A healthy energy balance is gained through markets, not mandates
Many U.S. states and several foreign nations are implementing mandates requiring a certain percentage of all vehicles sold be zero-emission vehicles, or ZEVs, by a target date. Many of the same players are also requiring a certain percentage of electric generation to come from renewable energy. Hydrocarbon opponents are also looking to block the building of pipelines to discourage natural gas use and demand.
This trend to change legal and regulatory frameworks is designed to artificially reduce demand for hydrocarbons.
Since the time of overproduction in the East Texas oil fields during the 1930s most producers have been able to sell their production at close to market prices, with temporary blips during wartime, natural disasters or transportation disruptions. The industry’s primary regulatory challenges historically came from regulations that tended to damper production – regulations that were generally well-intentioned to solve safety and environmental concerns. But oil producers are innovative and were still able to increase production: Thanks in large part to the shale revolution of the last decade, we entered a new world of hydrocarbon production in Texas and the U.S.
About a decade ago I started noticing a trend in regulations that were not so well-intentioned: those purposely intended to reduce hydrocarbon production. I see this is as the largest threat to the industry over the next few decades.
If you reduce demand for hydrocarbons, production decreases and prices come down. The simplest way to do this is to requiretransportation usage to come from sources of energy other than oil and natural gas and then require that electricity be generated from renewable resources.
The U.S. Energy Information Administration estimates that the U.S. will build 42 gigawatts of new electric capacity in 2020: Renewables 78 percent, fossil fuels 22 percent. Current (2018) EIA data shows U.S. electrical generation at 63 percent fossil fuels, 17 percent renewables and about 20 percent nuclear.
It will not take many years of this kind of shift in electrical generation sources to substantially reduce hydrocarbon demand.
Another governmental action threatening hydrocarbon demand is disallowing pipeline permits for the express reason of decreasing natural gas usage. I know people have many different reasons to oppose pipelines but some are doing so to discourage fossil fuel use.
In my opinion, natural gas energy content and clean efficiency make it worth at least twice as much as its current selling price. But we’ve had a massive supply increase – primarily as a result of the shale revolution.
The question of why demand is not higher is at least in part due to government regulations and mandates to use other fuels.
The oil market may be even more volatile than the natural gas market and is also suffering from a lack of demand. In December OPEC (and other oil-producing countries) agreed to not only extend production cuts but to increase them to 1.7 million barrels a day. They are not doing this to support American oil producers; they are doing this because they are afraid the market will crash. If problems were solved in various hot spots around the world – Venezuela, Libya, Iran and Iraq, for example – it could lead to a dramatic supply increase.
Look at two events in recent months that hardly moved the needle on oil prices: The attack by Iranian interests on the Saudi oil field infrastructure, and the killing of the Iranian general in Baghdad. Both caused a mere blip in prices. Ten years ago we would have seen a severe price spike.
It’s not as simple as hydrocarbons = BAD, Renewables = Good. Renewables have environmental tradeoffs, too. Federal and state tax subsidies cost consumers billions. A few years ago the Texas Public Policy Foundation released a study showing that taxpayers have spent over $65 billion on wind and solar tax credits, and Texas ratepayers have spent $7 billion building transmission lines to move wind-generated electricity.
We must continue to work towards a positive future for the vast parts of the world that rely on the oil business and stop these mandates that will reduce demand for oil and natural gas. The industry can, will and should compete in a free market – not in a rigged game set up to favor renewables.
The Hon. David J. Porter served as a Texas Railroad Commissioner from 2011 to 2017, and then founded the non-profit 98thMeridian Foundation to study, educate and initiate high-level dialogue around water, land and energy to bring forth reasonable solutions.