Oil: Gasoline Gets Expensive Again

The financial collapse of September 2008 took the wind out of oil’s bullish run from $10 per barrel in the late 1990s to over $140 in mid-2008. But as the US economy regains its footing (even the housing sector by late 2011), gasoline is shooting back up toward $4 per gallon. Prices recently climbed back above $3 per gallon – meaning that Americans are again sending over $1 billion per day for overseas imports to serve our oil addiction.  It’s time for our country to embrace the bicycle and more walking – but I’ll leave more on that for another post. I see gasoline increasing toward $3.25+ on $100 oil due to an inability of non-OPEC producers to increase supply that matches higher demand, particularly from China. And most OPEC nations seem reluctant to increase output levels while prices rise.

Coal: Historic Highs on Their Way

China and India are becoming huge net importers of coal and this development will tighten the global coal market significantly. South African, Indonesian, and Australian exports will be maxed out, sending importers on the lookout for coal from the US and elsewhere. Supply increases take time so the tight global market will likely push spot market coal prices above $150/ton, potentially challenging mid-2008 levels above $175/ton.

Natural Gas: Rising from the Bottom

Natural gas prices in the US have remained relatively low even during the recent 18-month run-up in oil prices, a departure from the usual price link between oil and natural gas. This divergence in price is due to recent growth in natural gas supply based on new drilling techniques that use potent chemical mixes to extract shale gas formerly too difficult to retrieve. Unless the extraction techniques are slowed on water pollution concerns, this drilling is poised to keep a lid on natural gas prices and thus help natural gas keep market share it took from coal in 2009. I see natural gas rising from the bottom ~$4 per MMBtu lately but staying mostly restrained below $7 (still significantly below the summer 2008 high ~$10).

Solar: The Boom Continues

2010 is turning into another record year for solar. Globally, solar installations grew more than 100% to ~16 GW. This occurred in a year many analysts were fretting for solar due to accelerated cuts in German subsidies. But Germany still grew tremendously thanks to lower solar costs and the country remains almost half of the global market. German officials are considering more accelerated subsidy cuts in 2011 to slow their overheated market greater than 7 GW this year, causing some analysts to worry again. But I see next year playing out in a similar way to 2010, with another record year ahead as the global solar market passes 20 GW.

I expect German subsidy reductions will help solar consumers everywhere enjoy 10-15% price reductions for solar PV panels, bringing them below $1.50 per Watt. The strong recent profits of many solar producers such as First Solar, Trina, Suntech, Yingli Green Energy, JA Solar, and Jinko show that most producers can handle a price drop of this magnitude. Such a low price for modules and panels would send solar electricity prices below 30 cents per kWh for residential, below 20 cents per kWh for commercial, and ~15 cents per kWh for industrial. This is a price that can now compete without subsidies in islands and remote applications that don’t yet have access to a grid (a market that includes over a billion people). And sufficient subsidies in growing solar markets such as the US, China, India and Italy are poised to take up the slack from German demand stagnation until larger grid parity is achieved in 2012-15.

Wind

After record growth in 2009, 2010 has been a tough year for the wind industry. Low natural gas prices and the lack of new projects signed during the Great Recession has dramatically slowed wind power installation in the US and most of the world. Though China wind growth continues unabated due to its white-hot electricity demand growth and may have just passed the US as the global leader of wind power capacity. But the stagnant overall market this past year means that wind turbine prices are lower and getting more competitive with fossil fuel-fired electricity. Look for wind turbine prices below $1.45 per Watt and total cost including installation below $2 per Watt onshore. The offshore market has higher installation costs that are offset by more consistent winds and close proximity to demand centers (cities). Offshore wind can begin to take growing market share in 2011.

Efficient Renewables Closing the Gap with Fossil Fuels

As described above, I see solar and wind power prices further converging with fossil fuel prices in 2011. Therefore renewable subsidies can be lowered in cash-strapped countries without risking market collapse. Increasingly efficient lighting (such as CFLs and LEDs) and other appliances will open up solar and wind resources to the masses, especially when complemented by efficient active transport by bicycle along growing greenways and bike lanes. The key potential game changer for oil and other commodity prices would be a significant weakening or strengthening of the dollar, either stoking higher prices in the US or taming the increase, respectively.

