The last decade has brought more disruption than the energy sector in the United States has seen since the 1970s, when the Arab oil embargo led to long lines at gas stations, stoked energy security fears, and prompted Congress to pass fuel efficiency standards.
Grab your popcorn for a look at this past decade’s drama—and a few guesses about what comes next.
U.S. Becomes The World’s Largest Oil Producer
In 1970, U.S. crude oil production hit its 20th-century peak: 9.6 billion barrels per day. Over the next few decades, production steadily declined, with old deposits being played out much faster than new sites were explored.
But after hitting a low of 5 billion barrels in 2008, the pattern shifted. What changed? The combination of hydraulic fracturing and horizontal drilling (AKA “fracking”). Suddenly, it was economical to tap previously unprofitable tight oil deposits in already-established producing areas (e.g., the Permian Basin of Texas and New Mexico and the Bakken Formation of North Dakota and Montana), as well as in new plays such as the Eagle Ford Shale in Texas.
These resources came into production with astonishing speed. As of mid-2019, average U.S. crude oil production is more than 12 billion barrels per day—the U.S. has now surpassed Saudi Arabia as the world’s largest producer. In one decade, the U.S. has gone from importing (on net) roughly half its domestic crude oil demand to being a net exporter.
Will this dramatic turnaround continue? Unclear. Investors have recently turned off the taps of cash to finance these operations as the surge in production has contributed to lower prices and cash flow problems for the last five years. Major oil and gas multinationals have stepped in to fill at least part of the void, investing in producing assets that others now eschew. Meanwhile, several factors make future demand uncertain: trade policy and global economic growth concerns, competition from transportation electrification, and policy efforts aimed at significantly scaling back greenhouse gas emissions from fossil fuels.
The Collapse Of Coal
The energy market giveth… and it taketh away. While U.S. oil production has surged, coal extraction is plummeting. The rise in U.S. oil is all about supply—but the fall of U.S. coal has been largely a demand-driven story.
Over 90 percent of all coal consumed in the US is used to generate electric power. In 2009, 45 percent of all electric power generation in the US was coal-fired. A decade later, coal accounts for less than 28 percent.
Why the collapse? The same factor that drove the surge in U.S. oil production—fracking—has played a major role in coal’s decline. In addition to boosting crude oil production, fracking has unlocked huge reserves of natural gas in locations like the Barnett Shale in Texas and the Marcellus Shale in Pennsylvania.
While very little of the electricity generated in the U.S. is produced by oil, natural gas does compete directly with coal in power generation. Up until about 2005, natural gas was a relatively expensive way to produce electricity because of its high price (although it was handy as a flexible source to meet peak loads). But with the fracking boom, its price dropped by 42 percent between 2005 and 2009 and has dropped another 25 percent since, making it a very attractive alternative to coal.
Environmental policy has played a role too. Coal-fired generation became more heavily regulated after the amendments to the Clean Air Act in 1990 and the subsequent emphasis on controlling sulfur dioxide, nitrogen oxide, and mercury emissions from coal combustion. And of course, over the last decade, public policies and private incentives have targeted reduction of greenhouse gas emissions.
The Nuclear Renaissance That Wasn’t
The U.S. currently has about 100 gigawatts of nuclear power capacity, and 95 percent of its nuclear infrastructure was built between 1970 and 1990. Safety concerns mounted following the 1979 partial meltdown at Three Mile Island and the 1986 catastrophic explosion at Chernobyl. As the political and financial costs of building a new nuclear plant in the U.S. skyrocketed, producers put nuclear plans to pasture.
Things looked a little more promising for nuclear in the early 2000s. Concerns about climate change were mounting, and the electric power sector was the largest source of carbon emissions in the U.S. The fracking revolution and cheap natural gas were still a few years off, as was affordable renewable generation able to deliver power at a scale to replace base-load coal. People began to talk about a “nuclear renaissance” that would bring forth new plants as the cornerstone of lower-carbon electricity.
Indeed, between 2007 and 2009, 13 companies applied to build and operate up to 25 new nuclear reactors in the U.S., and construction soon commenced at five plants in the Southeast.
