This is a time of disruption in the United States and around the world. We are in the midst of a controversial presidential transition. COVID-19 infections and hospitalizations are trending alarmingly up for the third time in 2020. And no one seems to have a firm grasp of what the most productive steps are to bolster the world economy as we anxiously await the delivery of COVID vaccinations.
While not as high profile as these dilemmas, there is also considerable uncertainty about the future of the energy industry, an uncertainty fueled (pun intended) by the issues I described above.
- At what pace will President Biden turn away from fossil fuels and fracking to more environmentally friendly energy?
- Will the economic and behavioral changes (teleworking, decreased consumer demand, commercial real estate challenges) triggered by the virus appreciably impact energy consumption in the U.S. and around the world?
- Will flight and other transportation traffic see a dramatic uptick as the world prepares to tackle one of the greatest logistics challenges ever—delivering the coronavirus vaccine to billions of people everywhere on this planet?
Biofuels Are Becoming More Prevalent
Market and policy forces are combining to make biofuels an attractive pivot for our future energy needs. There are a couple of economic drivers that reinforce what Joe Biden said during his second debate. First, the U.S. population has increased by nearly 40 million people over the last two decades. With more mouths to feed, biodiesel feedstock, such as used cooking oil and vegetable oil, has increased accordingly.
Second, biofuels are in high demand. China, in particular, continues to seek ways to harvest and import energy to feed sustained demand for fuel in the country. It’s difficult to know how long that demand will last but it’s a wave worth riding in both the U.S. and the European Union.
Third, biofuel use is politically popular in the U.S. While the Iowa caucuses are four years away, recent U.S. trade policies have impacted global demand for corn and soybeans. Converting surplus crops into cleaner-burning biofuels remains a politically viable policy option.
Fracking Isn’t Ending Soon
Love it or hate it, fracking has been the catalyst in unleashing energy prowess over the last decade and the economic and environmental (vis-a-vis coal) benefits are too important to ignore. Fracking has garnered the U.S. a level of energy independence not seen since the 1960s, and while there are credible concerns with its environmental impact, it’s the devil-we-know in energy production.
Logistics Are Everything
No one wants an energy pipeline running alongside a gold medal trout stream or an electrical grid cutting across a cornfield. But oil, natural gas, electricity, thermal, and solar energy aren’t found in equal amounts everywhere in the country, and to get energy from the Permian Basin in west Texas to the heart of Manhattan requires logistical excellence. From pipelines and rail spurs to trucks and oil tankers, raw and refined energy needs to move and we’re going to have to face that reality for years to come.
Energy Surpluses Will Continue in the Near Term
Don’t tell anyone, but we’ve got a ton of energy in the U.S. and around the world. That surplus is wreaking havoc in places like Saudi Arabia, a kingdom that became accustomed to $60/barrel prices from 1976-86 and 2004-15. Currently, it hovers around $40/barrel. Our surplus is also forcing natural gas producers to simply burn off excess natural gas rather than looking for ways to conserve this important commodity. It’s going to take a while, maybe even a long while, to restore sustained high energy prices. In the meantime, producers, refiners, and wholesalers will continue to flare excess natural gas.
Energy Will Continue to Drive the Global Economy
Whether energy prices remain restrained or a coronavirus vaccine unleashes pent-up energy demand, the energy industry remains one of the most crucial in the world. It’s both an exhilarating and confounding industry, like riding a rollercoaster while blindfolded. But like food on our tables and roofs over our heads, energy consumption, in all its forms, remains the lifeblood of our civilization. Policy choices from world leaders and market demands from the private sector will impact the future of the industry.
A crystal ball I do not have. But I hope that these thoughts on future trends provide some insight into the road we’ll follow over the next few years.
I welcome your feedback and your own ideas about energy, so please feel free to reach out to me at TTurner@Prime-Eng.com.