The energy system is in for big change during 2011. Investment in efficiency and renewables will pay off for early adopters as cleantech moves from niche market to more mainstream source.

Onwards in the Sustainable Energy Transition-

Dennis Markatos-Soriano

Wind Tech Advances Quicker Than Fossil Energy Tech

Many fossil energy advocates who ignore the harmful global warming effects of burning oil and natural gas pretend like technological change will allow us to increase our use of these fuels forever. But the reality is that US oil reserves and production have fallen more than 15% and 20%, respectively, since the early 1990s. And at some point within the next decade or so a similar trend will likely constrain the natural gas market even though EIA estimates of its reserves have climbed ~50% since 1993. Over the same time period, the estimate of wind power potential has climbed more than 3.5 times what the Pacific Northwest Laboratory estimated in 1993. This shows that wind technology during the period has advanced much quicker than exploration and production technology for oil and natural gas. A major improvement comes from taller wind turbines today, since wind is stronger at 80 meters than at 50 meters above the ground.

The Biggest Changes

The main sources of growth for US wind power potential came in the Great Plains, which was already known to be the heart of our resource. Texas, long the largest wind power producing state, is now estimated to be the top state for wind potential after passing the Dakotas and Kansas. In fact, it is estimated that Texas can produce from wind 15X the amount of power it consumes from all electric sources today. Another twenty states can also produce so much wind power that they could become major exporters of this electricity to other states around the country. The estimate excluded wind potential in parks, urban areas and over water — so this is a major underestimate once you consider the offshore wind potential we have off the Atlantic and Pacific coasts. Even so, the 37,000 TWh per year (~365 quadrillion Btus) listed in their onshore wind power estimate is more energy than that contained in our oil and natural gas reserves combined.

Solar Energy Potential Even Larger

The estimate of solar energy potential is more than 100X that of wind power, at over 2,000 TW. So, the issue for renewable energy isn’t any lack of supply. The challenge is for us is to continue cost reductions for wind and solar to make them cheaper than their fossil energy competitors. The year 2010 could be a breakthrough period in that regard as prices for wind turbines and solar modules fall toward grid parity.

Renewables Dominance Will Take Over a Decade

Even when wind and solar are more economical, it will take some time for them to grow from their current base of ~2% of US electricity. Manufacturers of solar modules and wind turbines will have to ramp up global production capacity from current levels of ~10 GW and ~40 GW, respectively, to at least 50 GW each before these sources of electricity can take significant market share from natural gas, oil, and coal. And we will need to continue to improve energy storage capabilities and economics along with our development of a smart grid that can adjust to the intermittency of wind and sunshine for this transition to renewables to take place smoothly over the next 10-25 years.

Now we know there is plenty of renewable energy available to keep us warm, lighted, and wired throughout the 21st century once we have moved on from our dependence on fossil fuels. Let’s make 2010 a huge step in this monumental project!

Onwards in the Sustainable Energy Transition-

Dennis Markatos-Soriano

Global Growth Shines

The global wind power market also grew at an astounding rate — clocking a 37.5% growth rate in its annual market (37 GW vs. 27 GW in 2008). China’s annual growth became the biggest in the world at 13 GW, which makes sense due to their larger electricity demand growth. At the end of 2009, China became the 3rd largest wind energy producer after the US and Germany (35.1 GW, 25.8 GW, and 25.1 GW). China will become the 2nd biggest wind producer in 2010 and may challenge the US by 2011.

The global solar market didn’t grow as quickly due to the collapse of its top market of 2008 — Spain (~50% of the world market that year). But Germany rode to the rescue and extended its lead as the biggest solar power producer in the world (it may have passed 8 GW). Germans took advantage of a 40+% decrease in solar module prices and had record growth (becoming ~50% of the global market themselves).

In the US

As I wrote last year, wind was already replacing oil-fired electricity in 2008. In 2009, wind took some market share from the most polluting power source, coal. In the years ahead, wind and solar can provide for new electricity demand growth and then begin to take significant bites out of the market for the leading electricity sources, coal and natural gas.

At 35 GW, wind now produces ~2% of US electricity demand. At almost 2 GW, solar produces ~.1% of US electricity demand. Biomass and geothermal produce ~1.5% and hydro almost 7%. The big three power sources today are nuclear (~20%), natural gas (~23%), and coal (~45%). When you look at particular states, it is exciting to see that wind power already provides three states with more than 20% of their power needs (Wyoming, Iowa, and North Dakota). By 2023, wind could provide 20% of the whole country’s electricity and solar another 12.5% (based on growth rates of 17.6% per year for wind – half the recent rate – and 40.4% for solar – a slight pickup from the last few years).