What could go wrong? Plenty, as the past decade has revealed. Nuclear plants are exorbitantly expensive to build. And Westinghouse (the main contractor for the new U.S. projects) was many years out of practice in building nuclear facilities in this country. The company eventually fell into bankruptcy due to multi-billion-dollar cost overruns. A new Tennessee unit was completed in 2016, but two South Carolina units were shuttered before completion. Owners of two Georgia units initially announced plans to cease construction, then chose to soldier on, though not without continued severe challenges.
Solar Gets Cheaper
Ten years ago, solar photovoltaic (PV) systems were niche products installed at environmentally conscious (and typically high-income) homes and retail businesses. Utility-scale solar was not quite a thing yet, since its levelized cost was about 35 cents per kilowatt hour before subsidies. The federal investment tax credit helped, but even with subsidies, solar was still well above the cost of traditional fossil fuel generation and wind energy (which was beginning to emerge in the Great Plains and Texas).
The niche nudged the market, though, as did state renewable portfolio standards and policies in Europe that further subsidized renewables, amplifying global demand for solar PV systems. On the supply side, this new demand led to economies of scale, both in manufacturing solar panels and installing them in larger-capacity solar farms.
In 2019, utility-scale solar costs 5 cents per kilowatt hour before subsidies—a sevenfold reduction in just the past decade. As a result, annual installation of new solar capacity in the US has grown from less than 500 megawatts in 2009 to more than 12 gigawatts expected by the close of 2019. While solar accounts for less than two percent of US electricity generation in 2018, it amounts to about one-third of new capacity installations.
Revenge of the Nerds: Energy Data Analytics
Energy systems have always generated a lot of data, but the recent profusion of smart devices, smart meters, satellites, sensors, and other gadgetry has created terabytes upon terabytes of information. It’s a treasure trove—but one whose gems are often hidden from plain sight.
Advances in artificial intelligence have provided tools to locate these buried (literally, in some cases) energy treasures. Machine learning uses computational methods to explore large volumes of data without direct human guidance to glean patterns and insights that the human mind cannot detect. It’s being applied to answer questions about oil and gas discovery, the identification of solar energy capacity, optimization of wind power and building energy efficiency.
To continue this progress, universities like Duke are developing energy data analytics labs to train future innovators skilled at applying cutting-edge data science techniques to pressing energy questions.
Looking to 2030
The last decade presented plenty of other important trends and developments, like the decentralization of climate and energy policy in the U.S., electric vehicles’ reentry to the mass market, the prominence of pipelines and protests…
…but I’m moving on to a prediction: the next decade will bring even more tumult to the U.S. energy sector.
In what ways? Obviously, much will depend on political outcomes (i.e., the elections of 2020, 2024, and 2028), unforeseen economic and technological shocks, and whether climate change accelerates and further threatens the resilience of our energy infrastructure.
Still, I think we can expect important developments in these three areas:
– Path-breaking storage options. A world characterized by more renewable energy, EV adoption, and decentralized generation is a world where the scale, quality, and variety of energy storage options will matter. A lot. I predict a glut of innovative solutions, from improvements in battery technology to meet short-term storage needs to advances in thermal, mechanical and chemical technologies to store energy for days and weeks at a time.
– A nuclear re-renaissance. The previous “nuclear renaissance” fizzled in part because the construction costs to competently build big units were simply too high when the cost of other energy sources were so low. Small modular reactors (which are supposed to be far less costly to build) will be field-tested this decade and just may break the no-new-nuclear spell.
– The impacts of greater energy access. The UN’s Sustainable Development Goal 7 is to “ensure universal access to affordable, reliable and modern energy services by 2030.” There are now 800 million people without access to electricity. How they gain access—and how those who have limited access improve it—will have a profound effect on societal well-being and our ability to mitigate climate risks.
How was that popcorn? Tasty, I hope. Help yourself to some more and grab yourself a beverage—this show’s just getting started.
[This article benefited from background research by Will Niver and editorial assistance from Braden Welborn of the Duke University Energy Initiative.]