Tag Archives: oil

Playing Politics with Energy Security: How the Latest Congressional Budget Deal Raids the Strategic Petroleum Reserve

Looking to finally reach a longer-term agreement to avoid an extended federal government shutdown last week, a bipartisan deal was reached in Congress in the early morning of February 9 that would fund the government for the next two years. As the details of the deal get combed over there is plenty to digest, even in just energy-related topics (such as the inclusion of climate-related policy), but one notable part of the budget agreement was the mandate to sell 100 million barrels of oil from the Strategic Petroleum Reserve (SPR). The stated goal of this move was to help pay for tax cuts and budgetary items elsewhere in the deal, but will that goal be realized or is Congress paying lip service to the idea of fiscal responsibility at the expense of future energy security?



Purpose and typical operation of the SPR

In a previous post, I covered more extensively the background and purpose of the SPR. In short, the SPR is the largest reserve supply of crude oil in the world and is operated by the U.S. Department of Energy (DOE). The SPR was established in the wake of the oil crisis of the late 1970s with the goal of providing a strategic fail-safe for the country’s energy sector– ensuring that oil is reliably available in times of emergency, protecting against foreign threats to cut off trade, and minimizing the effect to the U.S. economy that drastic oil price fluctuations might cause.

In general, decisions regarding SPR withdrawals are made by the President when he or she 1) “has found drawdown and sale are required by a severe energy supply interruption or by obligations of the United States under the international energy program,” 2) determines that an emergency has significantly reduced the worldwide oil supply available and increased the market price of oil in such a way that would cause “major adverse impact on the national economy,” 3) sees the need to resolve internal U.S. disruptions without the need to declare “a severe energy supply interruption, or 4) sees it a suitable way to comply with international energy agreements. These drawdowns, following the intended purpose of the SPR, are limited to a maximum of 30 million barrels at a time.

Outside of these standard withdrawals, the Secretary of the DOE can also direct test sales of up to 5 million barrels, SPR oil can be sold out on a loan to companies attempting to respond to small supply disruptions, or Congress can enact laws to authorize SPR non-emergency sales intended to respond to small supply disruptions and/or raise funds for the government. This last type of sale is what Congress authorized with the passing of the budget deal (see the previous article on the SPR to read more about how the SPR oil actually gets sold).

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While selling SPR oil to raise funds is legislatively permitted, this announced sale of 100 million barrels (15% of the balance of the SPR) is an unprecedented amount– the biggest non-emergency sale in history according to ClearView Energy Partners. More concerning than the amount of oil to be sold, though, is the ambiguity behind what exactly the sale of SPR oil will fund. Historically, an unwritten and bipartisan rule was that the SPR was not to be used as a ‘piggy bank’ to fund political measures. However, that resistance to using the SPR as a convenient way to raise money (for causes like infrastructure or medical research) was waned as Congress has faced the perennial opposition to raising taxes and the need for new sources of income.

Lisa Murkowski, Chairwoman of the Senate Energy and Natural Resources Committee, has echoed these frustrations about how the funds from the SPR sell-off will be used. When asked how Congress would spend the money, she simply replied it would be spent on “whatever they want. That’s why I get annoyed.” Despite the history of the SPR being an insurance policy for the U.S. energy sector and economy from threats of embargo from foreign nations, natural disasters, and unexpected and drastic changes in the market, the inclusion of SPR sales in this budget is just further indication of Congress trading out energy security and buying into other priorities. Taking the issue a step further, once the oil from the SPR is sold off, it likely becomes that much harder to convince Congress in the future to find the money to rebuild stocks with any additional oil stocks that might become necessary, both because the trajectory of oil prices is always climbing and thus naturally becomes more expensive to do so over time and because getting Congressional approval for new spending will always be more difficult politically than ‘doing nothing’ and just keeping SPR stocks at their current levels.

But is this selling of the SPR oil really in the name of deficit reduction and fiscal responsibility? Will the sale of this oil make an appreciable difference and help balance out the budget that Congress agreed to at (or, rather, past) the eleventh hour?

Crunching the numbers

Ignoring the previously authorized SPR sales, this budget deal alone included directive for DOE to sell 100 million barrels of oil from the SPR. What level of funds would this actually raise, and would it be enough to make a dent in the deficit? At current prices of crude oil that have hovered in the $60 per barrel (b) range, the sale would translate to about $6 billion– but the actual number depends on the price at which the oil gets sold, an uncertain number because the oil is being sold over the next 10 years and oil prices are notoriously variable.

We can make a certain degree of estimates based on the outlook of crude oil prices going forward (acknowledging at the outset the significant uncertainty that any forecast inherently assumes, especially in the oil markets that are affected by outside factors like government policy and geopolitical relations). To get a rough idea, though, we can look at the recently released 2018 Annual Energy Outlook (AEO2018) from the Energy Information Administration (EIA) which projects energy production, consumption, and prices under a variety of different scenarios (such as high vs. low investment in oil and gas technology, high vs. low oil prices, and high vs. low economic growth).

Source (Click to enlarge)

Brent crude oil (representative of oil on the European markets) starts at about $53/b in 2018 and goes up to about $89/b by 2027 in the ‘reference case’ (going from $27/b to $36/b in the low oil price scenario and $80/b to $174/b in the high oil price scenario). Similarly, West Texas Intermediate (WTI) oil (representative of the U.S. markets) starts at about $50/b in 2018 and goes to $85/b in 2027 in the ‘reference case’ ($243/b to $33/b in the low oil price scenario and $48/b to $168/b in the high oil price scenario). These figures present a pretty wide range of possibilities, but that is unfortunately the nature of oil prices in today’s climate. Further, EIA does unofficially consider these ranges to be akin to the 95% confidence intervals between which the actual prices are almost assured to be found, so we can still find value in these prices as the ‘best’ and ‘worst’ case scenarios.

For simplicity’s sake, we can assume this 100 million barrels sold will be sold in equal chunks of 10 million barrels per year from 2018 to 2027 (though the actual sale will certainly not follow this neat order, but the assumption will get us in the approximate range). In the below charts, see the amount of funds raised from this SPR sale assuming the actual sale price is the average of Brent and WTI prices in the AEO2018 reference case compared with using the price of Brent in the high oil price scenario (the largest total oil price in any side case) and the price of WTI in the low oil price scenario (the lowest oil price in all of the side cases). The top chart tracks the amount of money raised in each of the 10 years while the bottom chart then shows the cumulative money raised in these three scenarios over the course of the decade.

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As shown, the low oil price scenario raises between $226 million and $326 million every year for a decade, totaling just shy of $3 billion in funds. In the high price scenario, the annual amount brought in is between $800 million and $1.7 billion per year, totaling about $14 billion in funds. In the reference case, the one that is most likely (though not at all assured) to be representative, each year the selling of SPR oil would bring in between $512 million and $868 million for a total of $7.5 billion in funds.

Now let’s be clear about one thing–raising somewhere between $3 billion and $14 billion is a lot of money. But in the context of this budget that was passed and the rising deficit of the federal government, how much of a dent will this fundraising through the sale of SPR oil really make?

The budget deal will add $320 billion to deficits over the next decade, which is almost $420 billion when factoring in interest according to the Congressional Budget Office. That massive increase in spending, an average of $42 billion per year, makes the funds from the SPR sale look like pocket change:

 Click to enlarge

Both the sale of SPR oil and the impact of this budget will be felt over the next 10 years, meaning these dollar figure present very apt comparisons. At the end of the decade, the high oil price scenario shows that SPR oil sales will only account for 3.4% of the deficit increase, while the reference case would account for 1.8% of the deficit increase and the low oil price scenario would only account for 0.7% of the deficit increase. Since the deficit would increase over the course of 10 years, another way to think of it is that the selling of SPR oil would account for 124 days of the deficit increase in the high oil price scenario, while the reference case would account for 65 days of the deficit increase and the low oil price scenario would account for 26 days of the deficit increase.

Outside of the increase to the deficit, the discretionary spending from the budget increase are to be $296 billion over the next two years (not including money given immediately to disaster spending, healthcare, and tax cuts). The SPR oil sale translates to between 1.0 and 4.8% of the discretionary spending increase or 7 to 35 days of the two years worth of spending increases.

Lastly, after accounting for this latest Congressional budget agreement, the CBO projects the federal deficit will increase to $1.2 trillion in 2019. If the sale of SPR oil is attempted to be pushed as a degree of fiscal responsibility in the wake of this budget deal, it is worth noting that the authorized sale of the SPR oil would only account for 1.2% of the total federal deficit in the best case scenario of high oil prices (0.2% in the low oil price scenario)– a metaphorical drop in the bucket (though for those curious, it’s actually significantly more than a literal drop in the bucket!).

What’s it all mean?

Buckets get filled drop by drop all the time, and it inherently requires many drops to fill up that bucket. So in this metaphor, each drop need not be disparaged for not being larger and doing more to fill up the bucket as it is the aggregate effect we should care about. Despite that truth, it is still fair to bring up whether the sacrifices required to gather that ‘drop’ were worthwhile. Going back to the origin and history of the SPR, Congress selling off large portions of the stocks of oil was never meant to fund ambiguous budgetary measures.

This 100 million barrels to be sold should also not be taken without the context of the sales already authorized by Congress last year that will also become reality in the next decade. Combined with the previously mandated sales, after this budget deal the SPR will be left with just over 300 million barrels of oil— about half of what it had been. So the negative side of this is that Congress appears ready and willing to gut the SPR. However the other side is that, because of the U.S. shale oil boom and other factors, the amount of net imports of oil and oil products to the United States has been dropping significantly. In the context of decreasing net imports, the amount of SPR stock measured in terms of ‘days of supply of total petroleum net imports’ has seen a comparable rise. What this means is that because the United States has become less dependent on foreign oil, less oil needs to be stored in the SPR to provide the same amount of import coverage.

