Today, the oil price convincingly passed $60 per barrel as the dollar fell to $1.377 per euro (10% weaker than its peak several weeks ago). Oil had previously touched $60 before retreating during the last few days. But this time, a weekly report from the US Energy Information Administration (EIA) showed a larger drop than expected in US inventories of crude oil, at 2.1 million barrels or .6%. This drop followed a bigger 1.2% drop the week before. Therefore, even though oil storage levels remain above average, the emerging trend of decline has caused speculators to bid the price up.

Gasoline May Spike to $2.50

Gasoline storage levels fell 2.1% to below the average range, its second big drop in as many weeks. With prices now at $2.33 per gallon and wholesale prices that translate into $2.50+, we are likely to see a continued spike in gasoline’s price in the week ahead. In fact, without extremely bad economic news derailing the rally – average gasoline prices seem destined to rise above $2.40 and toward $2.50 soon.

Lower Imports & Lower Demand

Crude oil imports averaged less than 9 million barrels per day (Mbd), down more than 5% from last year. But this still isn’t a problem for the short-term because inventories are so high and recessionary demand remains more than 5% below 2008 levels. Last week’s demand for gasoline, distillates, and propane fell 1.4%, 13% and 4.7%, respectively. The timing and speed of economic recovery along with the pace of oil field decline rates will determine prices going forward.

Fuel Efficiency Crucial

Obama’s announcement yesterday to raise fuel efficiency standards in the US market to 35.5 mpg by 2016 was a great step forward. The Union of Concerned Scientists estimates this policy will save Americans at least $30 billion dollars per year (reduced gasoline expense, etc.) in 2020 based on a gasoline price of just $2.25 per gallon. The efficiency standard will also lower our oil import needs by 1.4 million barrels that same year (enough to replace dwindling shipments from Mexico).

Bottom Line: A focus on efficiency will be crucial to keep our economy from suffering an even worse oil shock than 2008 in the years to come. This same efficiency is a big part of the climate mitigation effort we need to deploy in the US and worldwide. Solid policy like strengthened fuel efficiency standards accelerate the Sustainable Energy Transition, helping our environment and our wallets simultaneously.

Onwards-

Wind power capacity has been growing faster than 30% per year these last several years, with last year’s growth rate a huge 50%. While this year’s growth will slow dramatically from the 8+ GW of 2008 due to the financial crisis and recession, it will be much faster than the ~5% growth predicted by the EIA through 2030. And the economic recovery in 2010+ will allow wind power additions to grow to new records above 10 GW per year.

Let’s say the US wind market stagnates at 8 GW per year through 2030. In that case, wind power capacity would be approximately 200 GW (versus the 44-75 GW the EIA predicts). I think even 200 GW may be pessimistic, as I share below. But what rationale could the EIA have for such a low number? Do they think the US is running up against the wall of maximum US wind potential ~50-75 GW?

If so, they’d be wrong. The most often cited wind study on US potential was done by the Pacific Northwest Laboratory in 1991 whose results are posted at the American Wind Energy Association (AWEA) state by state projects listing. The study estimates US onshore wind potential at a staggering 1,200 GW (a more recent Stanford study raises the estimate higher due to the increased height of wind turbines since 1991). And just yesterday, Interior Secretary Salazar cited the National Renewable Energy Laboratory (NREL) estimate of 1,900 GW of potential offshore (1,000 Atlantic and 900 Pacific). Yes, you read that right: our country has 3,100 GW of wind power potential, thus today’s 25 GW capacity is less than 1% of our potential.

What if 2030 US = 2009 California

To develop a reasonable wind deployment number for 2030, I explore how much wind capacity we would have if our country deployed turbines by 2030 similar to California today. California was the original leader in wind power during the 1980s and 1990s. Over the past few years, two states with much larger potential, Texas and Iowa, passed California’s 2.5 GW. Within a few months, California will add .275 GW under construction to a grand total of ~2.8 GW. This represents ~40% of the 1991 wind potential study’s 6.8 GW estimate. To make up for the fact that California has higher electricity prices, I lower the percentage by half the price difference (since California has ~40% higher electricity prices than the nationwide average, I shave 20% off of 40%, getting 32%). Now let’s use the 32% number in relation to the rest of the country:

An equal portion of US onshore potential of 1,200 GW would translate into 384 GW. Since offshore wind is a less mature industry, we can leave it at just 1% of its potential by 2030: 19 GW.

By these estimates, wind power could reasonably grow to ~400 GW in 2030 (five times the EIA estimate and enough to provide more than 20% of our nation’s electricity).

