US Oil Output 1% Below Last Year

The US EIA weekly petroleum report announced that US oil output fell 1.3% last week to a rate of 5.107 million barrels per day (Mbd). That is 1% below the same week in 2008 and 6.8% lower than the 2009 production peak of 5.48 Mbd hit in mid-April.

How Low Could Oil Output Fall?

US oil output will probably continue to gradually fall since drilling for new wells remains below average on the relatively lower oil prices of 2009. But production will be higher than last year in the period from late August to October — unless we have an unlikely repeat of hurricanes slamming directly into the Gulf of Mexico’s oil production and refining hub. But an interesting question is, “How low could US oil output go?” If the average output decline of .5% per week over the last 15 weeks continued for several weeks, production would be significantly below 5 Mbd by the winter. Such an occurrence could lift prices back to $80 per barrel, especially if current trends continue to our South.

Mexico Oil Output Plummets Further

Mexico’s state-run oil company, PeMex, recently reported its output fell even more in June. Its liquid production was 3.6% below May levels, and 10% below June 2008 (crude was 11% lower). Production is now at the lowest point since the early 1990s and shows little sign of curbing its fall. Output from Mexico’s largest discovered field, Cantarell, continued to nosedive — falling 41% from last June to a production of .604 Mbd. This country that was recently the second largest source of US imports may struggle to export a single barrel by 2015.

With lower output in the US and Mexico (along with depletion in Norway, the UK and Russia), the only way we can keep a lid on our transportation costs in the years ahead is to increase fuel efficiency and implement an active transportation revolution. A bicycle network for local and long-distance travel will be an important step for US planners to take (see the East Coast Greenway vision for a model). And as Fatih Birol of the International Energy Agency says, let’s leave oil before oil leaves us.

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!

US Price Slides ~2%, Europe ~1%

In the US, solar module prices fell 9 cents to $4.61 per watt (a 1.9% decline from the previous month and 4.2% below last June). The price fall was double last month’s rate. US prices only have to fall another 6.25% to reach the record low set in 2004-05. This could be done by September/October at current rates. In Europe, module prices fell 4 euro cents to the new record low of 4.48 euros per watt (a .9% decline from last month and 4.9% below last year).

Lower Costs May Allow a Return to Profits

These lower prices can be great for consumers and producers alike as long as manufacturing costs continue to shrink. As the iPhone falls to $99, I have hope that the solar industry can similarly achieve progress (higher efficiency) and lower prices profitably. I will keep you updated in the weeks ahead as that story unfolds.

Onwards to sustainability-

P.S. – Sorry it’s been a little while – I had some vacation time with family soaking up solar photons on a beach in the Carolinas and enjoying Federer’s run to achieve the first tennis Grand Slam since Andre Agassi

Prices Today Require Government Incentives

Solarbuzz.com estimates that May 2009 solar PV prices equal 36.88 cents, 26.68 cents, and 20.78 cents per kWh for residential, commercial, and industrial electricity, respectively. Thus, only the state of Hawaii (with its 25+ cents per kWh average has an electricity market where solar can compete with little supportive policy this year. But PI projects solar module prices to fall 25% in 2009, 19% in 2010, and more than 10% in both 2011 and 2012. This would translate into a locked-in price for solar electricity of around 20 cents, 15 cents, and 12 cents per kWh (assuming that installation costs would also fall, though around half the module price drop pace).

2012 Grid Parity in Almost Half the US

Huge electricity markets such as California, Texas, Florida, and New York will join Hawaii by 2012 as long as electricity prices keep rising (I use a price rise of 3.5% per year – much less than the 4.8% per year increase over the last eight years). Since there is state and federal policy supporting solar through the mid-2010s, private consumers already benefit from cost-effective solar in many of these states (Why else would Wal-Mart be deploying it?). And thanks to falling prices for solar, the amount of government support per kilowatt can be lowered as it becomes many times more effective at deploying solar.

Even if electricity prices only rise 1% per year (thanks to effective efficiency and low-cost wind power deployment), solar grid parity is poised to arrive during the mid-2010s.

A New Notion of Grid Parity

Since solar has a locked-in price due to a marginal cost close to zero as you harvest the free sun, grid parity is not when the price of solar is equal to the price of conventional fuels. I am saying that it is instead when the price of solar is equal to the expected price of conventional fuels halfway through the life of the panels. So grid parity in 2012 based on a price of 20 cents per kWh means that I expect the price of electricity in a given market will be at least 20 cents in 2024.

Why Should Fossil Fuel-Powered Electricity Prices Rise

A rising price for oil beyond $100 per barrel is likely due to the rising marginal cost of production. Such an increase would pressure natural gas prices to double back above $9 per MBtu and weigh bullishly on electricity prices. Along with the cost of carbon dioxide finally being internalized into the cost of burning fossil fuels, solar power’s relative price is set to collapse.

Bottom Line: This time of sustainable energy transition is an exciting period to be around for. Solar panels today are like cell phones in 1999. In just a few years, they will be ubiquitous. Passage of federal climate legislation is a crucial step we need to take soon, and then we can all reap the rewards from leading a low-carbon energy future — green jobs, energy security, lower electricity bills (while prices per kWh may rise, efficiency sends the per capita bill down), cleaner air, and a more stable climate.