Source (Click to enlarge)

In the wake of this budget passing and the previously announced SPR oil sales, many energy analysts came out to call these moves short-sighted at best, citing the following among the many reasons:

Because the budget that was passed was over 600 pages and was voted on before most people (or anyone) would realistically have a chance to read it, it’s yet to be clear what part of the budget will cause the most noise. But in terms of this surprising move by Congress with respect to the SPR, the questions to wrestle with become the following: Is it wise to sell off our oil insurance policy that might be needed in future tough times just because things are looking good for the present U.S. oil market? Is the financial benefit of reducing SPR oil stocks by such a significant amount  worth paying off a couple of weeks to a couple of months of the increased deficit, or is it possible that such a sale is only paying lip service to fiscal responsibility that allows politicans to point to an impressive sounding source of funds (up to $14 billion!) when in reality it doesn’t move the needle much (a maximum of 3% of the increase in deficit)?

Sources and additional reading

2018 Annual Energy Outlook: Energy Information Administration

America’s (not so) Strategic Petroleum Reserve: The Hill

Budget deal envisions largest stockpile sale in history: The Hill

CBO Finds Budget Deal Will Cost $320 Billion: Congressional Budget Office

DOE in Focus: Strategic Petroleum Reserve

Harvey, Irma show value of Strategic Petroleum Reserve, energy experts say: Chron

Petroleum reserve sell-off sparks pushback: E&E Daily

U.S. Looks To Sell 15% Of Strategic Petroleum Reserve: OilPrice.com

U.S. SPR Stocks as Days of Supply of Total Petroleum Net Imports: Energy Information Administration

Weekly U.S. Ending Stocks of Crude Oil in SPR: Energy Information Administration

Why the U.S. Shouldn’t Sell Off the Strategic Petroleum Reserve: Wall Street Journal

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

DOE Spotlight: Federal Energy Regulatory Commission

The Federal Energy Regulatory Commission, or FERC, is an independent agency charged with specific regulatory oversight in the energy industry, specifically the interstate trade of energy (i.e., natural gas, oil, and electricity) and reviewing proposals for certain energy infrastructure, including liquefied natural gas (LNG) terminals, interstate natural gas pipelines, and hydropower projects. Since its inception, FERC has played a critical role in the regulation (and deregulation) of the energy industry, though its public profile has varied between somewhat in the background, where only those in the industry ever paid it attention, to a notable political presence in the news, when the issues at hand became more mainstream.

Recently, FERC has made headlines after being tasked by the Trump Administration to investigate grid reliability concerns and whether coal and nuclear plants should be propped up monetarily for their ability to store fuel on site. While that proposal was ultimately rejected (as will be discussed later), it did bring FERC to the forefront of many headlines and debates, while also illuminating how little FERC is really understood in the mainstream.



With that in mind, what follows is a primer on what you need to know about FERC to understand its history and role in energy markets for the next time the Commission pops up in a front page news article.

History of FERC

In its current form, FERC was established in 1977, the same year as the Department of Energy (DOE). However, the Commission traces its lineage back to the 1920s with the establishment of the Federal Power Commission (FPC). The federal government established the FPC as an independent commission to oversee hydropower dams that were located on federally owned land or affected federal waters. Hydropower, which had been around in the form of rudimentary water wheels for over 2,000 years, had started to become more industrialized and critical in the United States with the increased demand for wartime electricity, so the FPC was the first government regulatory agency of energy in the United States, seeking to encourage hydropower projects while protecting federal lands, waterways, and water sources.

In the next decade, President Franklin Roosevelt took on the cause of dismantling the monopolies of the electric companies. With that goal, Congress passed the Federal Power Act in 1935. This legislation expanded the power of the FPC, which was still composed of the Secretaries of War, Agriculture, and Interior, to set wholesale electricity prices at levels they deemed ‘just and reasonable.’ President Roosevelt’s next legislative push was the 1938 Natural Gas Act, giving the FPC the additional authority to regulate the sale and transport of natural gas.

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FDR’s initial plan to expand the regulatory power of the FPC and neutralize the monopolies in the electricity sector continued on for the next few decades after he left office, with FPC’s role gradually expanding to include regulation of natural gas facilities, transmission of power over state lines, and more. The next instance of drastic change came in the wake of the oil crisis of 1973, which highlighted the need to consolidate the energy functions in government, which were at that time being conducted by over 30 different government agencies, under one umbrella. That umbrella was the U.S. Department of Energy, formed in 1977 by the Department of Energy Organization Act. Included in this establishment of DOE was the founding of the Federal Energy Regulatory Commission to replace the FPC. The mission of FERC was very similar to the mission that evolved at the FPC: to ensure the wholesale prices being paid for electricity were fair.

Following in the footsteps of its predecessor agency, FERC continued to gather new responsibilities over the years:

  • The Public Utilities Regulatory Policy Act of 1978 tasked FERC with the responsibility of managing a program to develop new co-generation and small power production, as well as the regulation of wellhead gas sales;
  • In the 1980s, FERC began to deregulate the natural gas markets;
  • The Energy Policy Act of 1992 attempted to liberalize the electricity market and gave FERC the ability to oversee wholesale competition in the newly open energy markets; and
  • The Energy Policy Act of 2005 also expanded FERC’s responsibilities to include power regulation in interstate commerce of energy, i.e. the transmission of electricity through power lines and oil and gas that crossed state lines via pipeline.

As energy markets, have gotten more and more deregulated in the 20th century, FERC’s powers and responsibilities to oversee those deregulated markets have grown to meet the additional complexities of such markets. This gradual evolution of responsibilities of FERC explains why the Commission has increasingly found itself and its decisions a topic of debate in the public sphere, where initially the work being done was niche and mundane enough that it did not cause many waves.

Purpose

As stated on FERC’s website, the mission of FERC is to ‘assist consumers in obtaining reliable, efficient and sustainable energy services at a reasonable cost through appropriate regulatory and market means.’ This mission is achieved through the guiding principles of organizational excellence, due process and transparency, regulatory certainty, stakeholder involvement, and timeliness.

FERC, after the decades of evolution, has come to have a litany of responsibilities working towards that main mission. However FERC does not simply have carte blanche for all energy and electricity oversight in the United States. The Commission instead gradually gained certain powers, while others were intentionally left to the states or to the open market. As a guide, the below table identifies what FERC does and what FERC does not do:

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How FERC works

Given the variety of responsibilities that fall under FERC, understanding how the Commission actually works is critically important to understanding its place in the energy industry. In terms of makeup, FERC is composed of up to five Commissioners who are all appointed by the President, with one of the Commissioners serving as the Chairman (also designated by the President). Of the five Commissioners, no more than three may belong to the same political party, and each Commissioner is appointed for a five-year term (the Commissioners’ terms are staggered so they don’t all need to be replaced at once). Each Commissioner of FERC has an equal vote on regulatory issues, with the Chairman being the one to break any ties.

Despite being under the DOE umbrella, FERC operates independently and its decisions are not subject to further review by DOE– a vital component of it functioning as it is intended. The requirement that no more than three Commissioners come from one party is to keep it independent from politics. Despite the individuals being nominated by the President and confirmed by the Senate, FERC operates independently from the influence of the Executive and Legislative Branches, as the courts are the only entities that can review FERC decisions.

Beyond the five Commissioners, FERC is a large operation with over 1,200 employees and an agency budget of over $300 million. These figures may sound like a lot, but the process appears remarkably efficient when considered in the context of FERC’s responsibilities for an electricity industry worth $250 billion and tasked with regulating the electricity used by 73% of Americans.

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FERC’s regulatory review can be kicked into gear in a couple of different ways. For issues with lots of stakeholders and public impact, FERC will use the rulemaking process to ensure the ability to gather information, comments, and other input before making a ruling. The notices of these rulemakings will be posted publicly in the Federal Register so the question at hand and the intended pathway is in the public record for all to read, comment on, and follow. These rulemaking processes can be initiated by a petition from the energy industry, specific companies, stakeholders, or anyone in the public .  DOE can even initiate a FERC rulemaking, as it did recently with the grid resilience Notice of Proposed Rulemaking (NOPR), but FERC comes to the conclusion of that rulemaking independently, without being subject to DOE review.

For more specific topics undertaken by FERC, such as licensing of a hydropower project, FERC will also post notices of this activity in the Federal Register (in fact, this type of licensing proposal is among the most common notice FERC, or DOE as a whole, will post in the Federal Register– see graphic below). These actions are initiated by the entity looking for a license or other approval that FERC is authorized to give. For any stakeholders who seek to participate in FERC’s processes, these notices also provide an opportunity for any stakeholders to review the action and participate through protesting or filing a complaint.

Outside of a rulemkaing from FERC requested by an outside entity, FERC also continually reviews the aspects of the energy industry of which it has oversight, such as interstate electricity transmission and wholesale electricity sales, and can initiate investigation and action against any utility found to be in violation of any regulations. In the event of a violation, FERC has the authority to impose fines and other punitive measures. While these violations can also be flagged by outside entities (e.g., states, customers, companies), FERC alone has authority to determine fault and punishment, subject to review only by the courts.

