Climate and Energy Discourse in the US: Diversity and Dissent ...• Nationally, yes, but impact may be questionable – Top-down policies risk disenfranchisement of large constituencies

Climate and Energy Discourse in the US:Diversity and Dissent – What is the Path Forward?

Kenneth B Medlock III, PhDJames A Baker III and Susan G Baker Fellow in Energy and Resource Economics, and

Senior Director, Center for Energy StudiesRice University’s Baker Institute

May 17, 2019

IEEJ：May 2019 © IEEJ2019

The US as a microcosm of the world

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There are economic, social and cultural difference across the US that drive a diversity of perspectives


US energy mix: Change comes slowly, even with policy support

Data Source: US Energy Information Administration

Oil and natural gas remain staples of the US energy mix, accounting for 67.1% of total primary energy use in 2018, up from 62.8% in 1998, which was down from 72.5% in 1978.

The recent decline of coal and the growth of renewables and natural gas is a story of the US power sector.

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US power generation: The roles of legacy, scale and technology

Data Source: US Energy Information Administration

Coal’s precipitous decline: A function of fleet age, and the scale at which new technology – renewables and the extraction and combustion of natural gas –is altering the competitive landscape.

Renewables growth began in earnest after 2000 and has been dominated by wind. Solar is beginning the trek that wind has beenon. Future growth will demand storage technology and/or greater transmission integration.

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A major factor in US policy direction

The two biggest sources of change in the global energy landscape (yet often unmentioned in the energy transitions

context) over the last 15 years:

(1) US Shale and (2) Demand growth in Asia

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Shale has driven an increase in US oil and gas production…• The last 10 years has borne witness to a dramatic shift in US oil and gas production and

stimulated a very different view of the future.– Light tight oil production is now about 60% of domestic output and is Texas-centric, coming from the Permian,

Eagle Ford, Bakken, and Others.– Shale gas production now accounts for over 70% of all domestic dry gas production, and is heavily concentrated

in the Mid-Atlantic and Gulf Coast regions, coming from Marcellus/Utica, Barnett/Eagle Ford/Permian,Haynesville and Others.

Source: Data from US EIA6


… pushing export growth with expanding geographic reach.

Note, in 2008, natural gas exports totaled 2.59 bcfd to 4 different countries.

Source: Data from EIA

Natural Gas Exports

Note, for 2017 petroleum, not all countries are labeled.

Note, in 2008, crude oil and petroleum product exports totaled 1428.5 thous b/d to 87 different countries.

Crude Oil and Petroleum

Products Exports

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Global oil supply growth has been consistent since the mid-1980s, but shale has had the largest impact in the last decade…

8Data Source: BP, 2018

Change in Global Oil Supply, 2007-2017Global Oil Supply, 1987-2017

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… and is much needed for new demands in developing regions.


Change in Global Oil Demand, 2007-2017Global Oil Demand, 1987-2017

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Global gas supply growth has been strong, but, similar to oil, shale has had the largest impact in the last decade…


Change in Global Gas Supply, 2007-2017Global Gas Supply, 1987-2017

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… and is much needed for new demands almost everywhere.


Change in Global Gas Demand, 2007-2017Global Gas Demand, 1987-2017

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US LNG is at the center of a larger “transition” in gas markets...• US LNG exports have averaged over 2,800 mmcf/d in 2018, and reached

over 3,100 mmcf/d in July, which represents a 35x increase in 3 years.

Source: Data from US DOE 12


… and they are poised to grow even more.

• There exists 3.8 bcf/d of LNGexport capacity between SabinePass, Cove Point and Kenai.

• There is another 8.1 bcf/d ofcapacity under construction,setting the stage for a potentialsurge of exports, the vast majorityof which will come from the USGulf Coast.

• Notably, there is another 6.8 bcf/dapproved and 23.6 bcf/d withapplications pending. Source: Data from US FERC and US EIA; Start dates for new capacity are speculative.

• Of course, capacity does not guarantee volume. But, the reality being forged in the PermianBasin has huge implications. Oil-directed activity is bringing large associated gas volumes, andcould open new opportunities. Infrastructure constraints exist, but they are being alleviated.

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Some comments on policy in the US

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Will policy disrupt US oil and gas production?

• Nationally, not likely…– US State Department Bureau of Energy Resources– Overt efforts on both sides of the aisle to connect US energy abundance to allied

interests and foreign policy– Top-down policies risk disenfranchisement of large constituencies– Regardless, there will be a lot of political posturing as we approach 2020

• Locally, more likely, but everywhere is not the same…– Why? Politics are local and the local calculus is different– In areas where energy and economic activity are intertwined, anti-development

campaigns often face significant headwinds– In areas where energy infrastructure is greenfield, there is generally much more

significant resistance to development– Bottom-up policies can capture local constituent support

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Will policy support low carbon initiatives?• Nationally, yes, but impact may be questionable

– Top-down policies risk disenfranchisement of large constituencies– Tax support for carbon capture technologies will grow, as will support for small

scale (modular) nuclear.– There are various levels of R&D support for alternative uses of carbon that could

provide a value proposition, which, if successful, could mitigate the need forspecial tax provisions.

• Locally, yes, but (again) not everywhere is the same…– Why? Politics are local and the local calculus is different.– Bottom-up policies can capture local constituent support– Local resource endowments will be a significant driver of economic success, and

policy support tips the scales.• Wind in Texas: More capacity than the rest of the US combined. A virtual perfect storm that

results from market structure, policy support, and a fantastic wind resource. Interestingly, this ishappening even as rapid oil and gas production growth occurs in co-located regions. 16


Does history repeat itself?

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• The early 1980s was a period of robustinterest in renewable energy and distributedgeneration. Why?

- High oil prices and energy security.- Natural gas supply concerns.

• What happened?- Fuel costs fell and efficiency increased.- Fixed costs of adoption matter.- Coal expanded.

• How is the present different?- Renewables costs are lower and coal is

encumbered, each a function of policy.- Energy and environmental security.- Natural gas supply is robust.

• Are recent developments lasting?- Drivers today are different… 17


Innovation is the key to long term prosperity, and today’s youth will change the world… for all energy sources!

• It is incumbent on governments and the private sector to engage today’s youth in a constructive manner.Demonizing particular fuel sources will not eliminate their use around the world, much less in the US, butproactively addressing technical challenges can ultimately mitigate externalities.

• Hydrocarbons will continue to be a part of the energy future, but the challenges of the day must be addressed.- https://www.forbes.com/sites/thebakersinstitute/2018/11/05/millennials-oil-and-gas-and-the-energy-transition/#786ecbde65dc 18


https://www.forbes.com/sites/thebakersinstitute/2018/11/05/millennials-oil-and-gas-and-the-energy-transition/#786ecbde65dc


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Documents

Climate and Energy Discourse in the US: Diversity and Dissent ...• Nationally, yes, but impact may be questionable – Top-down policies risk disenfranchisement of large constituencies