I’ll keep you up-to-date as solar reaches grid parity in market after market like a set of slow-moving dominoes.

Onwards-

For instance, overall petroleum use was only 18.2 million barrels per day (Mbd), down 7.9% from last year and the lowest since May of 1999. Last week, demand for gasoline was down 4.2% from 2008, distillates down 17.7%, and propane down a rapid 31.4%. This low demand has sent inventory levels of everything but gasoline close to records. Crude oil production remained ~.2 Mbd (3.7%) below its mid-April peak. But the beginning of output from the Gulf of Mexico’s Tahiti platform started to flow this week, which may help 2009 average US crude production stay above 5 Mbd.

A Weaker Dollar and Stabilizing Economy

While the fundamentals of supply and demand remain largely bearish for now, speculators are sending oil prices up as high as $58 per barrel on the weaker dollar and signs the economy is regaining its footing. The dollar has weakened over 5% in recent weeks and the rate of job losses is decelerating. Some analysts are talking $70 oil in the weeks ahead, but that seems unlikely unless lower rig counts really pull oil production down quickly. But $70+ by year’s end seems reasonable, as the global economy will hopefully get its groove back. This would translate into gasoline prices ~$2.50 per gallon, so I encourage everyone to refocus on efficiency to lower costs (and be climate-friendly).

Natural Gas Rising Too

Natural gas prices have gone up 25% to $4 from their late April low ~$3.15 per MBtu. And the CEO of major natural gas producer Chesapeake, Aubrey McClendon, said prices are likely to rebound dramatically by late 2009. He expects the new normal for prices will emerge to be more than double today’s price, at between $8 and $9 per MBtu to ensure the marginal cost of new supply is reached.

Again, there is no short-term worry as supply is 23% above the five-year average and demand remains low. But production should decrease on today’s lower rig count by late summer.

Wind & Solar Relative Prices Improve

If natural gas and oil do indeed rise another 100+% and 20+%, respectively, then the relative price of wind and solar will improve dramatically. I will keep you updated at SETenergy.org as this develops.

Onwards in the Sustainable Energy Transition-

Upscaling a Successful State Policy

For years now, Renewable Electricity Portfolio Standards (most often abbreviated RPS) have helped develop strong markets for wind, solar and other renewable power. As I discussed yesterday, these standards vary according to each state’s renewable resource from 12.5% to 45% by 2015-2020. RPS policy was critical to the development of the tremendous wind market in Texas and the solar markets of California and New Jersey. At the press conference held this morning, panelists from AWEA Executive Director Denise Bode to GE Energy’s VP of Renewables Vic Abate all called for federal leaders to set an RES that would ensure US leadership in renewable innovation: 25% by 2025.

EIA Report Shows RES Lowers Electricity Prices in Resource-Rich Regions

Panelist Don Furman, AWEA President and a leader at Iberdrola, called the opposition of a RES ill-informed. The opposition often says a national RES will raise energy prices. He cited a recent US Energy Information Administration (EIA) report that shows prices of natural gas would actually decrease due to the lower demand for the fuel. The report also projects electricity prices falling in many regions, with only slight increases elsewhere.

Michael Polsky, CEO of wind developer Invenergy, went further, saying the opposition has little credibility. Polsky gave a historical view of such opposition, declaring they used to allege renewables don’t work. With wind at more than 25 GW, they now admit it works. But they shifted their message to its too expensive. But wind turbine prices are already competitive with conventional sources, especially once pollutants such as carbon dioxide are taken into account.

Wind Power Costs

In fact, wind power is approaching $1.50 per watt and could fall toward $1 per watt if the industry has policy support to further mature and increase its efficiency. White-hot global demand for turbines since 2005 and the rise in the price of steel sent prices up a bit the past three years (similar to solar prices). But now costs are falling again and supply seems to have caught up with demand.

Future US Market Could Be 15-20 GW

GE’s Abate and enXco’s Jim Walker see the US market continuing to buildout in 2010 after a slowdown in 2009. In fact, they see market growth to 15-20 GW per year within a few years, as long as supportive federal policy continues. If they are right, we may be able to surpass China’s recent 2020 wind goal of 100 GW.

Such a market would translate into hundreds of thousands of clean energy jobs manufacturing, deploying, and operating turbines. AWEA’s Bode sees wind powering the American economy forward to recovery.

Bottom line: Significant momentum remains for renewable energy, especially cost-competitive wind power, to grow tremendously in the years ahead despite a recession-induced slowdown in 2009. The wind industry appreciates the federal government backing that enabled outstanding growth over the past few years. And they see this year as the perfect opportunity to set in motion a steady, long-term support to achieve energy security through a federal RES.

Onwards in the Sustainable Energy Transition-

Denmark offshore, photo by Jim Hodson of Greenpeace

SET’s home state of New York is moving to become a leader in offshore wind power. Both the New York Power Authority (NYPA) and the Long Island Power Authority (LIPA) have offshore wind farms they are pursuing. The NYPA project would be the first major freshwater wind farm in the world. And the LIPA project could end up as the biggest proposed offshore wind farm in the US.