FERC in the news today

As previously noted, FERC oversees an electricity industry worth hundreds of billions of dollars, and as the energy industry becomes increasingly in the focus of politicians and large corporations, so too do the collective actions of FERC. Below are several of the higher profile incidents that brought FERC to the front page of newspapers in recent years.

California utilities overcharging customers

In 2001, California began scrutinizing its power prices that had recently skyrocketed after the state electric grid was deregulated and opened up to competition. The state accused wholesalers of overcharging customers by $6.2 billion for electricity sold during acute power shortages, and California filed charges with FERC. As a result, FERC ordered refunds, though for only $124 million. The issue did not end there, with California then accusing FERC of stripping billions of dollars from potential refunds and failing  to properly ensure that prices set in California were ‘just and reasonable.’ Much has been written about this event, deemed California’s energy crisis– read about the entire timeline and actions surrounding the crisis here. While FERC faced criticism for potentially not doing enough, a 2016 federal court decision upheld FERC’s findings and actions.

Role in approving pipelines

A recurrent theme that brings FERC into the thick of controversy is its role in approving certain pipelines, as these projects are typically protested and strongly opposed by environmental groups. All major natural gas pipelines FERC has approved are listed on the Commission’s website (remember that while FERC regulates interstate commerce of gas and oil through pipelines, it only approves the siting and construction of natural gas pipelines and not oil pipelines). Such involvement in the approval of pipelines leads to FERC being a lightning rod for criticism by pipeline opponents of any environmental incidents and accidents that may occur. FERC sees numerous protests when it is debating the approval of specific pipelines by citizens who oppose the building of pipelines in their regions (such as the Transco pipeline in New Jersey, the Millennium Pipeline in New York, and the Marc 1 Hub Pipeline in Pennsylvania, just to name a few). Opponents of gas pipeline projects accuse FERC of approving too many pipelines, issuing approvals too easily without enough environmental analysis, and not taking opposition of locals seriously enough. On the other hand, those supporting natural gas infrastructure point out that FERC is required to allow developers to build gas pipelines as long as they comply with laws and regulations, and even stress that ‘it’s harder to build a pipeline today than it was 10 years ago…it takes more time and it’s more expensive.”

Source

These type of projects inspire such passion on both sides, but assuming FERC works as intended then the Commission is independent of partisan causes and political leanings. Instead, FERC accounts for all public comments and stakeholder concerns and ensures their rulings are based on existing laws, regulations, and stipulation.

Trump’s FERC without quorum

When President Trump took office in January 2017, he expressed a desire for Cheryl A. LaFleur (a sitting Commissioner and former Chairman of FERC) to be elevated to Chairman. However, this snub of the sitting Chairman, Norman Bay, led to Bay’s resignation from the Commission altogether. As FERC already had two vacant seats at this time, the resulting third vacancy left FERC with only two Commissioners and thus a lack of a quorum with which to take any action. For an administration that had promised to be a friend to the oil and gas pipeline industry, this sudden non-quorum meant that all pipeline projects that needed approval from FERC remained at a standstill until a quorum of Commissioners could be nominated and approved. While the three Commissioners Trump nominated were awaiting Senate confirmation, a fourth Commissioner announced her imminent departure and left FERC with just one sitting Commissioner.

The lack of a FERC quorum lasted six months, ending in August with the swearing in of two newly confirmed Commissioners. Those six months left various infrastructure and energy projects in limbo, the first time FERC had been without a quorum in its history. Eventually all of President Trump’s nominees were confirmed, and the fiver-person FERC now consists of Kevin J. McIntyre (the Chairman), Cheryl A. LaFleur, Neil Chatterjee, Robert F. Powelson, and Richard Glick.

DOE Grid Resilience Proposal

In September 2017, DOE formally proposed that FERC take action to implement reforms that would provide a financial boost to power providers who kept on site a 90-day fuels supply. This proposal was intended to give an edge to coal and nuclear generation facilities to provide a baseline degree of resilience and reliability to the electrical grid, as those are the only fuel sources where such a fuel supply is readily able to be stored on site.

This proposal was met with intense opposition from providers of renewable energy and natural gas, as well as from grid operators and former FERC Commissioners from both political parties. Those opposed accused DOE of unjustly trying to pick winners and prop up coal and nuclear, citing authorities like the North American Electrical Reliability Corporation (NERC) that have found that the reliability of the bulk power system is not at risk due to the recent closures of coal and nuclear plants.

FERC ultimately decided in January 2018 that the actions DOE proposed failed to meet the requirement that such actions be just, reasonable, and non-preferential of specific fuel types, doing so with a unanimous vote. FERC explained their decision by noting that the proposal was not shown to ‘not be unduly discriminatory or preferential,’ and that the 90-day fuel supply requirement would ‘appear to permit only certain resources to be eligible for the rate, thereby excluding other resources that may have resilience attributes.’ The decision by FERC was celebrated by many in the energy industry as demonstrating the independence of FERC and the process working as it should, with the Commissioners not simply voting based on party-lines and implementing whatever the Executive Branch (through the President and DOE) wanted– no doubt an important reminder in the increasingly partisan environment of U.S. policy-making.

 

 

These are just some of the recent highlights, as FERC always has its plate full with issues that bring passionate debate from multiple sides. For a list of some more controversial issues FERC has been tasked with addressing, see the ‘Controversies’ section of this article on FERC.

Sources and additional reading

About FERC: FERC.gov

An Overview of the Federal Energy Regulatory Commission and Federal Regulation of Public Utilities in the United States: FERC

Federal Energy Regulatory Commission (FERC): AllGov

Hydropower Regulatory History: U.S. Fish & Wildlife Service

What FERC Is and Why It Matters: Huffington Post

What is FERC? PBS

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

Drilling in the Alaskan Arctic National Wildlife Reserve vs. Renewable Energy: The Drilling Debate, Economic and Environmental Effects, and How Solar and Wind Energy Investment Would Compare

In a first for this blog, the focus of this post comes directly from a reader request– so I’ll let this person’s words speak for themselves:

With Congress recently passing a bill allowing for drilling of oil and gas in Alaska’s Arctic National Wilidlife Refuge (ANWR), it got me curious (as a citizen of the sun-rich American Southwest) how much land would need to be covered in solar panels in order to generate the same amount of energy that would be found in these potential new oil and gas drilling sites. Obviously each energy source would have their individual costs to consider, but I am curious as to how efficient and cost-effective it would be to drill in the Alaskan arctic if there are cleaner and cheaper alternatives– it seems covering up the deserts of New Mexico and Arizona could be preferable to potentially harming some of the Alaskan environment and wildlife. Is drilling in this new area even an efficient and safe way for us to get additional oil and gas?
– Case

I loved the thoughtfulness and importance of this question and was inspired to immediately jump into research (also I was so happy to have a suggestion from an outside perspective– so if you read this or any of my other posts and you get inspired or curious, please do reach out to me!). From my perspective, this overall inquiry can be broken down into five questions to be answered individually:

  1. What is ANWR and what exactly did Congress authorize with regards to drilling in ANWR?
  2. How much potential oil and gas would be produced from the drilling?
  3. What are the economics associated with extracting and using oil and gas from ANWR?
  4. What are the environmental effects of that drilling?
  5. Can we do better to just install renewable energy resources instead of drilling in ANWR? How much capacity in renewable sources would be needed? How would the costs of renewable installations compare with the ANWR drilling?



Question 1: What is ANWR and what exactly did Congress authorize with regards to drilling in ANWR?

The Arctic National Wildlife Refuge, or ANWR, has long been a flash point topic of debate, viewed by proponents of oil and gas drilling as a key waiting to unlock fuel and energy independence in the United States, while opponents argue that such drilling unnecessarily threatens the habitat of hundreds of species of wildlife and the pristine environment that’s been protected for decades. ANWR is a 19.6-million-acre section of northeastern Alaska, long considered one of the most pristine and preserved nature refuges in the United States. Having stayed untouched for so long has allowed the native population of polar bears, caribou, moose, wolverines, and more to flourish. ANWR was only able to remain pristine due to oil and gas drilling in the refuge being banned in 1980 by the Alaskan National Interest Conservation Act, with Section 1002 of that act deferring decision on the management of oil and gas exploration on a 1.5-million-acre coastal plane area of ANWR known to have the greatest potential for fossil fuels. This stretch of ANWR has since become known as the ‘1002 Area.’

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This 1002 Area of ANWR is at the center of the ANWR debate, as Presidents and Congresses have had to fight various bills over the past couple decades that sought to lift those drilling bans, doing so successfully until recently. At the end of 2017, with Republicans (who have long been pushing to allow such oil and gas exploration in ANWR) controlling the White House and both Houses of Congress, decisive action was finally made. The Senate Energy and Natural Resources Committee, led by Lisa Murkowski of Alaska, voted in November to approve a bill that would allow oil and gas exploration, with that bill ultimately getting attached to and approved along with the Senate’s tax-reform package in December, with the justification for that attachment being that the drilling would help pay for the proposed tax cuts.

Specifically, the legislation that ended the ban on oil and gas drilling in ANWR did so by mandating two lease sales (of at least 400,000 acres each) in the 1002 Area over the next 10 years. The government’s royalties on these leases are expected to generate over $2 billion, half of which would go to Alaska and the other half to the federal government.

Source

Question 2: How much potential oil and gas would be produced from the drilling?

