By 2023, a Changed World in Energy
By CLIFFORD KRAUSS: A version of this article appeared in print on April 25, 2013, on page F1 of the New York edition
IF you could close your eyes for just a moment like Rip Van Winkle, and blink them open in 2023, you might see a very different energy world.
Electric cars may be popular. Solar energy could be cheap enough that millions of households and businesses deploy solar panels to generate their power needs. Fossil fuels will probably still dominate, but most trucks and many trains could run on natural gas rather than more polluting diesel. And the United States could be a major oil exporter.
None of this is implausible. Consider the change over the last 10 years. Back in 2003, American natural gas fields were thought to be drying up and energy entrepreneurs were beginning to invest in hugely expensive terminals to import gas, not export it. American oil production continued to plummet.
An awakening Rip today would see a miraculous change: a country on the path to becoming energy independent, a hopelessly quixotic quest only a decade ago. Newly prolific oil fields in North Dakota and Texas are expanding domestic production to levels not seen in a generation. The United States has suddenly become a net exporter of gasoline and diesel fuel. And it is looking for new markets for natural gas as well: new drilling technologies have allowed domestic production to soar over the last five years, causing a glut and price slump.
“When it comes to energy, the rule of the game is to expect the unexpected,” said Daniel Yergin, the energy historian. “So much effort is going into research, development and innovation all across the energy spectrum, 10 years from now we may well see the next game changer.”
Possibly profound changes are taking shape right now. Newly mandated corporate average fuel economy standards are expected to double the number of miles that the average car travels per gallon by 2025. Scientists are working to develop better ways to store electricity to make wind turbines and solar power systems more practical when the wind does not blow and the sun does not shine. Energy-poor Japan has just found a way to extract natural gas from frozen methane hydrate at the bottom of the sea, a development that could open the door to a giant new gas source around the world.
Development of advanced biofuels, made of nonfood materials like algae and switch grass, has been disappointingly slow over the last decade. But breakthroughs are still possible. The first United States commercial advanced biofuels plant opened last fall in Mississippi, and a handful more are expected to start producing 200 million gallons this year. Tesoro, the Texas-based refiner, has agreed to begin buying algae-derived fuel to produce diesel.
A handful of power plants designed to convert coal into combustible gas, which could emit half the carbon dioxide of conventional coal-fired plants, are in the planning stages. Bill Gates is investing heavily in a company called TerraPower, which is working on a fission reactor that, unlike reactors that use enriched uranium and need to be refueled, could run on its own nuclear waste — thus reducing the threat of proliferation and extending the life of available uranium supplies.
“The room for innovation is simply mind-blowing,” Mr. Gates told executives at a recent conference in Houston held by IHS Cera, the energy consulting firm. “Frankly, we need hundreds of ideas because many of them won’t succeed.”
Some changes are fairly easy to predict, given the momentum of the current transformations, especially the emergence of natural gas as a dominant fuel both in the United States and abroad. It is entirely possible, if not likely, that American truck fleets, and perhaps even trains, will replace diesel with cleaner-burning natural gas. The rail freight giant Burlington Northern Santa Fe, the country’s biggest diesel consumer, plans to test liquefied natural gas in its engines. Plans are afoot to convert idle natural gas import terminals into export terminals that could make the United States a major gas exporter by the early 2020s.
Modular gas-to-liquids plants will probably emerge next to oil fields, to exploit natural gas that is now being released and wastefully flared; the gas can instead be converted into a diesel fuel to power rigs and trucks. Government regulations will force energy companies to adopt safeguards against air and water pollution from hydraulic fracturing. And just as the exploitation of shale gas and oil production has taken off in the United States over the last decade, the next chapter of this revolution will see its expansion across much of the globe over the next decade, from Argentina and Mexico to China and North Africa.
ENVIRONMENTALISTS and fossil fuel producers have different wish lists for the future, of course, but many in both groups see the potential for big and somewhat similar energy changes over the next decade.
Hal Harvey, chief executive of Energy Innovation, an environmental consulting firm based in San Francisco, conceded that transportation fuels “are not going to change that much in the next 10 years.” But he said the new auto fuel standards would produce a striking improvement in mileage efficiency as carmakers design far lighter vehicles of new or improved materials that provide strength and safety without mass.
He also foresees “explosive growth” in renewable energy sources for electricity, with wind generation systems now running at a cost below that of many older power plants, and costs of solar energy panels coming down by 70 percent over the last three years. “We are going to see a lot of change in power generation over the next 10 years,” he said. “You start to give homeowners the opportunity to self-generate and control their energy costs, and they take that option.”
He noted that California utilities had already signed contracts to comply with a state mandate to produce one-third of their power from renewables by 2020, from roughly 20 percent today. “The forces are inexorable,” he concluded.
William Colton, Exxon Mobil’s vice president for corporate strategic planning, similarly said that “oil is going to continue to be dominant in transportation” over the next 10 years at least.
Nevertheless, he said there should be many more hybrid vehicles on the road by 2023. “They will be more popular for one reason: Governments are mandating higher economy standards,” Mr. Colton said. “The industry will be pushed in that direction.”
Mr. Colton said natural gas would become increasingly important in the power sector, replacing much coal-burning both in the United States and abroad. He also foresees possible scientific breakthroughs for building lighter, cheaper and faster-charging batteries for cars; biological breakthroughs to make biofuel production more economical; and even advances in the development of hydrogen fuel cells to run electric motors on cars, resulting in emissions of only water vapor. But he added that commercialization of any of the possible breakthroughs would take at least another decade.