New York Needs to Accelerate its Renewable Deployment

New York has one of the highest renewable shares of electricity at ~21.5%, largely due to the hydroelectric plant at Niagara Falls (only Washington and Oregon currently have higher renewable shares, also mainly due to hydro). New York aims to get 45% of its electricity from renewables by 2015, a goal that will take tremendous deployment to achieve. In fact, renewable capacity of ~10 GW is necessary to reach 45% at current generation levels. Achieving such a high capacity by 2015 would translate into average annual deployment of 1.5 GW.

As I wrote a few weeks ago, NY recently became one of only eight states with over 1 GW of wind power capacity. All of the existing wind capacity in NY and the rest of the country is land-based. Now, state leaders have their sites on offshore wind helping NY reach several GW capacity by 2015.

First Freshwater Wind Farm

NYPA aims to build the first freshwater wind farm in the world. On Earth Day, they announced a Request For Expressions of Interest (RFEI) which will be followed by a Request For Proposals (RFP) from wind developers. Siting and construction will take time, but it’s great the process is in motion. I will share the MW capacity proposed as progress is revealed.

First US Offshore Wind Farm

Europe has had offshore wind farms since the 1990s. LIPA seeks to finally commission the first American one a few miles into the Atlantic Ocean. Initial capacity proposed is 350 MW with potential for a second phase to achieve 700 MW.

Sustainable Energy Transition Takes Time and Effort

Freeing NY from the need to burn coal (~12.5%) and oil (~10%) for electricity is not a quick and easy process. It will take solar and wind deployments more than double recent growth. Its nice to see NYPA and LIPA taking concrete steps to take advantage of the steady, powerful winds offshore.

Here’s to more progress in the months ahead-

Europe price falls to record low

The price per watt of a single module fell to 4.52 euros (a drop of 2 euro cents (.4%) from April). This is a record low and is 4% lower than last May.

US solar price at 3 year low

The price in the US fell four cents (.8%) from April to $4.70 per watt. This is 2.3% below last May and the lowest price since December 2005. Prices are now ~8% higher than their 2004-05 record low. Thus, if prices continue to slide at the current pace we will see new record lows in the US by early 2010.

Solar PV Electricity Prices Down .4%

The fall in module prices translates into a fall of .09 cents (.4%) in the price of industrial solar electricity to 20.78 cents per kWh. This price is the lowest since March 2005 and only 2.4% above the record low set in June 2004. Therefore, we are poised to reach record low solar electricity prices by the end of the year.

Bottom line: Slower demand in 2009 has allowed solar producers to more than catch up with demand. Prices are falling significantly, but have a ways to go before they set record lows in the US and worldwide. And since the price of natural gas and coal are currently ~70% below their 2008 highs, the solar market will continue to be policy-driven until potential grid parity in the early 2010s via fossil fuel price recovery and further solar price reduction.

Three weeks ago, I wrote about a small drop in production as the potential beginning of decline. But then the following week saw the year’s highest production at 5.481 million barrels per day (Mbd). So I waited to report the small fall in production that I read about last week (a 1.1% slide to 5.421) until after a second straight drop followed it. And that consecutive drop was reported this week as output slid further to 5.269 Mbd.

A Significant Drop in Production

While US crude production currently remains .25 Mbd above last year, the .21 Mbd (almost 4%) drop in production over two weeks could signal tighter supplies on the way. If such a rapid decrease continues for three more short weeks,  output would fall below 5 Mbd again and require imports to rise.

High Fuel Inventories Prevent Short-Term Worry

Recessionary low demand has caused all fuel inventories to remain above average. While gasoline demand was only down .4% last week, demand for distillates (mainly diesel) and propane fell 16.8% and 8.5%, respectively. As a result, crude oil inventories are almost 15% higher than last year and the highest since 1990. So it will take many weeks of US production below 5 Mbd for supplies to feel tight again.

Rig Count Falling, But More Slowly

The number of rigs actively drilling for new oil and natural gas wells slid again this week to 945 (oil fell 6 to 196, natural gas fell 1 to 741, and miscellaneous fell 3 to 8). This weekly slide of 10 rigs (1%) is much slower than the ~40 rig drops of recent weeks.  But the further slide means that oil output will probably continue to decline for several months. And natural gas, with its faster decline rates, will probably begin to show significant production decreases soon. With natural gas storage that is 34% above last year and 22.5% above the five-year average, this fuel carries no short-term worry either. But by late summer, output declines may catch up with the rate of recession-induced demand reduction and get the price back above $4 per MBtu.

Bottom Line: The falling rig count is finally translating into lower oil output and will soon show itself in natural gas production numbers. While supplies are ample for the short-term, more market tightness is on the way in the medium term. A continued focus on deploying efficiency and renewables can prevent a 2008-style price spike as output falls in late 2009 and 2010.

Onwards in the Sustainable Energy Transition-

These profits show renewable energy is ready to drive a green economic recovery — providing jobs, profits, and secure, affordable energy for communities nationwide.

Onwards in the Sustainable Energy Transition!