This really is the million dollar (or, rather, billion dollar) question, because part of the issue is that no one really knows how much fossil fuel is hidden deep under ANWR. The situation is a bit of a catch-22, as you cannot get a good idea for how much oil there is without drilling, but under the drilling ban you cannot explore how much there is. A number of surface geology and seismic exploration surveys have been conducted, and the one exploratory drilling project by oil companies was allowed in the mid-1980s, but the results of that study remain a heavily guarded secret to this day (although National Geographic has previously reported that the results of the test were disappointing). In contrast even to regions bordering ANWR in Alaska that have the benefit of exploratory drilling, any analysis of the 1002 Area is restricted to field studies, well data, and analysis of seismic data.

The publicly available estimates from the 1998 U.S. Geological Survey (USGS) (the most recent one done on the 1002 Area) indicate there are between 4.3 billion and 11.8 billion barrels of technically recoverable crude oil products and between 3.48 and 10.02 trillion cubic feet (TCF) of technically recoverable natural gas in the coastal plain of ANWR. Even though there is that much oil and gas that is technically recoverable, though, does not mean that all of it would be economical to recover. A 2008 report by the Department of Energy (DOE), based on the 1998 USGS survey and acknowledging the uncertainty in the USGS numbers given that the technology for the USGS survey is now outdated, estimates that development of the 1002 Area would actually result in 1.9 to 4.3 billion barrels of crude oil extracted over a 13-year period (while the rest of the oil would not be cost effective to extract). The report also estimates that peak oil production would range from 510,000 barrels per day (b/d) to 1.45 million b/d. These estimates must be taken with a grain of salt, however, as not only are they based on the use of now-outdated technology, but the technology to extract oil is also greatly improved. These technology improvements mean the USGS estimates could be low, but on the other side, oil exploration is always a lottery and recent exploration near ANWR has been disappointing. That’s all to say, current estimate are just that, estimates– which makes the weighing of pros and cons of drilling all the more complicated.

Source

The 2008 DOE report did not assess the potential extraction of natural gas reserves (note that much of the analysis and debate surrounding ANWR drilling focuses mainly on the oil reserves and not the natural gas reserves, likely because the oil is more valuable, cost-effective to extract, and in demand. Where relevant, I will include the facts and figures of natural gas in addition to the oil, but note that certain parts of this analysis will have to center just on the oil based the the availability of data).

To put that in context, the total U.S. proved crude oil reserves at the end of 2015 were 35.2 billion barrels, so the technically recoverable oil in the 1002 Area would account for 12 to 34% of total U.S. oil reserves. At the end of 2015 the U.S. proved reserves of natural gas were 324.3 TCF, making the technically recoverable natural gas in the 1002 Area equal to 1 to 3% of total U.S. natural gas reserves. Put another way, the the technically recoverable oil reserves would equal 218 to 599 days worth of U.S. oil consumption (using the 2016 daily average), while the natural gas reserves would equal 47 to 134 days worth of U.S. natural gas consumption (using the 2016 daily average).

Question 3: What are the economics associated with extracting and using oil and gas from ANWR?

In addition to the push towards ‘energy independence’ (i.e., minimizing the need for oil imports from foreign nations where prices and availability can be volatile), a main motivation for drilling in the 1002 Area of ANWR is the economic benefits it could bring. In addition to the $1 billion for the Alaskan government and $1 billion for the federal government from the leasing of the land, Senator Murkowski boasted that the eventual oil and gas production would bring in more than $100 billion for the federal treasury through federal royalties on the oil extracted from the land.

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However, these theorized economic benefits to drilling is strongly disputed by the plan’s opponents, with president of the Wilderness Society noting that ‘the whole notion that you are going to trim a trillion-dollar deficit with phony oil revenue is just a cynical political ploy.’ When digging into the numbers more closely, the $1 billion to the federal government from leasing the land would end up offsetting less than 0.1% of the $1.5 trillion in tax  cuts to which the drilling provision was attached (while some analyses question whether the land would gather that much in reality, noting the estimates assume oil leases selling for 10 times what they sold for a year ago when domestic oil was scarcer and more expensive).

Outside of the federal revenue, the money coming to the Alaskan government would be even more influential, which is why the charge to open ANWR to drilling is often led by Alaskan policymakers. In fact, while a majority of Americans oppose drilling in ANWR, most Alaskans are cited as supporting responsible oil exploration. While that may seem counterintuitive, the Arctic Slope Regional Corporation explains that “a clear majority of the North Slope support responsible development in ANWR; they should have the same rights to economic self-determination as people in the rest of the United States.

In addition to the money raised by the government is the potential economic benefit to the country from the extraction of the oil. According to the previously mentioned 2008 DOE report, the extraction of the ANWR oil would reduce the need for the United States to import $135 to $327 billion of oil. This shift would have a positive benefit to the U.S. balance of trade by that same amount, but the reduction of reliance on imported foreign oil would only drop from 54% to 49%, and the effect on global oil prices would be small enough to be neutralized by modest collective action by the Organization of Petroleum Exporting Countries (OPEC), meaning U.S. consumers would likely not see an effect on their energy prices.

The last economic consideration would be the worth of the oil and the cost to the companies doing the drilling to extract and bring to market the oil products. A study done by the researchers at Elsevier found that the worth of the oil in the 1002 Area of ANWR is $374 billion, while the cost to extract and bring to market would be $123 billion. The difference, $251 billion, would be the profits to the companies— which theoretically would generate social/economic benefits through means such as industry rents, tax revenues, and jobs created and sustained.

So in short, the decision about whether or not to drill in ANWR has the potential to cause a significant economic effect for the federal and Alaskan state governments, the oil companies who win the leasing auctions, and those who might be directly impacted from increased profits to the oil and gas companies. As with all analytical aspects of ANWR drilling, though, the exact scale of that effect is hotly debated and subject to the great uncertainty surrounding how much oil and gas are technically recoverable from the 1002 Area. Further, the amount of oil that is economically sound to recover and put into the market (not to mention the price oil and gas companies would be willing to spend on leasing this land) is entirely depending on the ever-fluctuating and difficult to forecast price of crude oil, adding further potential variability to the estimates.

Question 4: What are the environmental effects of that drilling?

As previously noted, drilling in ANWR is an especially sensitive environmental  subject because it is one of the very few places left on Earth that remains pristine and untouched by humanity’s polluted fingerprint. The vast and beautiful land has been described by National Geographic as ‘primordial wilderness that stretches from spruce forests in the south, over the jagged Brooks Range, onto gently sloping wetlands that flow into the ice-curdled Beaufort Sea’ and is often called ‘America’s Serengeti.’ In terms of wildlife, ANWR is noted as fertile ground for its dozens of species of land and marine mammals (notably caribou and polar bears) and hundreds of species of migratory birds from six continents and each of the 48 contiguous United States.

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While the exact environmental effects of oil exploration and drilling are not known for certain, the potential ills that can befall the environment and wildlife in ANWR include the following:

  • Oil development is found to be very disruptive to the area’s famed porcupine caribou, potentially threatening their existence (an existence which the native Gwich’in people depend upon for survival), with the Canadian government even issuing a statement in the wake of the ANWR drilling bill reminding the U.S. government of the 1987 bilateral agreement to conserve the caribou and their habitat;
  • ANWR consists of a biodiversity that’s so unique globally that the opportunity for scientific study is huge, and any development of that land is a threat to that existing natural biodiversity in irreparable way;
  • The National Academy of Sciences has concluded that once oil and gas infrastructure are built in the Alaskan arctic region, it would be unlikely for that infrastructure to ever be removed or have the land be fully restored, as doing so would be immensely difficult and costly;
  • Anywhere that oil and gas drilling occurs opens up the threat of further environmental damage from oil spills, such as the recent BP oil leak in the North Slopes of Alaska that was caused by thawing permafrost; and
  • Not only do the direct effects of drilling for oil in ANWR need to be considered, but also the compounding effects that the eventual burning of that oil must be weighed. The use of the oil contained underground in Alaska will only serve to increase the effects of climate change in the Arctic, where temperatures already rise twice as quickly as the world average. The shores of Alaska are ground zero for the effects of climate change, with melting sea ice and rising sea levels causing additional concerns for survival of both wildlife and human populations that call Alaska home. The most climate-friendly way to treat the oil underneath ANWR would be to leave it in the ground.

Question 5: Can we do better to just install renewable energy resources instead of drilling in ANWR? How much capacity in renewable sources would be needed? How would the costs of renewable installations compare with ANWR drilling?

Part 1: Can we just install renewable energy instead of drilling?

At the crux of the original question was whether the country would be better off if we diverted resources away from ANWR drilling and instead developed comparable renewable energy sources. While this question is rooted in noble intent, the reality of the situation is that it would not always work in practice to swap the energy sources one-for-one.

Looking at the way in which petroleum (which includes all oils and liquid fuels derived from oil drilling) was used in the United States in 2016 using the below graphic that is created every year by the Lawrence Livermore National Laboratory (a DOE national lab), we find that 35.9 quadrillion Btus (or quads) of petroleum were consumed. This massive sum of oil energy (more than the total primary energy, regardless of fuel type, consumed by any single country other than the United States and Canada in 2015) is broken down as 25.7 quads (72%) in the transportation sector, 8.12 quads (23%) in the industrial sector, 1.02 quads (3% in the residential sector, 0.88 quads (2%) in the commercial sector, and 0.24 quads (1%) in the electric power sector. Meanwhile, the 28.5 quads of natural gas goes 36% to the electric power sector, 34% to the industrial sector, 16% to the residential sector, 11% to the commercial sector, and 3% to the transportation sector.

