Easwaran Kanason

Co - founder of NrgEdge
Last Updated: March 21, 2018
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Business Trends
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Last week, OPEC sounded an alarm. Previously hopeful that the global crude markets would be balanced by June, which would allow it to walk back on the supply freeze that propped prices up at the cost of OPEC market share, the OPEC monthly report raised its expectations for non-OPEC supply for a fourth consecutive month. OPEC now expects global oil demand to grow by 1.6 mmb/d this year, which is more than previously expected. However, non-OPEC oil supplies will grow by 1.66 mmb/d, more than covering demand. The culprit, as always, is the US, where output is expected to grow by 12%. And this is not even the most optimistic forecast; the IEA expects non-OPEC supplies to grow by 1.8 mmb/d this year.

While this has near term implications – Saudi Arabia has already signalled that the OPEC supply curbs may have to extend into 2019 – the more important question is, how far can shale go? American oil production can consistently surpassed expectations over the past year, as the recovery in oil prices triggered a return rush to shale drilling. This will help US oil production reach 11 mmb/d by Q418; it could be even earlier, based on current production trends. By 2030, BP expects US shale oil to grow to 10 mmb/d, almost double its current level.

Despite the base case for shale production being constantly revised upwards – requiring lower long-term oil prices to clear – it is worth asking how realistic it is. There are suggestions that American shale production could hitting the wall; not because the of finite reserves in the Permian, but because of technology limitations. The application of new technology does not in itself create new energy, it only improves the recovery of hydrocarbons and at a faster rate. As reported in CNBC, "Mark Papa, a pioneer in the U.S. shale oil revolution, is warning that forecasts for booming U.S. production growth will leave industry watchers disappointed in the coming years as drillers burn through their best wells and tighten their purse strings. The impression of U.S. shale as the big bad wolf is perhaps a bit overstated, Papa told an audience at this year's CERAWeek by IHS Markit in Houston this year. Papa's comments were a stark contrast to the tone of cautious optimism at the conference, where many executives claimed that data analytics and technology, like machine learning, will improve efficiency in the oil patch and fuel further gains." Most people are focused on additions to the US rig count, productivity rates in shale wells are actually declining, while costs per well are rising. Major players seem to be mitigating this by creating larger fields by connecting wells, but there is also a looming logistical and manpower crunch. The WSJ reports that "Oil infrastructure is the most glaring constraint to limitless growth in U.S. shale output, said analysts for Energy Aspects in a recent note. The Permian basin had 10 oil takeaway pipelines with a combined capacity of 2.92 million barrels a day as of February 2018, said analysts. There will be a shortage of takeaway capacity in the Permian by August, which will only get worse into year-end, noted experts." This suggests that while shale production is still on the steep part of its growth curve, that could soon plateau out and that long-term forecasts are overstated. That would be good news for oil prices in the long run.

However, there are signs that the opposite could be true. Investment into shale players is increasing, giving them more funds to play with. With money, come more interest – solving, or at least, mitigating most of the upcoming bottlenecks. It seems that either more debt through borrowings or the capital markets is driving this production surge, particularly in the USA. However it is worth noting that the USA is not the only place the shale revolution is taking place. By the end of this month, Saudi Arabia will have produced its first shale gas from the North Arabia basin. The giant South Ghawar and Jafurah basins – which reportedly rival Eagle Ford in size – are also underway. Promising finds are improving moods in China and Argentina shale as well, while the UK drilled its first shale well last year. Even if the American shale revolution hits the brakes, the movement could continue elsewhere, which would mean that current non-US share oil production forecasts maybe understated? There is little data out there about the profitability or economics of non-US shale fields. 

Both the low and high scenarios make compelling cases. Both, however are closely tied to current developments in US oil production. Ultimately the base case for shale will depend on economics but more importantly the demand for hydrocarbons in the medium to long term. If oil demand keeps growing, so will the need for more oil, but any large surge would only dampen prices all over again, effectively killing shale production. So can shale go far, technically possible, as there are proven reserves all around the world that are still untapped. But like with everything else, it's the economics and geopolitical factors that will define its days ahead. 