Much of the future of energy will depend on government policy, of course, and several major decisions in the United States are coming soon.
A major increase in natural gas exports hinges on pending licenses from federal regulators to allow construction of new liquefied natural gas export terminals. Should the Obama administration reject for environmental reasons the proposed Keystone XL pipeline, aimed at moving increasing amounts of Canadian and North Dakota oil to Gulf of Mexico refineries, the decision could hinder American independence from oil produced by members of the Organization of the Petroleum Exporting Countries. The slumping coal-mining industry needs government approvals of several proposed coal-exporting terminals in the Pacific Northwest, but it probably faces years of delays.
President Obama has proposed an “energy security trust” to provide $2 billion in energy research over the next decade, but budget realities could cut subsidies and research for renewable energy. A future Republican administration could decide to ramp up nuclear power, resuscitate coal production or encourage the conversion of automobiles to use natural gas.
Government policies look even more uncertain abroad. In Europe, weakened finances cast doubt on support for solar and wind power in at least some countries, and support for hydraulic fracturing to increase gas production remains tenuous. In many oil-producing countries like Venezuela and Angola, government subsidies for gasoline and other fuels are expanding domestic consumption and eroding the capacity to export.
In the United States, the federal Energy Information Administration, a cautious prognosticator, is projecting explosive growth in domestic oil production in the next three years alone, with production expanding from a current 6.83 million barrels a day to 7.52 million barrels a day in 2016 — the highest rate achieved in nearly three decades. The agency has also predicted domestic oil production will remain above six million barrels a day through 2040, despite a decline in production after 2019.
Energy demand will grow slowly in the coming years, according to the agency, with coal and nuclear power becoming relatively less important, and natural gas and renewable sources becoming more important. It projects that renewable energy, not including hydroelectric power, will account for 32 percent of the overall growth in electricity generation through 2040.
But even as demand for oil slackens in the United States and Europe because of demographic changes and more efficient vehicles, emerging market economies — especially those of China, India and the Middle East — will keep fossil fuels dominant worldwide not only through 2023, but through 2035, according to the Paris-based International Energy Agency.
Still, China’s growing energy demands have also prompted it to invest more than $70 billion a year in nuclear, wind, solar and biomass projects, so the energy priorities set by its new leadership could have profound and even unpredictable global effects.
In an interview, Fatih Birol, chief economist for the International Energy Agency, predicted that the United States as well as China, Europe, Japan and India would institute rules and standards to increase energy efficiency in vehicles, appliances and industry, but such advances would not be enough to stem significant climate change over the coming decades, which he said would be “deleterious for the planet.”
He said he expected that increasing gas production over the next decade would give the United States a competitive energy price advantage over Europe and Japan. He added, “The U.S. oil import bill will go down and the trade balance will be an asset rather than a burden to the United States,” as it has been over the last few decades.
His agency’s most recent World Energy Outlook attracted big headlines predicting that the United States will overtake Saudi Arabia and Russia as the world’s top oil producer by 2017, and North America will become a net exporter by around 2030. Fulfillment of the dream of energy independence shared by every president since Richard Nixon would be a substantial geopolitical shift, meaning the United States would no longer depend on erratic or unfriendly oil producers like Venezuela or Nigeria.
A recent Citigroup report, “Energy 2020: Independence Day,” projects fundamental shifts in oil markets over the next five years. The report foresees wide-ranging changes in trade, shipping and flows of oil and gas that will ripple across continents and especially benefit the United States and Canada. “This production growth from North America looks bound to place considerable pressure on global oil prices in the half decade ahead,” it said.
This year, imports of high-quality West African sweet crude will be replaced as pipelines, rail and seaborne transportation will more thoroughly connect new American shale fields with domestic and Canadian markets. With approval of the Keystone XL pipeline and rail connections, more Canadian crude could reach the refineries of the Gulf of Mexico, displacing imports of Venezuelan, Mexican and Persian Gulf heavy crudes. Finally, the supply revolution in the United States and Canada will challenge the influence of the OPEC cartel, as even its recent publications have acknowledged.
The glut of domestic natural gas will mean significant exports by 2023, according to most energy analysts. Companies are petitioning to build more than a dozen export terminals. Though many will probably not be approved or attract necessary capital, it is likely that American exports of liquefied natural gas will reduce European dependence on Russian gas and allow Japan, China, South Korea and other countries to rely less on coal.
The promise of energy independence raises provocative policy questions. If the United States is no longer dependent on Middle East oil, what will be the justification for protecting the Strait of Hormuz from Iranian or terrorist attack? Will isolationism spread among the American electorate, and demands grow to bring home the Fifth Fleet, now based in Bahrain to protect the Persian Gulf?
Maybe. But the United States would not be immune from oil shocks that could still jolt the globalized economy and send pump prices in the United States soaring, and few analysts predict the United States will turn away from the Middle East.
“Are we better off if we’re less dependent on imports? Absolutely,” said Bill White, a deputy secretary of energy in the Clinton administration and former mayor of Houston. “But if the Straits of Hormuz are closed and 60 percent of the world is still import-dependent, then we face an economic crisis because the people we sell products to won’t be able to buy our products and the price of the goods that we import would climb.”
Some things may look very different to Rip in a decade, but others could well look the same.