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(side note– I think this is one of the most useful graphics created to understand the U.S. energy landscape every year. I have it printed and hanging at my desk and if you are trying to learn more about the different energy types and relative sizes of the energy sector then I recommend this as a great graphic to always have handy)

Compare this breakdown with some of the non-fossil fuels:

  • 100% of wind power (2.11 quads) goes to the electric power sector;
  • 99% of hydropower (2.48 quads) goes to the electric power sector, with the rest going to the industrial sector;
  • 70% of geothermal power (0.16 quads) goes to the electric power sector, with the rest going to the residential and commercial sectors (using geothermal as a heat source as a direct substitute for the electric power sector); and
  • 58% of solar power (0.34 quads) goes to the electric power sector, while 27% goes to residential sector (in the form of residential solar generation or solar heating, essentially a direct substitute for the electric power sector), 12% goes to the commercial sector (also basically a direct substitute for the electric power sector), and less than 1% goes to the industrial sector.

We see that renewable energy sources are capable of displacing a large chunk of the electric power sector, particularly the types of renewable sources like wind and solar that could be installed in vast open land like the original question asked. However, the oil and gas resources that are the subject of the ANWR debate are largely not powering electricity generation, and as such renewable energy sources cannot easily displace most of the uses of the oil and gas.

The issue with thinking ‘why don’t we not drill and instead just invest in renewable energy’ is that in today’s world, there are lots of uses of energy that can only be served, or at least can only be served optimally, by oil products. For example, renewable fuel replacements for jet fuel are not very promising on a one or two generation timescale and 43% of industrial heating applications require temperatures (above 750 degrees Fahrenheit) that cannot be met by electric means or renewable heating technologies. And regarding the millions of cars on the road, the most pervasive and entrenched oil use in daily life, the looming transition to electric vehicles is taking a long time for a reason– not the least of which is that gasoline’s energy density remains unmatched to deliver power in such a safe, economical, and space-efficient manner. Indeed when analysts or journalists speculate about the world using up all of the oil, what they’re really talking about is the transportation sector because other sectors already largely utilize other fuel types. So when considering where renewable energy can replace fossil fuels, it is important to note that the transportation sector and industrial sector are powered 95% and 72%, respectively, by oil and gas, and that there are sometimes technological, institutional, and infrastructure-related reasons for that that go beyond price and availability.

That said, we are experiencing the eventual shift of some energy uses away from fossil fuels– notably in the transportation sector– but many of these shifts will take time and money to convert infrastructure. Many continue to study and debate whether we’ll be able to convert to 100% renewable energy without the aid of fossil fuels (with some concluding it’s possible, others that it’s not), and if so how far away are we from such an energy landscape. Even considering that it will take 10 years from passing of legislation to beginning of actual ANWR oil production, the American energy mix is only expected to change so much in the next few decades (see the Energy Information Administration forecast for renewable energy, natural gas, and liquid oil fuels below), and for better or worse fossil fuels look to be a part of that mix.

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The most significant area in which renewable energy can continue to make headway is the electricity generation sector, the sector that is most suited for renewables even though they only account for 17% of total generation as of 2017. In the meantime, though, fossil fuels like oil and gas will play a crucial role in the energy markets and the potential windfall of resources laying readily underground will continue to be seen as valuable to oil and gas companies (though it is important to ask whether, in the midst of increasing availability of shale oil, will the energy markets need the ANWR oil or will the oil companies even want to gamble on the risky and expensive play).

Part 2: But theoretically, how much renewable energy would need to be installed to account for the energy that would be extracted from ANWR?

All that said, though, for the sake of the academic exercise originally asked, let’s ignore the differences between fuel types and assume that by leaving all the oil and gas from the 1002 Area in the ground and instead installing renewable energy sources (i.e., wind and solar farms) we can extract the same amount of energy for the same needs.

The 2008 DOE report estimated between 1.9 and 4.3 billion barrels of crude oil would be extracted in a developed ANWR. This amount of oil can be converted to between 10.5 and 23.9 quads. The peak extraction according to the DOE report would end up being between 867 and 2,464 gigawatt-hours (GWh) per day.

The 1998 USGS Survey pegged the technically recoverable pegged the technically recoverable natural gas at between 3.48 and 10.02 TCF, which easily converts to between 3.48 and 10.02 quads. Because the DOE report did not break down how much of the technically recoverable natural gas would actually be economical to extract, we’ll assume for simplicity’s sake that it all will be extracted (there’s enough uncertainty in the estimates in all of the USGS and DOE numbers that we need not worry about exactness, but rather make the estimates needed to get an order of magnitude estimate). Without any estimates about the rate of extraction expected from the natural gas, we’ll make a very back-of-the-envelope estimate that it will peak proportionally with oil and reach a maximum rate of 274 to 990 GWh per day.

Adding the cumulative crude oil and natural gas extracted from the 1002 Area would be between 14.0 and 33.9 quads— an amount of energy that would find itself somewhere between the total 2016 U.S. consumption of coal (14.2 quads) and petroleum (35.9 quads). Adding the peak rate of oil and gas extracted from ANWR would imply the total peak of oil plus natural gas of between 1,140 and 3,454 GWh per day (we’re again playing fast and loose with some natural gas assumptions here). This range of rates for the peak energy being pumped into the total U.S. energy supply will be the numbers used to compare with renewable energy rather than the cumulative energy extracted.*

*The reason for this is because it is the best basis of comparison we have to the renewable nature of solar and wind. Why is that? At first glance it would seem that once the cumulative fossil fuels are used up that the installed renewables would then really shine as their fuel is theoretically limitless. However that would be an oversimplification, as every solar panel and wind turbine is made from largely non-renewable sources and the technologies behind them have a limited lifespan (about 25 years for solar panels and 12 to 15 years for wind turbines). As such, every utility-scale renewable energy plant will need replacing in the future, likely repeatedly over the decades. So while the renewable energy sources will not dry up, it is still important to look at the sources from a daily or yearly capacity basis instead of cumulative energy production. Additionally, energy (whether oil or renewable energy) is not extracted and transported all at once, that process takes time. Because of this, energy markets center around the rate of energy delivery and not the cumulative energy delivery.

So given our target range of 1,140 to 3,454 GWh/day, how much solar or wind would need to be installed?

Solar

The reader who asked this question comes from prime solar power territory, so let’s start there. In 2013, the National Renewable Energy Laboratory (NREL) released a report on how much land was used by solar power plants across the United States. With regards to the total area (meaning not just the solar panels but all of the required equipment, buildings, etc.), the generation-weighted average land use was between 2.8 and 5.3 acres per GWh per year, depending on the type of solar technology used. Using the most land-efficient technology (2.8 acres per GWh per year using increasingly common technology that tilts the solar panels to track the sun throughout the day), this amount of solar power would require about 1,166,000 to 3,530,000 acres, or about 4,700 to 14,300 square kilometers, of land.

Source

For reference, in the sun-bathed state of New Mexico, the largest city by land area is Albuquerque at 469 square kilometers. Given that, to equal peak potential oil output from the 1002 Area of ANWR woudl required solar power plant installations with land area about 10 to 30 times greater than Albuquerque. With the whole state of New Mexico totaling 314,258 square kilometers, the amount of land required for solar installations would be between 2 to 5% of New Mexico’s entire land area (put another way, the lower end of the land-requirement range is the size of Rhode Island and the upper end of the land-requirement range is the size of Connecticut).

Wind

Wind energy is set to take over as the number one American source of renewable energy by the end of 2019, a trend that is likely to continue in the future. One reason for the increasing capacity of U.S. wind power in the electric power sector is its ability to be installed both on land and in the water (i.e., onshore wind and offshore wind). Depending on whether the wind power installed is onshore or offshore, the efficiency, cost, and land-use requirements will vary.

NREL also conducted studies of the land-use requirements of wind energy. For both onshore and offshore wind installations, based on the existing wind projects studied, the wind power generating capacity per area (i.e., the capacity density) comes out to an average of 3.0 megawatts (MW) per square kilometer. As with the solar power land-use requirements, note that this figure goes beyond the theoretical space required by physics but includes all required equipment and land-use averaged across all projects.

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Operating at 100% capacity, that 3.0 MW per square kilometer would translate to 72 megatwatt-hours (MWh) produced per square kilometer each day. However utility scale wind power does not operate anywhere near 100% due to the prevalence of low wind speeds and changing directionality of winds, among other reasons. NREL’s Transparent Cost Database indicates that offshore wind operates at a median capacity factor of 43.00%, while onshore wind operates at a median of 40.35% capacity. Accounting for these figures, the land use of offshore wind energy comes out to 31.0 MWh per square kilometer per day, with onshore wind energy averaging 29.1 MWh per square kilometer per day. To reach the 1,140 and 3,454 GWh per day from peak-ANWR-oil would thus require about 33,000 to 100,000 square kilometers of area for offshore wind energy and about 35,000 to 107,000 square kilometers of land for onshore wind energy.

Using the same references points as with solar, wind energy resources would require an area roughly between 71 to 228 times the size of Albuquerque, between 11 and 34% the size of New Mexico, or a land-use requirement between the sizes of Maryland and Kentucky. It might seem jarring to realize just how much more land would be required for wind energy than solar energy, but multiple papers appear to support the notion that total land needed for utility-scale wind energy requires as much as six to eight times more land area than utility-scale solar energy on average. Indeed, the land-use required by renewable sources is one of the biggest costs of the energy at this time. If we’re willing to accept nuclear power as a source of clean, though not renewable, energy, then the technology currently outperforms them all by leaps and bounds– requiring 7 to 12 times less land than the same amount of solar power. But obviously nuclear power comes with its own set of political and environmental challenges, furthering the sentiment that there is not one and only one energy that will ever check all of the boxes and meet all of our needs.