Various production forecasts for American shale tight oil production 

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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.

Biofuels, including fuel ethanol, biodiesel, and other renewable fuels, accounted for about 20% of U.S. renewable energy consumption in 2019. Biofuels usually are blended with petroleum-based motor gasoline and diesel and are consumed as liquid fuels in automobiles. Industrial consumption of biofuels accounts for about 36% of U.S. biofuel energy consumption.

Solar energy, consumed to generate electricity or directly as heat, accounted for about 9% of U.S. renewable energy consumption in 2019 and had the largest percentage growth among renewable sources in 2019. Solar photovoltaic (PV) cells, including rooftop panels, and solar thermal power plants use sunlight to generate electricity. Some residential and commercial buildings heat with solar heating systems.

October, 20 2020
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.

Technological improvements have led to improved efficiency of natural gas generators since the mid-1980s, when combined-cycle plants began replacing older, less efficient steam turbines. For steam turbines, boilers combust fuel to generate steam that drives a turbine to generate electricity. Combustion turbines use a fuel-air mixture to spin a gas turbine. Combined-cycle units, as their name implies, combine these technologies: a fuel-air mixture spins gas turbines to generate electricity, and the excess heat from the gas turbine is used to generate steam for a steam turbine that generates additional electricity.

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.

October, 19 2020
EIA’s International Energy Outlook analyzes electricity markets in India, Africa, and Asia

Countries that are not members of the Organization for Economic Cooperation and Development (OECD) in Asia, including China and India, and in Africa are home to more than two-thirds of the world population. These regions accounted for 44% of primary energy consumed by the electric sector in 2019, and the U.S. Energy Information Administration (EIA) projected they will reach 56% by 2050 in the Reference case in the International Energy Outlook 2019 (IEO2019). Changes in these economies significantly affect global energy markets.

Today, EIA is releasing its International Energy Outlook 2020 (IEO2020), which analyzes generating technology, fuel price, and infrastructure uncertainty in the electricity markets of Africa, Asia, and India. A related webcast presentation will begin this morning at 9:00 a.m. Eastern Time from the Center for Strategic and International Studies.

global energy consumption for power generation

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

IEO2020 focuses on the electricity sector, which consumes a growing share of the world’s primary energy. The makeup of the electricity sector is changing rapidly. The use of cost-efficient wind and solar technologies is increasing, and, in many regions of the world, use of lower-cost liquefied natural gas is also increasing. In IEO2019, EIA projected renewables to rise from about 20% of total energy consumed for electricity generation in 2010 to the largest single energy source by 2050.

The following are some key findings of IEO2020:

  • As energy use grows in Asia, some cases indicate more than 50% of electricity could be generated from renewables by 2050.
    IEO2020 features cases that consider differing natural gas prices and renewable energy capital costs in Asia, showing how these costs could shift the fuel mix for generating electricity in the region either further toward fossil fuels or toward renewables.
  • Africa could meet its electricity growth needs in different ways depending on whether development comes as an expansion of the central grid or as off-grid systems.
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  • Transmission infrastructure affects options available to change the future fuel mix for electricity generation in India.
    IEO2020 cases demonstrate the ways that electricity grid interconnections influence fuel choices for electricity generation in India. In cases where India relies more on a unified grid that can transmit electricity across regions, the share of renewables significantly increases and the share of coal decreases between 2019 and 2050. More limited movement of electricity favors existing in-region generation, which is mostly fossil fuels.

IEO2020 builds on the Reference case presented in IEO2019. The models, economic assumptions, and input oil prices from the IEO2019 Reference case largely remained unchanged, but EIA adjusted specific elements or assumptions to explore areas of uncertainty such as the rapid growth of renewable energy.

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.

With the IEO2020 release, EIA is publishing new Plain Language documentation of EIA’s World Energy Projection System (WEPS), the modeling system that EIA uses to produce IEO projections. EIA’s new Handbook of Energy Modeling Methods includes sections on most WEPS components, and EIA will release more sections in the coming months.

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