of solar falls rapidly. From 2017 to 2018, the average construction cost of solar in the United States fell 21% to $1,848 per kilowatt (kW). The decrease was driven by falling costs for crystalline silicon fixed-tilt panels, which were at their lowest average construction cost of $1,767 per kW in 2018.
Crystalline silicon fixed-tilt panels—which accounted for more than one-third of the solar capacity added in the United States in 2018, at 1.7 gigawatts (GW)—had the second-highest share of solar capacity additions by technology. Crystalline silicon axis-based tracking panels had the highest share, with 2.0 GW (41% of total solar capacity additions) of added generating capacity at an average cost of $1,834 per kW.
Total U.S. wind capacity additions increased 18% from 2017 to 2018 as the average construction cost for wind turbines dropped 16% to $1,382 per kW. All wind farm size classes had lower average construction costs in 2018. The largest decreases were at wind farms with 1 megawatt (MW) to 25 MW of capacity; construction costs at these farms decreased by 22.6% to $1,790 per kW.
Compared with other generation technologies, natural gas technologies received the highest U.S. investment in 2018, accounting for 46% of total capacity additions for all energy sources. Growth in natural gas electric-generating capacity was led by significant additions in new capacity from combined-cycle facilities, which almost doubled the previous year’s additions for that technology. Combined-cycle technology construction costs dropped by 4% in 2018 to $858 per kW.
Fossil fuels, or energy sources formed in the Earth’s crust from decayed organic material, including petroleum, natural gas, and coal, continue to account for the largest share of energy production and consumption in the United States. In 2019, 80% of domestic energy production was from fossil fuels, and 80% of domestic energy consumption originated from fossil fuels.
The U.S. Energy Information Administration (EIA) publishes the U.S. total energy flow diagram to visualize U.S. energy from primary energy supply (production and imports) to disposition (consumption, exports, and net stock additions). In this diagram, losses that take place when primary energy sources are converted into electricity are allocated proportionally to the end-use sectors. The result is a visualization that associates the primary energy consumed to generate electricity with the end-use sectors of the retail electricity sales customers, even though the amount of electric energy end users directly consumed was significantly less.
Source: U.S. Energy Information Administration, Monthly Energy Review
The share of U.S. total energy production from fossil fuels peaked in 1966 at 93%. Total fossil fuel production has continued to rise, but production has also risen for non-fossil fuel sources such as nuclear power and renewables. As a result, fossil fuels have accounted for about 80% of U.S. energy production in the past decade.
Since 2008, U.S. production of crude oil, dry natural gas, and natural gas plant liquids (NGPL) has increased by 15 quadrillion British thermal units (quads), 14 quads, and 4 quads, respectively. These increases have more than offset decreasing coal production, which has fallen 10 quads since its peak in 2008.
Source: U.S. Energy Information Administration, Monthly Energy Review
In 2019, U.S. energy production exceeded energy consumption for the first time since 1957, and U.S. energy exports exceeded energy imports for the first time since 1952. U.S. energy net imports as a share of consumption peaked in 2005 at 30%. Although energy net imports fell below zero in 2019, many regions of the United States still import significant amounts of energy.
Most U.S. energy trade is from petroleum (crude oil and petroleum products), which accounted for 69% of energy exports and 86% of energy imports in 2019. Much of the imported crude oil is processed by U.S. refineries and is then exported as petroleum products. Petroleum products accounted for 42% of total U.S. energy exports in 2019.
Source: U.S. Energy Information Administration, Monthly Energy Review
The share of U.S. total energy consumption that originated from fossil fuels has fallen from its peak of 94% in 1966 to 80% in 2019. The total amount of fossil fuels consumed in the United States has also fallen from its peak of 86 quads in 2007. Since then, coal consumption has decreased by 11 quads. In 2019, renewable energy consumption in the United States surpassed coal consumption for the first time. The decrease in coal consumption, along with a 3-quad decrease in petroleum consumption, more than offset an 8-quad increase in natural gas consumption.
EIA previously published articles explaining the energy flows of petroleum, natural gas, coal, and electricity. More information about total energy consumption, production, trade, and emissions is available in EIA’s Monthly Energy Review.
Principal contributor: Bill Sanchez