Part 3: How would the costs of that scale of renewable energy sources compare with the previously discussed costs of drilling in ANWR?

Considering these results for the amount of land required by solar or wind energy resource to equal the peak oil and gas output of drilling in ANWR, the true scale of the potential energy resources underground the Alaska region really becomes clear. Further, it becomes clear just how difficult it would be to offset all of that potential energy by building utility-scale renewable energy generation. But the remaining question is how would the costs (both financial and environmental) of drilling in ANWR compare with the costs of the same capacity of renewable energy generation?

Source

 

Economically, the government (both state and federal) is only set to really profit from the drilling in ANWR because the area is government-owned and the money paid by the oil companies to lease the land for oil exploration would go directly to the government and because the government would also take a royalty on the profits made from said oil (a method to raise revenue also looking to be repeated in the sale of offshore drilling in almost all U.S. coastal waters). So while there will always be some degree of money provided to the government from renewable energy sources (e.g, through taxes), the land being used for our hypothetical vast solar or wind farms must come from the sale of government-owned land to provide the same sort of government revenue injection as drilling in ANWR. With wind power, at least, federally leasing for offshore wind farming has started to become somewhat common, though from 2013 to 2016 that only generated $16 million for the leasing of more than one million acres.

In terms of the noted benefits of helping U.S. energy trade by reducing the amount of oil that would need to be imported, the same can be said for a comparable amount of renewable energy– if that renewable energy is offsetting the import of fossil fuels, say for the electric power sector, then an equal effect on U.S. energy trade would be achieved.

In terms of the rough cost to install that amount of renewable energy, we can estimate total costs based on the levelized costs of energy (LCOE), which compares different methods of electricity generation based on costs to build, maintain, and fuel the plant over the lifetime. If we ignore the economic benefits that renewable energy sources enjoy from tax credits, the regionally-weighted LCOE’s of solar and wind power generation sources entering service in 2022 are 73.7 cents per MWh and 55.8 cents per MWh, respectively (compared with 96.2 cents per MWh for nuclear and 53.8 to 100.7 cents per MWh for natural gas, depending on the type of technology used). Compared with the total ANWR costs to extract of $123 billion to reach the 14.0 and 33.9 quads equivalent, the cost for solar would be between $3.0 billion and $7.3 billion and the cost for wind would be between $2.3 billion and $5.5 billion (again emphasizing the uncertainty in how much oil/gas is actually under ANWR as well as the very rough-estimate nature of these cost estimates). These numbers are just for the generation, not to mention the cost for transmission and distribution. However, with state-of-the-art renewable energy technology, it’s important to note that the costs are constantly decreasing and these estimates ignored the current tax credits allotted for renewable energy installations.

While renewable energy sources are seen as more environmentally friendly due to being carbon neutral, there are some environmental effects that cannot be ignored. Any energy source that takes up land is potentially displacing wildlife and using water and other resources. Further, just because the energy source is carbon neutral does not mean that the manufacturing, materials transportation, installation, or maintenance of those renewable plants are without emissions. Solar cells are also known to use some hazardous materials in their manufacturing. Regarding wind energy, extensive studies have had to be conducted on the danger wind turbines pose to birds, bats, and marine wildlife, though largely the conclusions of those studies has been that the impacts to such wildlife is low. Large wind turbines have also caused some concerns of public health regarding their sound and visual impact, but careful siting and planning is able to mitigate these concerns. So while the environmental effects of these renewable source are not nonexistent, they do appear to be much more manageable and avoidable than those of drilling for oil and gas.

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Conclusion

Even with the caveat that’s necessary to repeat throughout this post that all the numbers and calculations this analysis is based on are best-guess estimates and averages, much can be gleaned from looking at the results all together. Especially when you consider that the technologies involved for all discussed energy sources are constantly improving and each can be optimized for a particular region (such as using solar energy in lieu of wind energy in particularly sunny areas), the answer of how to best answer the energy future questions of the United States and the world is always going to be a strong mix of energy sources. There is no silver bullet, even among renewable energy resources, but rather heavy doses of appropriate renewable energy sources and nuclear energy sources will need to be mixed with the responsible use of fossil fuels for immediately visible future. Since the United States is quite unlikely to go cold turkey on fossil fuels overnight, the continued supply of crude oil products is going to be necessary for the time being. And the potential costs of largely relying on foreign imports to meet that demand are going to be feared by government and industry leaders alike. As such, it can be of no surprise that the massive resources of oil and gas underneath ANWR have been a continued focus of politicians and the oil industry for decades. However, none of that is to dismiss the legitimate environmental concerns the opponents have with sacrificing one of the last true areas of untouched wilderness in the United States to the predominantly-financial-based goals of drilling proponents, and if indeed the U.S. oil markets can prosper without drilling then that needs to be seriously considered.

The debate of whether or not to drill in ANWR is surrounded with so much uncertainty, along with passion on both sides. Because of this, the answer of what to do is not clear cut to many. The best thing you can do is educate yourself on the issues (I highly recommend a thorough read of the links in the ‘sources and additional reading’ section, as so much has been written about this topic that there is an unbelievable amount of information to learn) and stay informed as it evolves. Like it or not, drilling in ANWR is an inherently political debate and that affords all U.S. citizens the right, even the duty, to take your informed opinion and be active with it– call your Congressional representatives, join in the debate, donate to action groups. While the opening ANWR land for leasing to oil companies in the recently passed tax bill was the most significant action in this policy debate in years, the lengthy nature of the legislature and leasing process assures that the matter is anything but settled.

Sources and additional reading

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

Petroleum Administration for Defense Districts (PADDs): Past and Present

If you’re an energy-statistics nerd (which you probably are if you’ve found your way to this blog), you’ve no doubt seen various regional data expressed by PADD, or Petroleum Administration for Defense District. Referring to barrels of oil sent from one PADD to another or which PADD uses certain fuel types for home heating  allows for a useful shorthand for regions of the United States and their energy related statistics. Many people who come across the PADD system might already understand PADDs to be a bygone classification system from the country’s fuel rationing days, but most people’s understanding of the PADD system stops here and the history of PADDs are not explored any further.

That’s where this article comes in! This piece will serve to explain what the PADDs are, where they originated, how they evolved over the years, and how they are relevant today.



What are PADDs?

Petroleum Administration for Defense Districts, or PADDs, are quite simply the breaking down of the United States into different districts.

PADD 1 is referred to as the East Coast region and, because of its size, is further divided into three subdistricts:

  • PADD 1A, or New England, comprises Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont;
  • PADD 1B, or Central Atlantic, comprises Delaware, the District of Columbia, Maryland, New Jersey, New York, and Pennsylvania; and
  • PADD 1C, or Lower Atlantic, comprises Florida, Georgia, North Carolina, South Carolina, Virginia, and West Virginia.

PADD 2 is referred to as the Midwest region and comprises Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Ohio, Oklahoma, Tennessee, and Wisconsin.

PADD 3 is referred to as the Gulf Coast region and comprises Alabama, Arkansas, Louisiana, Mississippi, New Mexico, and Texas.

PADD4 is referred to as the Rocky Mountain region and comprises Colorado, Idaho, Montana, Utah, and Wyoming.

PADD5 is referred to as the West Coast region and comprises Alaska, Arizona, California, Hawaii, Nevada, Oregon, and Washington.

New PADDs

There are also two additional PADDs after the original five PADDs that rarely get mentioned, likely because they are much newer and the volume of oil products going in and/or out of them are minimal compared with the rest. Despite a mention of them in the Energy Information Administration‘s (EIA) write up of the PADD system,  PADDs 6 and 7 (meant to cover U.S. territories around the world) do not have data on them included on the prominent, publicly-facing EIA data sets. However, some digging shows that PADD 6 was added in 2015 in order to properly report needed information to the International Energy Agency and comprises the U.S. Virgin Islands and Puerto Rico, while PADD 7 includes GuamAmerican Samoa, and the Northern Mariana Islands Territory. You will commonly find sources citing just five total PADDs, but don’t let that throw you off. Simply impress those you meet at energy cocktail parties by memorizing what territories are in PADDs 6 and 7.

Origin of PADDs

The federal government first established the regions that would become the five PADDs during World War II. Specifically, the Petroleum Administration for War was established as an independent agency by Executive Order 9276 in 1942 in order to organize and ration the various oil and petroleum products to ensure the military had all the fuel it needed. Part of that organization process was the establishment of these five districts as a tool for that goal. The Petroleum Administration for War ended in 1946 after the war efforts were over, but these five original districts were quickly reestablished by the successor Petroleum Administration for Defense that was created by Congress in 1950 in response to the Korean War. This Administration provided these districts with the name Petroleum Administration for Defense Districts.


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Changes over time

As stated, the original function of the PADDs was to ensure proper distribution of oil supplies during World War II. In fact, the Department of Defense made use of the PADD system to redirect oil resources to specific PADDs  in response to Nazi attacks on U.S. tankers. These oil distribution efforts were the largest and most intricate such efforts yet, leading to the realization that interstate pipelines would soon become necessary to connect oil refineries with distant U.S. markets. But once World War II ended, the government determined there was no more need for the Petroleum Administration for War, and gone with the Administration were the districts.

After the Petroleum Administration for Defense revived the five districts, they were then under the management of the Department of Interior’s Oil and Gas Division, with the continued function to ensure the oil needs of the military, government, industry, and civilians of the United States were met. As with the Petroleum Administration for War, the Petroleum Administration for Defense was short-lived and was abolished just four years later by the Secretary of the Interior’s Order 2755 in April of 1954. Even though the government agency was eliminated, the names and organization of the various PADDs continued to be used ever since.

