While making a list of my personal goals for 2015, I began thinking about the major energy stories of 2014 as well as the issues that are likely to dominate the headlines this year. There’s no doubt that the plunging price of oil was the biggest energy story of last year. And oil prices — as always — will dominate the economic and political news in 2015. Herewith, my list of three big stories from last year as well as four issues to watch for over the next 12 months.
Peak-oil predictions got debunked, again. Given the plummeting price of crude oil — on Monday alone, the price of the benchmark West Texas Intermediate fell by about 5 percent — it’s a little humorous to look back at some of the myriad projections about “peak oil” and how we will soon face catastrophe due to shortages of the world’s single most important commodity. For instance in 2009, National Public Radio ran a story about a book by Canadian economist Jeff Rubin called Why Your World Is About to Get a Whole Lot Smaller. According to NPR and Rubin, globalization was going to slow down because oil was going to remain expensive; it was going to remain expensive because “demand will consistently outstrip supply in the coming years.”
Alas, the facts keep outstripping the predictions of doom. In 2014, oil output in the United States grew by about 1 million barrels per day. That makes the third straight year that domestic oil output has grown by that volume. And in early December, the Energy Information Administration reported that domestic proved oil reserves now stand at about 36 billion barrels, their highest level since 1975.
The peak-oil crowd “fell into the neo-Malthusian trap,” Michael Lynch of Strategic Energy and Economic Research, told me a few days ago. “They took conservative estimates of the resource base and then argued that technology is exhausted and concluded that we’ll never get better at recovering this stuff.”
Indeed, the peak-oil proponents have never understood how price and technology can change markets. Love oil or hate it, we’ve never had a shortage of the stuff. Sure, prices rise — and prices fall — and they do so based on supply and demand. Will low oil prices last? I don’t know. But you can rely on the old adage that the cure for low energy prices is low energy prices and the cure for high energy prices is high energy prices.
The solar boom continues. In general, I’m skeptical about renewable energy. But the huge increases in solar-energy deployment are proving the same point I made just above about the powerful combination of price and technology. Prices of solar photovoltaic cells are falling like a rock. Those falling prices have led to a surge in deployment. According to Nat Bullard of Bloomberg New Energy Finance, about 48 gigawatts of new solar PV was installed globally in 2014; that’s six times the amount that was installed in 2009. To be sure, solar is starting from a very small base. (It now provides about two-tenths of 1 percent of global energy consumption.) But rest assured, the solar boom has not ended. Indeed, it will continue as PV prices continue falling.
Catholic bishops called for an “end to the fossil fuel era.” In December, a group of Catholic bishops issued a letter advocating “new models of development and lifestyles” that are “climate compatible” and that also “bring people out of poverty.” They continued, calling for “an end to the fossil fuel era, phasing out fossil fuel emissions and phasing in 100 percent renewables with sustainable energy access for all.” Like other institutions, the Catholic Church has lots of factions. But for a group of high-profile bishops to make such a declaration shows a lack of intellectual rigor. Indeed, the bishops are blithely ignoring the key role that hydrocarbons have played in bringing hundreds of millions of people out of poverty.
Despite plunging prices, oil production in the United States will continue rising for much of 2015. The oil boom isn’t over. Not by a long shot. Yes, companies are slashing their spending plans for the rest of this year. Continental Resources Inc., one of the biggest players in the Bakken Shale in North Dakota, recently cut its drilling budget by 41 percent. But improved capital discipline won’t mean big cuts in output in the near term because drillers still have plenty of rigs operating. In addition, drillers are making huge gains in productivity from the wells that they drill. While it’s true that lower prices will eventually reduce domestic production of both oil and natural gas, those reductions will occur gradually. The good news here is that the United States, not OPEC, is now determining the marginal price of oil, and that will remain true for some time to come.
In 2015, Congress will pass a Keystone XL pipeline bill. Congressional Republicans will cheer and claim victory after passing a bill that intends to force President Obama to approve the long-delayed project, but unless the GOP leaders plan to build the pipeline themselves, it might not make much of a difference. The challenge for Keystone XL in 2015 won’t be politics, but economics.
The estimated cost of the pipeline has soared by about 50 percent over the past six years and now stands at some $8 billion. The delays have allowed railroads to enter the market. Western Canada now has about 1.1 million barrels per day of rail-terminal capacity that it can use to ship crude to refineries across the United States and Canada. Keystone XL has a design capacity of 830,000 barrels per day. Meanwhile, oil output in the U.S. has surged and crude prices are falling. Keystone XL made a lot of economic sense when oil was selling for $100 or more. On Monday, oil was selling for less than $50.
Coal will continue to be the global energy story. Yes, coal is the story. And it continues to be the story despite the never-ending argument about what’s happening with the planet’s temperatures. Some scientists say we are experiencing a pause in global warming. Others are saying 2014 was the hottest ever recorded on earth. As a resolute climate agnostic, my response is this: Temperatures may be rising; they may not be rising. We can argue about ideal atmospheric CO2 levels, aerosols, “forcings,” albedo effects, and the perversity of the designated-hitter rule until the cows come home. The hard fact is that global carbon dioxide emissions are rising. By a lot. And they will continue rising. By a lot. Why? More than anything, it’s because the world is demanding electricity above all other forms of energy and to produce that power, countries all over the world are using coal because it’s a cheap way to produce the electricity that we crave. (For more on this, see my recent Manhattan Institute report on coal.) Since 1973, coal has been the fastest-growing form of energy in the global marketplace. And that growth will continue in 2015. Last month, the International Energy Agency reiterated its projection that global coal consumption will exceed global oil consumption by 2019 or so. That soaring coal use is a major reason that there’s little reason to expect any reductions in global carbon dioxide emissions. And that leads to my final prediction.
Nothing will be achieved at the climate confab in Paris. We’ve seen this movie before. Prior to the meeting in Paris — just as we’ve heard prior to the meetings that were held in Copenhagen, Bonn, Durbin, Cancun, and Lima — we will hear the usual warnings about this meeting being “the one.” The Paris meeting (which starts November 30), we will be told, will finally provide the venue, and the moment, where all of the countries of the world will come together and agree to limit their carbon dioxide emissions. It won’t happen. It won’t happen because the leaders of developing countries understand that any agreement that requires them to limit their carbon dioxide emissions will necessarily mean a reduction in economic growth. That’s not a trade those leaders are willing to make.
— Robert Bryce is a senior fellow at the Manhattan Institute. His latest book is Smaller Faster Lighter Denser Cheaper: How Innovation Keeps Proving the Catastrophists Wrong.