As the state of the larger economy remains spotty with some possible, but scattered bright spots, the energy industry seems rather positive. This is largely due to the boom happening in the natural gas sector.
“We have a game-changing opportunity to make the U.S. the global leader in energy,” said the American Petroleum Institute’s president and CEO Jack Gerard in an address at the API’s 2013 State of American Energy event on Jan. 8, 2013. “If we seize the opportunity now, we will be positioned to lead for decades and realize the economic and energy security benefits of that leadership.”
The excitement in the oil and energy industry over shale gas production is palatable in many of the addresses and reports being released in the last few months. At the National Association of Convenience Stores’ trade show this past October, many of the natural gas products in the petroleum area were attracting a lot of attention and were the subject of a few seminars on the future of fuels retailing. GE and Chesapeake Energy launched their CNG In A Box system, which is designed for easier adoption of compressed natural gas refueling options for large-and small-scale retailers.
The Energy Information Administration’s early release overview of the Annual Energy Outlook 2013 is very heavy on natural gas projections. Some of the highlights from that report include a sharp rise in crude oil production over the next decade, due to advanced technologies focusing on onshore production, particularly from shale and other tight formations. This lifts their projected domestic supply, with annual growth averaging 234 thousand barrels per day through 2019.
EIA also projects the increased use of natural gas in the industrial and electric power sectors in the next 15 years because of the growth in production and low gas prices. These low prices also encourage the prediction of industrial production expanding in response to the initial competitive advantage. This growth was also reflected in the comments of API’s Gerard.
“Manufacturing can and is returning to the United States; Shell, Dow, U.S. Steel and others have all announced or are considering moving manufacturing to the U.S., or planning expansions here at home, for the first time in many years,” he said. “These decisions are driven by the availability of reliable and affordable energy.”
Moreover, growth in diesel fuel consumption is projected to be moderated due to increased use of natural gas in heavy-duty vehicles. “The improved economics of liquefied natural gas (LNG) for heavy-duty vehicles results in an increase in natural gas use in heavy-duty vehicles that offsets a portion of diesel fuel consumption,” reports the EIA.
Moreover, natural gas exports, according to the EIA’s report, will be larger for the U.S. than previously projected.
“Producing more domestic energy provides opportunities for the U.S. to increase its exports and serve new markets,” said Gerard. “By developing new technologies to access potential new sources, like oil shale, we will be able to dramatically increase our energy potential and role as the global energy leader. Oil shale in the Western United States is estimated at more than 800 billion barrels, or nearly three times the proven reserves of Saudi Arabia.”
Gerard also said after his address that the most important thing that Congress and the Obama administration does is “no harm.” He cautioned them not to act in any way that would impede or discourage the development in natural gas right now.
“We are at the crossroads of a great turning point in our nation’s history…to realign the energy axis toward the West and into our own control,” he said. “North America could become self-sufficient in liquid fuels in roughly 12 years.” He also put emphasis on tax policies that allow economic activity and not to increase the cost of doing business in the country.
Motor & Renewable Fuel
Just a few years ago, renewable fuels, like ethanol and biodiesel, dominated the alternative energy discussion. The AEO2013 projection is less optimistic than the AEO2012 report about “the ability of advanced biofuels to capture a rapidly growing share of the liquid fuels market.”
This prompted some responses from groups such as the Renewable Fuels Association (RFA) and the American Coalition for Ethanol (ACE).
“The EIA has consistently proven Yogi Berra right, ‘the future is hard to predict.’ The agency has consistently underestimated biofuels production and the ability of the market to respond to progressive energy policy,” said Bob Dinneen, president and CEO of RFA.
“Ten years ago, the EIA Outlook said we could only make 3.4 billion gallons of ethanol in the U.S. by 2020. Congress deemed that unacceptable and passed the RFS to encourage alternatives to oil, and they were right,” said ACE executive vice president Brian Jennings.
“When the RFS (Renewable Fuels Standard) was first written, it underestimated that only 5 billion could be put in place, but we’re already ten years ahead of schedule,” said ACE senior vice president Ron Lamberty.
“We’re importing less oil and biofuels is included in the reasons why,” he said.
As far as the last presidential election, Jennings said ACE is feeling confident with keeping the RFS intact.
“President Obama has given us his long standing support, even since he was a senator,” said Jennings. “In Congress, there’s support in the Senate, which is pivotal.” He said there is support in the House, but historically, it’s never championed ethanol the way the Senate has.
For instance, a trade newspaper on the Hill had recently reported that the House is putting ethanol on trial. “But we’re ready for the battle and to show how the RFS is working,” said Jennings.
To do that, he said ACE is showing how ethanol does three things:
-No. 1: Reduces foreign oil imports
“In 2012, reliance of foreign went to 40 percent from 60 percent,” he said. “It (ethanol) is not the only reason, but it’s more than a coincidence.” This was the primary purpose of the RFS back when it was written, and Jennings said that it is delivering on this.
-No. 2: Biofuel benefits the U.S.
“It brings down the price of wholesale fuel by a little over a dollar,” he said, and, “it provides choices at the pump.”
-No.3: Job creation
“While we struggle nationwide, our industry is a success story,” Jennings said and explained that because there’s a strong demand for commodities, “there’s no joblessness in our industry.”
ACE is also trying to reach out to the petroleum marketers and talk to them about how ethanol can help their businesses.
“From a marketer’s standpoint, it’s less about policy and more about buying equipment,” said Lamberty. “They’re not making a lot of money on fuels.” However, ACE is trying to communicate to the independents and small chains to recognize the benefits of biofuels, such as it being an octane enhancer and has the potential to draw more people in.
“The ethanol industry was forcing this,” Lamberty said. “But it’s better to prove how marketers can make more money.” Plus, pump manufacturers are beginning to make more pumps that hold higher blends.
On the biodiesel front, things are looking brighter in 2013. Despite the biodiesel tax credit being expired all last year, Congress voted to reinstate it when passing the year-end fiscal package. Ben Evans, spokesman for the National Biodiesel Board, expects this positive momentum to continue, “There is strong biodiesel support across the country.”
The tax break is also a retroactive reinstatement for a dollar-a-gallon credit going back to January 2012, when it expired. This retroactive credit is approximately a $1 billion benefit to the blenders.
Evans said the Obama administration, the EPA and the USDA are all supportive of biodiesel and there have been demand and product growth increases in the last few years. Under the RFS, biodiesel is set to rise next year, from one billion to 1.28 billion gallons.
The AEO2013 predicts that the sales of alternative-fuel vehicles will be lower than proposed in the AEO2012. “The majority of the reduction relative to AEO2012 is reflected in sales of flex-fuels vehicles (FFVs), which in 2035 are about 1.3 million, or less than one-half the 2.9 million FFC sales in the AEO2012 Reference case,” said the EIA in its report. “FFVs are necessary to meet the Renewable Fuels Standard, but the phasing out of CAFE (corporate average fuel economy) credits for their sale and limited demand from consumers reduce their market penetration.”
Both the NBB and ACE said their organizations are engaging in constructive dialogue with the automotive industry to make sure the car companies are reaching the target put in place by the RFS.