One significant change over the history of PADDs that is important to note is that there are no present day ‘official’ government keepers. While the PADDs served an official function and thus had official definitions set out by government agencies during World War II and the Korean War, that is no longer the case today– but that does not mean they are no longer significant. Within the Department of Energy (DOE), EIA uses the PADDs extensively in its aggregation and dissemination of data (discussed in more detail next). Further, government agencies have defined PADDs for use within specific regulations. For example, the Environmental Protection Agency (EPA) codified PADDs in the Code of Federal Regulations (CFR) when regulating motor vehicle diesel fuel sulfur use (though it explicitly dictates that the definition is only applicable as codified for that specific regulation) and specified total benchmarks and reductions that were to be met PADD-wide, as well as in reporting requirements regarding fuel additives so that they get published by PADD.

Use of PADDs today

With the government being out of the business rationing oil and petroleum since the end of the Korean War, the PADDs have found new purpose. The same PADDs have survived to allow analysis of data and patterns of crude oil and petroleum product movements within (and outside) the United States. Using these PADDs, government and industry players are able to ensure they are using the same regional collection of states and shorthand language to analyze and spot trends within regions instead of being confined to looking at the nation as a whole or analyzing on a more state-by-state basis.

Further, the PADDs are separated in a way that makes analysis straightforward. For example, following the crude supply in PADDs 2 and 3 are the most important to crude prices because they contain the largest number of refineries. Heating oil demand is mostly concentrated in PADD 1, making that the region to look at when investigating heating oil prices. Additionally, using the language of PADDs enable quick insights into data such as EIA noting the impact of Hurricane Harvey on flow of propane from PADD 2 to PADD 3 or detailing how PADD 1C needed to supplement its gasoline inventories with foreign imports when there was an accident that shutdown the pipeline that typically supplies the area with gasoline from PADD 2.

Examples of trends, statistics, and PADD characteristics

There are plenty of other examples of the usefulness of dealing with oil-related data within PADDs. A common example is to delineate from where different PADDs receive their oil. For example, with the knowledge that almost half of U.S. refining capacity is on the Gulf Coast (i.e., PADD 3) while less than 10% of refining capacity is on the East Coast (PADD 1) (though PADD 1 contains about one third of the U.S. population), an obvious conclusion is that there must be a lot of intra-PADD oil shipments everyday. In fact, about half of the oil consumed everyday by PADD 1 is supplied from PADD 3 over pipeline, rail, truck, and barge.

Going further, much of the commonly distributed data from EIA (click here to learn about the vast data available from EIA and how to navigate it all) utilizes PADDs. For example, EIA allows you to look at the following:

and much more.

So hopefully the next time you read a table from EIA that deals with oil movement specific to PADD 3 or read a news article citing the disruption of a pipeline that serves PADD 1, this article will come to mind and you’ll be better served to speak to it– and remember to try and win some bets with your knowledge of the seldom-mentioned PADDs 6 and 7!

Sources and additional reading:

Crash Overview of U.S. PADDs and Why They’re Important

Do You Know What the PADD Does for the Oil & Gas Industry? Croft Production Systems

PADD regions enable regional analysis of petroleum product supply and movements: Energy Information Administration

Records of the Petroleum Administration for War: National Archives

Refined Products Connection: Know Your PADD

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

Best from “Today in Energy” in 2017

Among the wide array of regular articles the Energy Information Administration (EIA) releases, as detailed in this post on navigating EIA’s data sets , one of the most varied and interesting is the Today in Energy (TIE) series of articles released every weekday. According to EIA, TIE articles “provide topical, timely, short articles with energy news and information you can understand and use.”   

What makes TIE particularly compelling to read each day is that the topics it covers range across the spectrum of energy-related topics. Where most of the other reports released by the EIA are restricted to a specific fuel type or survey of consumers, TIE articles bring all of these topics from across EIA into relevant, digestible, and fascinating briefs to give a broad spectrum of information to its readers.



Further, TIE articles feature both stories that are relevant and important to current events (e.g., Hurricane Irma may cause problems for East Coast energy infrastructure) and stories that provide useful background information that can be referenced for years to come (e.g., Crude oil distillation and the definition of refinery). Not only that, but keeping up with TIE articles is a great way to keep up with other EIA publications as well, such as when articles such as the Annual Energy Outlook, International Energy Outlook, or Short-Term Energy Outlook are posted, TIE often includes an overview of some of the relevant conclusions of those articles and a link to read the full version.

To prove how valuable TIE articles can be for all these reasons, I’ve picked a sampling of 13 of my favorite TIE articles thus far in 2017 that are particularly interesting and demonstrate the cross-cutting topics offered by TIE. The ones I’ve chosen are based on the topics I find the most engaging, as well as the graphics that are the most clever and elegant.

1. EIA’s AEO2017 projects the United States to be a net energy exporter in most cases

January 5, 2017

Released the same morning as the Annual Energy Outlook 2017 (AEO2017), this article demonstrates the tendency of TIE to alert the readers of the latest EIA publications, while also providing a good overview to new readers as to what AEO2017 is and what the main takeaways from the report were.

2. Canada is the United States’ largest partner for energy trade

March 1, 2017

Utilizing the latest data from the U.S. census bureau, this article details the energy imports/exports between the United States and Canada broken out by U.S. region and fuel type and demonstrates TIE articles on the topic of trade. Most interesting is the graph showing the difference in electricity trade over the years from each of four U.S. regions.

Source: Energy Information Administration

3. U.S. energy-related CO2 emissions fell 1.7% in 2016

April 10, 2017

This TIE article from April breaks down carbon dioxide (CO2) emissions data, from the Monthly Energy Review, from 2005 to 2016 by both emitting fuel and industry, while also introducing carbon intensity as a metric and shows the progress made in reducing energy-related carbon intensity over the previous decade. As climate change heats up as an issue in domestic politics, industry, and foreign affairs, this type of window into U.S. CO2 emission data can prove invaluable.

4. Most U.S. nuclear power plants were built between 1970 and 1990

April 27, 2017

I chose this article because it provides a fascinating chart that shows the initial operating year of utility-scale generation capacity across the United States, broken out by fuel type, to demonstrate the relative age of each source of electricity generation and, in particular, the relative old age of the U.S. nuclear generating capacity, while also showing the explosion of non-hydroelectric renewable generation since the turn of the century.

Source: Energy Information Administration

5. American households use a variety of lightbulbs as CFL and LED consumption increases

May 8, 2017

An example of a TIE article getting into the use of energy inside of U.S. homes, this piece takes information from the 2015 Residential Energy Consumption Survey (RECS) to show how residential lighting choices have been trending in the face of increased regulation and availability of energy-efficient lighting technologies, highlighting the differences depending on renter vs. owner occupied, household income, and whether or not an energy audit has been performed.

6. More than half of small-scale photovoltaic generation comes from residential rooftops

June 1, 2017

Utilizing data from the Electric Power Monthly, this article breaks out the use of small-scale solar power systems based on the geographic location and type of building, highlighting the rapid rise these systems have experienced in the residential sector, as a great example of renewable energy in the residential sector.

7. Dishwashers are among the least-used appliances in American homes

June 19, 2017

Again taking data from RECS, this TIE article provides insights on the frequency that certain appliances are in American homes, how often they go unused in those homes, pervasiveness of ENERGY STAR compliant appliances, and other data regarding residential energy use of appliances. This article also includes a plug for the 2017 EIA Energy Conference that was to be held a week after its publication, again showing how good of a job reading TIE articles daily can do of making sure you know the latest happenings at EIA.

8. Earthquake trends in Oklahoma and other states likely related to wastewater injection

June 22, 2017

A reason I find this TIE article particularly interesting is that it goes beyond just the energy data collected by EIA and synchs with outside data from the Earthquake Catalog to show additional effects of energy production in the environment. This kind of interplay of data sources demonstrates how powerful EIA data collection can be when analyzed in proper context.

9. Monthly renewable electricity generation surpasses nuclear for the first time since 1984

July 6, 2017

I highlight this TIE article for two reasons. First, the graphic below showing the monthly generation of nuclear compared with the cumulative generation of renewable energies—and the highlighting of 2016-17 particular—is really illuminating. This graph is a great demonstration of the power of data visualizations to convey the data and the message of that data. Second, the reason behind that graphic—that monthly renewable generation surpassed nuclear generation for the first time in over three decades—is a remarkable achievement of the renewable energy sector, showing the trending direction of the U.S. fuel mix going forward.

Source: Energy Information Administration

10. California wholesale electricity prices are higher at the beginning and end of the day

July 24, 2017

This TIE article was identified because of how interesting the topic of wholesale electricity prices varying throughout the day can be. As net metering and residential production of electricity increases across the United States, this will be a topic those in the energy fields will want to keep a keen eye on.

11. Among states, Texas consumes the most energy, Vermont the least

August 2, 2017

Grabbing data from the State Energy Data System, this TIE article presents a graphic displaying the most and least overall energy use as well as the most and least energy use per capita among the 50 states and the District of Columbia. Using color to demonstrate the relative consumption and consumption per capita creates a pair of really elegant visuals.