The US Energy Information Administration predicts US demand growth for electricity at a rate of 1% per year through 2035. I personally think that rate is higher than necessary as electricity demand growth has fallen every decade since the 1950s and it only grew .4% per year in the ’00s. Increased efficiency efforts can help electricity demand stay flat or even fall, as Google presents in its Clean Energy 2030 Plan.

Trends in Europe as a Glimpse at Our Future?

Europe installed over 10 GW of wind power capacity in 2009. The continent now gets ~9% of its electricity from wind and wind was the top source of of new electrical capacity at 39%. Solar power was third at 16% after natural gas which supplied 26%. Adding hydro and biomass, renewable energy provided 61% of new capacity. Meanwhile, coal is on the decline, as over 3 GW were decommissioned. The US can accomplish this same feat of most new demand coming from renewables in 2010 and beyond.

Price Curves Favorable for Wind & Solar

The prices of wind and solar should continue to drop in 2010, as opposed to an increase in the price of oil, natural gas, and coal. This trend should help maintain swift growth from these sources and make them the new energy titans within a few more years.

The Human Toll of Fossil Fuels

As I discussed a few months back, our addiction to fossil fuels has a serious human toll (on top of inducing global warming and hurting air quality). The tragic blast at a Connecticut power plant that killed at least five people today is a grim reminder of this. Our transition to an efficient reliance on renewable energy will help to reduce such accidents in the future.

Nuclear & “Clean Coal” Not a Near-term Remedy

While Obama has been trumpeting nuclear and “clean coal” as a necessary bridge to a renewable energy future that he thinks is decades away, renewables are actually better situated to provide for us. It takes ten years to commission and build a new nuclear power plant. And carbon sequestration coal is not market-ready yet. In contrast, wind and solar are growing quickly, proven technologies, and falling in cost. Here’s to further record growth for wind and solar in 2010 — finally putting to rest any doubts that they can lead us to a new climate-friendly energy future.

Onwards in the Sustainable Energy Transition-

Dennis Markatos-Soriano

Output falling to meet lower demand

The petroleum report showed crude oil inventories fall closer to the average range, with its fifth straight week of significant decline. This slide has been largely driven by lower imports. A drop in US crude output is also helping to restore some balance – production is now ~5% lower (~.3 million barrels per day (Mbd)) than its highs during the Spring.

However, petroleum product inventories remain high. Gasoline increased to high levels as demand remains down 1.3% from last year. Distillates (mainly diesel) and propane also increased last week, with distillate demand down a huge 28.9% from 2008. Continued weak demand has sent crude prices down more than 15% from their early July highs and has gasoline falling back below $2.60 per gallon nationwide after almost touching $2.70 a couple weeks ago. As I wrote last week, it will take a marked drop in output or recovery in demand for prices to hike back up significantly in this prolonged recession.

A similar story for natural gas

The weekly natural gas storage report conveyed a similar story. Low prices have lowered output and induced a greater consumption of natural gas for electricity generation (substituting coal). These shifts are slowly returning inventories to balance, as inventories are now 19% rather than 23% above the historical average. It will take months of suppressed prices (and thus lower output) before the surplus subsides.

Prices to mirror recovery

Economic stability is necessary to bring real balance to fuel inventories and lift natural gas and oil prices. These lower costs can help consumers get their finances back into balance before the age of efficiency and renewables really kicks in a few months from now.

Onwards-

The Details

After 2008 witnessed a US emissions fall of almost 3% (due mostly to oil demand decreasing in response to higher prices), all fossil fuels are contributing to this year’s emissions drop. Coal has the biggest drop, now estimated to be ~6.9% due to lower industrial demand and low-priced natural gas replacing some coal in the electricity sector. Oil demand is revised downward from June to a fall of 3.3% for the year. And natural gas was revised downward to a consumption level 2.3% below 2008. All of these drops translate into energy-related emissions that are 4.3% below last year.

