Easwaran Kanason

Co - founder of NrgEdge
Last Updated: November 26, 2017
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Business Trends
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As it does every November, OPEC is convening once again in Vienna. In the past, such meetings have been more prosaic affairs, but of late, they have taken utmost significance. The current OPEC supply freeze deal (brokered together with Russia and several other important Non-OPEC countries) was formally detailed at last year’s meeting. The main question at this year’s meeting is: will OPEC extend the cuts beyond their current March 2018 end-date?

All signs point to yes. A draft agenda published for the November 30 meeting allocates three hours for discussion on the matter. Last year’s discussions reportedly stretched into the wee hours of the morning. That is a good indication that things are expected to proceed smoothly, if they haven’t already been locked in already. This is despite geopolitical tensions between several Middle Eastern OPEC countries, lining up into a pro-Saudi Arabia and pro-Iran block. Language by various OPEC oil ministers over the past two weeks indicate support for continuing the freeze, viewing it even as necessary. Oddly, Saudi Arabia has been the cagiest so far, but this may be posturing to make more of an impact.

The wider oil industry expects thinks an extension is guaranteed. They would seem to be right. What is likeliest to happen is that the current supply freeze gets extended by 9 months to December 31, 2018. The existing supply quotas will be maintained, but not deepened. It is likely to Libya and Nigeria will have to agree to some cuts, given that they were exempt from the last round. The market will view this as enough to maintain crude prices at a floor of US$60/b; breaking beyond this range would require deeper concession than OPEC is willing to do, out of the question if you follow its language so far. So good, but not great. Given the length of the oil downturn, however, that’s not a bad position to be in.

Winners & Losers of an OPEC extension for another 9 months

Winners

  • Upstream oil operators: Sustaining the current US$60/b oil is better than what the industry was expecting based on previous projections of circa US$50/b earlier this year
  • OPEC and NOPEC. Proving once again that it still holds significant clout while also helping its member states sustain their economic programs
  • Unconventional oil. If crude prices can sustain their levels above US$60/b, it may just bring assets like Canadian oil sands back in play?
  • US shale production. Support for higher prices will spur if not sustain output growth in the US, already at record highs
  • Oil bulls. However, a mere extension will not be enough to lift prices above US$70/b
  • Upstream service, infrastructure and technology companies. While stable crude prices may encourage investment for projects, it won’t be at high enough levels
  • Oil company employees and jobs. Increased job security for oil employees, and openings for new work opportunities for new industry entrants or those keen to re-enter the industry again. (forget fat bonuses though!)

Losers

  • Libya and Nigeria. Exempt previously due to internal conflict, they should be subject this time
  • OPEC market share. As major refiners looks elsewhere, especially the in US for cheaper supply
  • Downstream refining. The current healthy margin enjoyed maybe slightly squeezed
  • Oil bears. If the extension does go ahead, it will set a stable floor of US$60/b for Brent
  • Gasoline prices. Expect to pay more at the petrol station as higher retail prices set in
  • Consumer Inflation. As steady higher crude prices feed into the wider economy
  • Long term demand. Higher oil prices may also impact the overall demand for oil, removing its cost competitiveness from other energy sources
  • Emissions. Sustained oil production and on-going consumption may contribute further to the carbon emissions debate

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The United States consumed a record amount of renewable energy in 2019

In 2019, consumption of renewable energy in the United States grew for the fourth year in a row, reaching a record 11.5 quadrillion British thermal units (Btu), or 11% of total U.S. energy consumption. The U.S. Energy Information Administration’s (EIA) new U.S. renewable energy consumption by source and sector chart published in the Monthly Energy Review shows how much renewable energy by source is consumed in each sector.

In its Monthly Energy Review, EIA converts sources of energy to common units of heat, called British thermal units (Btu), to compare different types of energy that are more commonly measured in units that are not directly comparable, such as gallons of biofuels compared with kilowatthours of wind energy. EIA uses a fossil fuel equivalence to calculate primary energy consumption of noncombustible renewables such as wind, hydro, solar, and geothermal.

U.S. renewable energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

Wind energy in the United States is almost exclusively used by wind-powered turbines to generate electricity in the electric power sector, and it accounted for about 24% of U.S. renewable energy consumption in 2019. Wind surpassed hydroelectricity to become the most-consumed source of renewable energy on an annual basis in 2019.

Wood and waste energy, including wood, wood pellets, and biomass waste from landfills, accounted for about 24% of U.S. renewable energy use in 2019. Industrial, commercial, and electric power facilities use wood and waste as fuel to generate electricity, to produce heat, and to manufacture goods. About 2% of U.S. households used wood as their primary source of heat in 2019.

Hydroelectric power is almost exclusively used by water-powered turbines to generate electricity in the electric power sector and accounted for about 22% of U.S. renewable energy consumption in 2019. U.S. hydropower consumption has remained relatively consistent since the 1960s, but it fluctuates with seasonal rainfall and drought conditions.

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Natural gas generators make up largest share of U.S. electricity generation capacity

operating natural-gas fired electric generating capacity by online year

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Based on the U.S. Energy Information Administration's (EIA) annual survey of electric generators, natural gas-fired generators accounted for 43% of operating U.S. electricity generating capacity in 2019. These natural gas-fired generators provided 39% of electricity generation in 2019, more than any other source. Most of the natural gas-fired capacity added in recent decades uses combined-cycle technology, which surpassed coal-fired generators in 2018 to become the technology with the most electricity generating capacity in the United States.

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Combined-cycle generators generally operate for extended periods; combustion turbines and steam turbines are typically only used at times of peak load. Relatively few steam turbines have been installed since the late 1970s, and many steam turbines have been retired in recent years.

natural gas-fired electric gnerating capacity by retirement year

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Not only are combined-cycle systems more efficient than steam or combustion turbines alone, the combined-cycle systems installed more recently are more efficient than the combined-cycle units installed more than a decade ago. These changes in efficiency have reduced the amount of natural gas needed to produce the same amount of electricity. Combined-cycle generators consume 80% of the natural gas used to generate electric power but provide 85% of total natural gas-fired electricity.

operating natural gas-fired electric generating capacity in selected states

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Every U.S. state, except Vermont and Hawaii, has at least one utility-scale natural gas electric power plant. Texas, Florida, and California—the three states with the most electricity consumption in 2019—each have more than 35 gigawatts of natural gas-fired capacity. In many states, the majority of this capacity is combined-cycle technology, but 44% of New York’s natural gas capacity is steam turbines and 67% of Illinois’s natural gas capacity is combustion turbines.

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global energy consumption for power generation

Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)

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Because IEO2020 is based on the IEO2019 modeling platform and because it focuses on long-term electricity market dynamics, it does not include the impacts of COVID-19 and related mitigation efforts. The Annual Energy Outlook 2021 (AEO2021) and IEO2021 will both feature analyses of the impact of COVID-19 mitigation efforts on energy markets.

Asia infographic, as described in the article text


Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)
Note: Click to enlarge.

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