Since a lot of this wind power will be harvested in less populated areas such as the Great Plains, building transmission lines to surrounding cities will be an important aspect of the effort. Thus there are green collar jobs from turbine manufacturing, installation, maintenance, and construction of efficient electricity transmission poised to help drive a sustainable economic recovery in 2010+.

EIA Disses Offshore

The EIA report estimates just .2 GW of offshore wind installed by 2030 even though 2 GW are already proposed here in 2009. European nations have already deployed ~1.5 GW of offshore wind, so there is little excuse for us not to build quite a few GW offshore (where the wind is steady and close to the large population centers along the coast).

Bottom Line:

The EIA has underestimated wind growth these past few years. And I believe they are repeating their mistake in their Annual Energy Outlook. Rather than a wind capacity of 44-75 GW in 2030, I see the potential for ~400 GW by just catching up with California over the next 21 years. While this exercise was somewhat arbitrary, it provides a reasonable estimate based on current technology that takes into account lower electricity prices outside of California.

Please let me know your thoughts on the matter, and we’ll see how much clean wind energy we are able to deploy in the years ahead!

Primary Energy Use

Primary energy consumption is forecast to rise .5% per year, slower than a .7% rate predicted last year (translating into a 5.4% lower level by 2030). Electricity demand is expected to increase 1% per year, slower than 2008′s 1.1% prediction. Increased efficiency and a demand response to higher expected oil prices drive this lower energy use. Lower energy demand growth is good news for the climate in general, but now let’s dig deeper into the carbon composition of the numbers.

Renewables Rise

Renewables currently (in 2008) provide ~7.5% of US primary energy (March EIA Monthly Energy Review, p. 136). Most renewable energy comes from hydropower and biomass, with growing shares from wind, geothermal, and solar. While hydropower is expected to grow at a slow rate so that its market share remains ~2.5% of total primary energy, the EIA projects non-hydro renewables to triple, increasing renewables’ total share to almost 15%. The largest renewable growth comes from wind power and biofuels.

Shifts in US Electricity

As I wrote about last week, the share of electricity generated from coal continues to drop in the EIA projection. But it falls slower than the climate needs it to — going from today’s ~48.5% to 47% in 2030, still an increase in coal consumption of 19% (p. 71). The ~25% increase in electricity demand requires 259 GW of new electrical capacity (p. 45), which is provided for primarily by natural gas (~137 GW or 53%), then renewables at 22% (~57 GW), coal at 18% (~47 GW), and nuclear plants at 5% (~13 GW). Approximately 30 GW of capacity are retired by 2030 (p. 72), mostly older coal and nuclear plants.

Wind & Solar Remain Small

In the reference case, the EIA expect wind and solar to remain mice compared to the elephants of fossil fuels. Wind grows to 44 GW (p. 48) or 2.5% of US electricity, only 75% higher than the ~25 GW at the end of 2008. It would take only 2 1/2 years at 2008′s 8+ GW growth rate for 44 GW to be reached. Seems to me they are short-changing wind power.

Solar is dismissed even further into the margins. Growth is expected to make solar less than half the size of wind today by 2030 (p. 140), rather than its potential greater than 100 GW in my opinion. Their models have probably not incorporated the 30+% solar modules price drop currently taking place since last summer. It’s clear that the industry will have to prove themselves to EIA officials in coming months that they can emerge profitable in 2010 despite module prices below $2.50 per watt.

Flat Oil Consumption

In a big shift from previous projections, US oil demand is now predicted to stay flat through 2030. The 1 million barrels per day (Mbd) increase in liquid consumption is provided by biofuels and some Coal-To-Liquid (CTL). Demand stays flat amidst a growing economy because of a rising oil price that gets back into the triple digits by the early 2010s and arrives at a real price of $130 per barrel by 2030. Their high oil price scenario approaches $200 per barrel by 2030 and seems more reasonable to me.

They project that US oil production increases above today’s higher levels through 2030 due to a higher price making previously uneconomic deep-water projects profitable. While the increase in production thus far in 2009 is impressive, I am skeptical such a production plateau can be maintained going forward. After all, 2009 (if indeed production continues above 2008 levels) will only be the third year out of the last 24 that US oil production increased.

Climate Implications

This rise of clean energy allows greenhouse gas emissions to grow at a slower rate than overall energy consumption, a mere .3% per year (p. 5) compared to .65% per year growth projected last year. By 2030, the carbon intensity of US GDP falls 39% and per capita emissions fall 14% (p. 84). While this is an improvement from last year’s projection, it clearly shows that our country must enact a federal climate bill or emissions will continue to increase.