1990 Levels Not Far Away

Such a drop would make 2009 emissions just ~6.5% above 1990 levels and already 7.5% below 2005 levels. It would make 1990 emissions levels within reach by 2015 and the Waxman-Markey goal of 17% below 2005 achievable by 2017 (rather than 2020) by just reducing emissions 1% per year going forward.

Room for Further Reductions in 2009

And I believe the EIA may still underestimate 2009 reduction in fossil fuel energy demand. Its prediction that oil demand will fall 3.3% is slower than the current consumption decrease rate above 5%. And coal demand is also falling faster than 8% so far this year (rather than the ~6.9% EIA predicts). Continuing current demand trends could send emissions down more than 5% in 2009.

Looking Ahead

The EIA predicts some rebound in energy demand in 2010, but only a fraction of this year’s drop. In fact, the .8% expected recovery in electricity demand in 2010 could be provided in full by wind, solar, and geothermal rather than switching the fossil fuel plants back on.

Bottom line: US greenhouse gas emissions are falling quickly in 2009 and bringing us within close reach (a few years) of 1990 levels. This fact means that the Senate can comfortably promote Waxman-Markey’s goal of 17% below 2005 levels by 2020 or even strengthen it back to 20% below 2005 levels by 2020. We need their leadership to get climate legislation to the President’s desk. Renewable energy and efficiency are ready to simultaneously drive economic growth, create jobs, and lower our nation’s emissions. I will keep you updated on progress as it happens.

Onwards in the Sustainable Energy Transition-

Competing with Thin Film’s First Solar

The cost leader for solar has recently been First Solar, who lowered their production cost per watt to 93 cents during the first quarter. But the lower efficiency of First Solar’s modules (at ~10.9% vs. 14-22% for silicon-based cells) means that selling its modules at $1 per watt is equivalent to Yingli Green Energy, JA Solar or Sunpower selling its modules for $1.30-$2 per watt. I thought sub-$1.75 per watt was unrealistic for crystalline silicon producers in 2009. But LDK’s revised second quarter guidance means that such prices are expected per silicon-based watt throughout the rest of the year.

Prices Less than Half 2nd Quarter 2008

Such a price translates into less than half the price of just a year ago. If installation costs can fall in a similar trajectory, relative prices versus fossil fuels will be similar to last year at this time. And once economic recovery begins to lift the price of natural gas in coming months, solar will become competitive and demand will soar.

The Strong Will Thrive

Solar companies who are strong enough to weather the next few months by lowering their cost of production will emerge highly profitable as the recession subsides. In the meantime, the second half of 2009 may witness serious consolidation throughout the solar industry as impaired financial markets fail to provide enough capital for smaller players. But the stronger producers (such as First Solar, Sunpower, and Suntech) appear poised to thrive as solar becomes mainstream and grid parity expands into several markets by 2010.

Onwards in the Sustainable Energy Transition-

Oil Output Slides Slower than Demand

Oil demand is down more than 5% in 2009 thus far and shows few signs of change. The Energy Information Administration (EIA) Petroleum Weekly Report shows demand of most oil-based fuels nosediving. Gasoline, distillates (mostly diesel), and propane demand fell 3.2%, 24%, and a whopping 39%, respectively. As a tempering force to supply gains, US crude output slid 1.8% to 5.163 Mbd last week, just .8% higher than in 2008. Much further reduction in production could bring US stockpiles back into the average range and threaten to lift prices above $70 per barrel again. But more economic stability is necessary to raise prices much further.

Natural Gas Storage Finally Slows its Growth

It took sub-$4 per MMBtu and a heat wave across the South to finally keep natural gas inventories from its above average growth. Output may fall below 2008 levels in July and send prices back above $4. But again, some economic recovery is important for prices to climb significantly above $4.50 per MMBtu. Storage remains more than 20% above average, and is poised to hit new record levels by October. Natural gas will remain a strong substitute for coal this summer even though coal prices are half their 2008 average.

Low Energy Demand Means Slow Renewables Growth

It’s hard to justify strong demand for new renewable energy when overall energy demand remains significantly below 2008 levels. But if solar and wind producers can continue to lower costs and economic recovery picks up in the second half of 2009, we may be on the cusp of another wave of strong expansion.

Bottom line: The recession maintains its grip on fuel prices midway through 2009. Whether demand recovery, output decreases, or changes in the exchange value of the dollar will change that reality in the months ahead is difficult to know. I’ll keep you posted on these trends and their influence on greenhouse gas emissions in the weeks ahead.

Onwards in the Sustainable Energy Transition-

Thousands of Deaths per Year

The same combustibility that makes fossil fuels a generous energy source claims the lives of thousands of people per year worldwide. A natural gas plant in Saudi Arabia recently exploded and killed 40 people. Several helicopters ferrying offshore oil workers have crashed in the last few months in the UK, the US, and Canada, killing scores of workers. But the most deaths probably occur in the coal mines of China, where thousands of miners lose their lives each year in explosions, collapses, and floods.

Renewable Energy Not Immune to Accidents

Wind turbines hundreds of feet in the air and rooftop solar installations can sometimes result in injuries or even a fatality as well. So the industry will need to take care and government regulations will be crucial to keep those numbers low as these industries scale up. Another risk that wind companies must take responsibility for is potential accidents at iron ore mines that are the source of their turbines’ steel (a recent iron ore flooding accident in China claimed 29 lives).

Bottom Line: The transition to efficiency and renewable energy reliance can help reduce mortality in our global energy system – not just from the effects of climate change and pollution. But even though wind and solar power may have inherently fewer risks, safety regulations will need to adapt to keep up with these new technologies and ensure the safety of the growing green-collar workforce.

Onwards in the Sustainable Energy Transition-

Petroleum Inventories Remain Very High

The Energy Information Administration (EIA) reported yesterday in its weekly petroleum report that US crude oil storage fell another ~1% last week. Even so, crude supplies remain more than 10% above average and US output has been rather robust above 5.2 million barrels per day (Mbd). The lower oil rig count in 2009 has yet to lower crude oil production below last year’s levels. Gasoline is the only fuel with below-average inventory levels. And the lower pump price (compared to last year) allowed last week’s gasoline demand to rise 1.1% above the same week in 2008. But demand for distillates (mainly diesel) and propane continued to languish at recessionary low levels — 16.9% and 10.2% lower than last year, respectively. Either further demand recovery or lower output and imports are necessary to drive significant price increases from current levels.

Natural Gas Inventories Sky-High

And the storage level for natural gas has kept prices close to their recent lows below $4.50 per MMBtu. Even though natural gas is substituting coal for electricity generation across much of the Southeast, lower industrial demand and persistent high domestic production have storage levels moving toward record highs. Inventories are almost 23% above average and continue to surprise analysts with its weekly growth.

Higher Oil Prices Spur Hope for Alternatives

Bicycling, pedicabs, solar and wind power, and other alternatives to fossil fuel energy are benefitting from the return of higher oil prices. Oil is now more than double its winter low below $35 per barrel. If non-OPEC output begins to wane in the weeks ahead and the recession does begin to fade, these alternatives may surge forward quickly. I’ll keep you updated on progress in the weeks ahead.

Onwards in the Sustainable Energy Transition-

Coal Use Projected to Fall ~5%

Building on the lower coal consumption trend of the first quarter, the EIA estimates coal demand to be ~5% lower in 2009. With oil and natural gas demand down ~3% and 2.2% (respectively), energy-related US carbon dioxide emissions are projected to fall ~3.5%.

Still room for lower emissions

I still see room for even these projections to be overestimates. Coal consumption could remain almost 10% below 2008 levels due to the huge supply of natural gas and the cutbacks in industrial production from the likes of GM and Chrysler. And oil demand projections are based on a significant increase from the first five months. I see more likelihood that oil demand remains low to leave 2009 consumption at 5% or more below last year.

Such consumption would send overall carbon emissions down more than 5% in 2009 and to less than 5% above 1990 levels. Since the Waxman-Markey ACESA sets targets based on 2005 emission levels, I will also express these emissions relative to 2005. By my estimates, 2009 emissions falling 5% would lower them to more than 8% below 2005 levels. It makes the Waxman-Markey goal of 17% below 2005 achievable by reducing emissions only .8% per year.

Bottom Line: US emissions are poised to fall dramatically in 2009, putting us in a good position to lower emissions significantly below 1990 levels in the 2010s. Based on the prospect of strong growth for wind, solar, and efficiency in the years ahead, emissions levels of 20-25% below 2005 in 2020 (~8-14% below 1990 levels) are achievable by lowering emissions at a reasonable rate of ~1.5% per year.

Let’s make it happen!