Climate Concern Scenario

The reference case does not include early 2009 Green Stimulus Bill implications, such as the Production Tax Credit (PTC) extension. So, renewable electricity is expected to grow faster than their reference case, but they predict increased growth from a PTC to be less than 20% by 2030 (p. 48).

And the reference case does not include the passage of a federal cap-and-trade climate bill. For those projections, the EIA generated the scenario LW110. In LW110, more new low-carbon electrical capacity is added to replace the retirement of ~100 GW of old coal plants. The low-carbon sources include 65 GW more renewables than in the reference scenario, 93 GW more Carbon Capture & Storage (CCS) coal, and 33 GW more nuclear power (p. 185). As a result, emissions from electricity generation fall more than 50% from today’s level by 2030 (p. 53). Overall US carbon dioxide emissions from energy fall a more mild 23% by 2030 (p. 52).

By internalizing the cost of climate change, the price of electricity rises ~20% from an expected plateau ~10.5 cents to a 2030 price of ~12.5 cents per kWh (p. 52). But we as consumers can still have lower our electrical bills by increasing our efficiency more than ~20%.

Bottom Line:

EIA projections in AEO2009 are much more climate-friendly than last year. But the reference scenario leaves a great deal of work for us to do. Federal climate legislation in the near term is crucial if our country is to be a responsible member of the global community. While the wind industry will contribute significantly to the solution, solar has a long way to go to earn the respect of the EIA as a major player in the next two decades.

I hope you enjoyed these bits from their 230-page report. I’ll be writing more using insight from this report in the weeks ahead as we all work hard to accelerate the Sustainable Energy Transition!

Crude supplies rose 2 million barrels per day (Mbd) on lower demand from refineries and higher domestic production that offset lower imports. Crude inventories are now ~13% above last year and significantly above the historical average.

Distillates and propane fuels are also at historically high levels, 25+% above last year. Gasoline supplies are also up, though they are below last year’s very high levels. Low demand for these fuels means that greenhouse gas emissions from petroleum are poised to fall again in 2008, though not as quickly as last year unless the recession deepens further and/or climate consciousness can help drive behavior change toward increased use of bicycles, transit, and vehicle efficiency.

These high inventories help keep oil prices at levels much below 2006-2008, ameliorating our tough economic times. But the falling oil rig count means that later in 2009-10, non-OPEC oil production will naturally fall. In what some see as a goodwill gesture for the global economy, OPEC decided last weekend to focus on full compliance of the previously agreed cuts in output rather than cutting its goalposts further.

So while oil prices may pass $50 per barrel in the months ahead, they do not appear set to rise above the 2007 average of ~$72 until economic recovery takes hold in 2010 or beyond.

We’ll see how oil markets develop, and I’ll report on the natural gas inventory numbers as they come out later in the week. Here’s to us choosing (and incentivizing through policy) the climate responsible road of lower carbon energy and efficiency going forward!

OPEC has cut its production that amount but higher crude oil production in the US is helping keep our prices below $50 for now. In fact, US crude supplies are at historically high levels on the back of the recessionary low demand of late. The EIA weekly petroleum report shows oil inventories remain more than 12% higher than last year’s level. If OPEC decides to cut production further this weekend, we could see oil prices climb a bit. But the economic news has to stop deteriorating for a big upward price move to occur.

Oil demand could really tank beyond 1.6% if economic indicators continue to under-perform. Australia and Brazil had 4th quarter contractions, and China’s exports fell more than 25% in February! With many economic analysts such as Nouriel Roubini predicting economic recovery waiting until 2010, its hard to find a floor this year for oil demand contraction.

The silver lining is that energy costs and greenhouse gas emissions are again lower in the US this year. And for us to ensure that trend continues into 2010, we’ll need to maintain a strong focus on efficiency and pass a cap and trade climate bill.

With outstanding leadership and deployment of renewables, we may even be able to make 2008 the year of peak greenhouse gas emissions globally. I’ll keep you updated on that as the numbers roll in…

The latest STEO predicts a .5% decrease in electricity consumption in 2009, leading to .7% lower coal consumption with its high carbon intensity. For oil, the STEO projects 2% lower demand, equivalent to ~400,000 barrels per day (b/d). And natural gas consumption is expected to decline by 1% in 2009, driven largely by lower industrial use. With the efficient deployment of renewables to take some market share from the fossil fuels above, greenhouse gas emissions from our country could fall as steeply as this past year’s ~2.5%.

This STEO marked the first month they predicted energy developments in 2010. They guesstimate economic recovery will return at a 2% pace and drive higher energy demand that lifts prices and emissions. It is up to all of us to shift our energy habits and push policies that deploy efficiency and renewables so that economic recovery is a win-win situation for consumers and the environment.

Oil Watch

Since the EIA’s non-OPEC oil supply projections have been highly optimistic over the last few years, I feel it’s important to go over their educated guesses. They revised down their estimate of 2008 non-OPEC oil production from a drop of 310,000 b/d to 340,000 as well as their projection for non-OPEC supply growth in 2009 from 410,000 b/d to 180,000 b/d. While these downward revisions do not have serious implications in today’s recessionary demand, they could be cause for concern within a few months. If the projections are as optimistically incorrect as last year, the EIA will have to revise its production totals down 1.2 million b/d to a fall of ~1 million b/d in 2009. The oil market could tighten up further in 2010 as the STEO predicts only 90,000 b/d production growth while oil demand picks up, giving OPEC more pricing power. I will watch how the situation develops and quickly report major info to you on this blog.

Bottom line: Energy prices and GHG emissions will remain lower than 2008 levels as the US economy shrinks. To keep these lower prices and emissions in 2010, we will need to continue progress in the rapid deployment of efficiency and renewable energy. The non-OPEC oil production situation could deteriorate on today’s low prices, so our energy security depends on us keeping fossil fuel demand growth at a minimum and preferably negative.

Onwards in the Sustainable Energy Transition-

The preview projects higher oil prices, slower growth in electricity demand, and lower carbon dioxide emissions.

Oil prices are predicted to rise to new records once the economic recovery picks up, reaching above $125 per barrel (inflation-adjusted 2007 dollars) as an annual average rather than a temporary spike like this summer. As I wrote yesterday, they predict US oil consumption will stay flat through 2030. And they also project US oil production will rise to a level close to the 1970 peak thanks to the higher prices incentivizing further exploration and development.

Peak oil theorists would laugh at this production assessment and remind EIA staff that US oil production has been falling on average ~2% per year. But next year’s high prospects for 5% growth in production due to three large new fields ramping up (Thunder Horse, Tahiti, and Atlantis) gives the EIA hope the trend of decrease could reverse. They also include a large increase in biofuels production, which is more believable to me than the production increases. It’s hard for me to imagine US oil production in 2030 at a higher level than today, but we will see how new discoveries are able to compete with rapid field depletion. The stagnant demand is good news to keep us from getting more dependent on foreign oil since many of our top sources of imports such as Mexico are in decline. But we may need to go further and reduce our demand since it would be precarious for us to rely on undiscovered oil to fulfill future needs.

The slower growth in electricity demand is another welcome development. Our electricity demand growth has been falling steadily since we had China-like 9% growth during the 1950s. Each decade showed a deceleration of growth: 7.3% in the 60s, 4.2% in the 70s, 3.1% in the 80s, 2.4% in the 90s, and 1.1% from 2000-07. The AEO predicts 1% annual growth through 2030. But the 5% fall in electricity consumption this past September leads me to believe that we can stop demand growth altogether through 2030 instead. Such an accomplishment would allow wind, solar and other low-carbon installations to replace old coal power plants in the years ahead and reduce our electricity generation costs. The EIA predicts renewables will add 57 GW to the grid by 2030. If we keep electricity demand constant, those 57 GWs can help decommission the dirtiest plants around our country — cleaning our water, our air, and mitigating climate change.

The AEO already predicts much slower growth in carbon dioxide emissions than last year, at a pace of only .3% per year. So deploying enough efficiency to keep electricity demand constant and increase renewables’ market share would allow emissions to fall even with economic growth in 2010+.

Bottom line: This year’s AEO shows progress on energy security and climate change through a more rapid deployment of energy efficiency and renewables over the next two decades. However, for us to be an international leader and stop global warming, we need to go further. Recent data of drops in demand for electricity and fuels show that we can keep such demand constant or even on a slowly decreasing trajectory. We just have to seize the opportunity in 2009 to launch an Energy Corps that helps Americans integrate cost-cutting efficiency into their homes and offices.

Onwards in the sustainable energy transition-

The second report, an early release of the EIA Annual Energy Outlook, showed long-term demand weakness. In a big shift from last year’s report, it projected US demand for oil will remain flat through 2030 — unlike the almost constant demand growth we have experienced ever since oil’s North American discovery in ~1860. While it does project some increase in liquid fuel demand over the next 22 years, the EIA believes that incremental demand will be met by increasing biofuels supply [Stay tuned for more dramatic details about the Annual Energy Outlook in the days ahead].

Additionally, OPEC’s announced cut, while a record amount at 2.2 Mbd, is not completely trusted by the market. Some members often produce beyond their quota, so the oil price may not significantly react to the cut until the lower supplies are visible via lower shipments around the globe. These numbers should be available by mid-January.

So, the price may rise above $50 per barrel if OPEC executes the cut they announced AND there is no further collapse in oil demand beyond current EIA predictions. Another wild card is the production levels for non-OPEC producers Russia, Kazakhstan, and Azerbaijan — who have stated some willingness to cut production in sync with OPEC. These three oil producers have a similar dependence on oil revenue and hope to prevent a further spiral downward in prices.

Bottom line: Even a record cut by OPEC has little ability to increase prices in today’s deep recession. News from the US, the world’s biggest consumer of oil, is full of low demand in the short-term and stagnant demand in the long-term. As I’ve posted here before, this reduction in oil consumption is good for the climate and can help us reduce greenhouse gas emissions in the decades ahead as long as we keep our focus on smart efficiency and low-carbon energy deployment.

One of the more dramatic elements of today’s report was the rapid drop in distillates supplies. They fell 4.2 million barrels, or more than 3%, at a time when inventories need to be building for the winter heating season. Hurricane Ike outages will probably trigger one more week of inventory draws across the board before refineries and rigs return to normal next week. Then, refined fuels will need to recover in the following weeks, potentially pulling crude supplies down below the low average range they are in now. Prices will probably have to stay at these record highs for this time of year to attract the imports and keep up the production necessary for inventories to recover.

As usual, continued strides to reduce demand through efficiency and substitution is the most promising strategy to ameliorate the situation. Continued growth in scooters sales (66% thus far in 2008), bicycling, mass transit ridership, and telecommuting will help the transition be as smooth and shortage-free as possible. Lower demand saved this past week’s inventory report from being much worse than it was. Though all inventories were down significantly from last year, their days of supply measurements were mostly made up by huge drops in demand for gasoline ~5.6%, distillates ~8.2%, and propane ~22%! Continuing these trends would keep our oil costs from rising significantly in the months ahead.

Tomorrow, I will discuss the natural gas weekly storage report and its impact on home heating prices this winter.

In oil, OPEC released its market projections to 2030 and the IEA released its monthly report on markets through 2009. The IEA adjusted its global oil demand estimate for 2008 up for the first time in five months on resilient demand in China. This means importers will be more dependent on OPEC since non-OPEC production has largely stagnated. And OPEC’s report adjusted its estimate of 2030 global oil supply and demand down by 4 million barrels from last year’s report, a sign that the current high price and constrained supply are here to stay.

The EIA recently released its International Energy Outlook to 2030, in which it estimated the real oil price would fall throughout the period. They seem to be holding on to old projections that each of the last four years have proved woefully incorrect on the low end. In fact, their reference scenario is already 25% off for the 2008 price (even though the year is halfway done)! While I appreciate the availability of EIA’s data, their record in projecting oil prices has been dismal. It could be called a disservice as Ford and GM would be doing fine if EIA predictions of oil prices from as recently as 2004 were correct. And the millions of Americans who bought SUVs these past few years may not have done so if the EIA had warned them that prices may increase dramatically as they have. I’m not saying that the oil price shock was completely their fault, but their inability to foresee the potentiality of current prices is a shortfall that they need to fix.

But unfortunately, this year’s outlook continues a seemingly blind faith that prices will fall. As the world’s population increases and roaring economies drive huge demand growth in places like China and India, how could their high price scenario to 2030 be lower than the real oil price today? My explorations of price in the future come up with numbers north of $250 per barrel, and are mainly held back by the emergence of renewables wind and solar power to take up the slack. I will go into my vision of prices in more detail in the weeks ahead, and hope that the EIA at least has an open mind to a much higher price for oil as supply struggles to satiate demand going forward.

As my refrain goes, I am glad EIA projections appear to be woefully incorrect — because if they were right our climate would certainly pass the tipping point for major sea level rise. But the transition to a sustainable energy system will be a difficult path, and government policies to help people and institutions manage it will be crucial. SET aims to be a helpful resource for the public, government and businesses throughout the process.