Source: Energy Information Administration

 

12. Solar eclipse on August 21 will affect photovoltaic generators across the country

August 7, 2017

As everyone was scrambling to find their last minute eclipse glasses, this TIE article detailed where, and how much, the total solar eclipse of August 2017 was to diminish solar photovoltaic capacity and an assessment of how local utilities will be able to handle their peak loads during this time (a nice follow up TIE article on this also looked at how California dealt with these issues on the day of the eclipse, increasing electricity imports and natural gas generation).

Source: Energy Information Administration

13. U.S. average retail gasoline prices increase in wake of Hurricane Harvey

September 6, 2017

Another example of TIE addressing energy-related current events, this article not only provides the information and analysis of the effect that Hurricane Harvey had on retail gasoline prices, but it also provides the context of why the effect was being felt, how it compared to previous hurricanes, and what could be expected moving forward.

 

 

If you’ve been sufficiently convinced that Today in Energy articles would be an engaging read to start the day, you can sign up for an email subscription by following this link.

 

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

DOE in Focus: Strategic Petroleum Reserve

The Strategic Petroleum Reserve (SPR), owned by the U.S. federal government and operated by the Office of Fossil Energy within the Department of Energy (DOE), is collectively the largest reserve supply of crude oil in the world. These massive reserves of oil are divided between four storage sites along the Gulf of Mexico.
As the name implies, the SPR exists to provide a strategic fail-safe for the United States, ensuring that oil is reliably available in times of emergency, protecting against foreign threats to cut off trade, minimizing potential impacts of price fluctuations, and more. Understanding the SPR, both its history and its present form, are crucial to recognizing the role it may play in the future and understand the implications of its discussion by politicians.



Origin of the SPR

Initial calls for a stockpiling of emergency crude oil began as early as the 1940s, when Secretary of the Interior Harold Ickes advocated for such reserves. The idea continued to be brought up and kicked around through the decades– by the Minerals Policy Commission in 1952, by President Dwight Eisenhower in 1956, and by the Cabinet Task Force on Oil Import Control in 1970– but it wasn’t until the Arab oil embargo of 1973-74 that the concept of a strategic stockpiling of oil really gained traction.

For a detailed history on the embargo itself, I would recommend reading The Prize: The Epic Quest for Oil, Money, and Power by Daniel Yergin (who also wrote The Quest: Energy, Security, and the Remaking of the Modern World). But in short, the embargo was due to the United States’ support for Israel in the 1987 Arab-Israeli War. In response, the Organization of Arab Petroleum Exporting Countries (OAPEC) (not to be confused with OPEC– the Organization of Petroleum Exporting Countries) imposed an oil embargo on the United States, while also decreasing their overall production. U.S. production on its own was not enough to meet the country’s needs, and even in the rare instances when oil originating from the Arab nations made its way to the United States, it came at a price premium three times higher than before the embargo.

While an existing stockpile of oil would not have prevented the United States from paying the market price for oil, the availability of such reserves would be enough to help mitigate the magnitude of the market price jump. Not only that, but having reserves of oil available would buy the government time to continue diplomatic efforts to resolve the dispute before the oil shortage caused more devastating impacts on the national economy. Lastly, having a national reserve of oil would reduce the allure of any oil-exporting nations from using the control of their oil exports as a political tool in the first place, as it would not hold the immediate and impactful sway.

With these goals in mind and to prevent the repetition of the economic impacts felt in the U.S. by the oil embargo, President Gerald Ford signed into law the Energy Policy and Conservation Act (EPCA) in 1975. Among the law’s effects was to declare that the United States would build an oil reserve of up to one billion barrels, owned and operated by the federal government. On July 21, 1977, the first shipment of 412,000 barrels of oil from Saudi Arabia arrived and the SPR was officially open.

Operation of the SPR

Storage

The SPR comprises underground storage facilities at four different locations on the U.S. Gulf of Mexico, with each facility in a hollowed out salt dome. The locations in Texas and Louisiana were chosen because of the existence of the salt domes that have proven to be inexpensive and secure storage options and because the Gulf Coast is the most significant U.S. hub for oil refineries, pipelines, and shipments ports. Additionally, the SPR controls the Northeast Heating Oil Reserve (NEHHOR), which stores up to 2 million barrels of heating oil to ensure the northeast is insulated from emergency interruptions in heating oil during the winter months.

The SPR reserves have a storage capacity of over 713 million barrels, with the active amount of oil stored being enough to cover over 100 days of imports since early 2013.

Drawdowns

As the DOE is an executive agency, the decisions regarding when emergency withdrawals from the SPR are needed are made by the President, as specified in EPCA. According to this authorization, the President is only permitted to direct sales from the SPR if he or she “has found drawdown and sale are required by a severe energy supply interruption or by obligations of the United States under the international energy program” or if an emergency has significantly reduced the worldwide oil supply available and increased the market price of oil in such a way that it would cause “major adverse impact on the national economy.”

In addition to this authorization for full drawdowns, Congress enacted additional authority in 1990 to allow the President to direct a limited drawdowns to resolve internal U.S. disruptions without the need to declare a “severe energy supply interruption” or comply with international energy programs. These limited drawdowns are limited to a maximum of 30 million barrels.  Both full drawdowns and limited drawdowns are limited to the President’s authority.

Other SPR Movements

Outside of these authorities of the President over the SPR, the Energy Secretary also has the authority to direct a test sale of oil from the SPR of up to 5 million barrels. The purpose of these test sales is simply to evaluate the drawdown system of physically removing and transporting the oil from storage, as well as the sales procedure. By law, DOE is required to buy back oil from these test sales within a year.

SPR oil can also be sold through a process known as exchanges, where a company will borrow oil from the SPR to address emergency supply disruptions. The terms of the exchange will include the date by when the company is required to resupply the SPR with the amount of oil it borrowed plus an additional amount of oil as “interest.”

Lastly, Congress can enact laws to authorize additional sales of oil from the SPR. These non-emergency sales are typically to respond to smaller supply disruptions and/or to raise funds for specific reasons, such as the Bipartisan Budget Act authorization to sell a portion of SPR’s oil to pay for modernization of the SPR system and a general fund of the Department of Treasury.

Sales process

Regardless of the authority or reason for it, the oil sold from the SPR is done by competitive sale. The DOE issues a Notice of Sale in the Federal Register, detailing the volume, characteristics, and location of the oil for sale, as well as the procedural information for bidding on that oil. After the official authorization for a sale, it typically takes about two weeks to begin the movement of the oil– which can be moved at up to 4.4 million barrels per day.

Emergency drawdowns in SPR History

Since the embargo of the 1970s, there have been a handful of significant spikes in oil prices and interruptions to the U.S. and world supply caused by international conflict. However, having established U.S. reserves as large as they are has provided a domestic and foreign policy tool during that time.

There have only been three emergency drawdowns in SPR’s history. The first came in 1991, when President George H.W. Bush released 17.3 million barrels of SPR oil for sale to restore stability in world oil markets in response to the Persian Gulf War. In 2005, President George W. Bush called for the second emergency drawdown of SPR supplies, releasing 20.8 million barrels in response to the damage that Hurricane Katrina did to oil production and transportation infrastructure in the Gulf Coast. Most recently President Barack Obama authorized the largest sale by a President yet, releasing 30 million barrels in response to Middle East turbulence and subsequent disruption to the worldwide and U.S. oil supply.

Debate surrounding the SPR

Despite the agreement about the immense negative economic impacts from the oil embargo that prompted the formation of the SPR in the first place, the decisions surrounding the SPR are not without their fair share of critics and controversies.

One notable cause for debate surrounds the meaning of the language in the original authorization, specifically what exactly constitutes a “sever energy supply disruption.” This phrase was initially intended to authorize the SPR to release stocks of oil to resolve discernible, physical shortages of crude oil. However there have been debates about whether to expand that definition– such as the 2011 American Clean Energy and Security Act (which ultimately did not become law) to allow for the SPR to build reserves of additional refined oil products (outside of the already reserved crude oil and heating oil) and use them to mitigate drastic changes in the prices of those products independently of crude oil prices.

Other critics have pointed out that the private stock of inventory in the United States, excluding the SPR, far exceeds the SPR holdings. Some of these people then argue that it would be better to use these private stocks than any government stocks, as the free market would respond in the optimal way to prompt the release of these private stocks. The SPR, on the other hand, is rarely used and is more often positioned as a political tool and thus the role of keeping oil reserved is not one for the federal government, according to these credits.

Another critique of the SPR, according to some, is that the government has demonstrated itself as incapable of using the stocks as they should. These critics point to times where oil prices climbed above $100 per barrel, causing significant economic disruption, without the government responding appropriately by releasing SPR oil to mitigate the price jumps. Instead, according to the argument, the markets (and specifically the oil futures market, which was created well after the inception of the SPR) do a better job.

Even as recently as September 2017, in the aftermath of the devastation in the Gulf Coast by Hurricanes Harvey and Irma, President Donald Trump and his Energy Secretary Rick Perry disagreed on the importance of keeping the SPR. While President Trump’s 2018 budget proposal called for selling off half of the oil in the SPR to pay off part of the federal deficit, Secretary Perry said the hurricanes were an example and reminder of why the United States needs the SPR. Worth noting is that the Trump administration did make the decision to send 500,000 barrels from the SPR to a Louisiana refinery in order to shield the economy from higher gas prices.

Future of the SPR

In August 2016, DOE reported to Congress on the state and the long-term strategy of the SPR. The main conclusions of this report included the following:

  • To ensure the stability of the SPR going forward, the infrastructure of the system needs further investment and upkeep;
  • Adding marine terminals is critical to the future ability of the SPR to add barrels to the market in an emergency;
  • The SPR continues to benefit the economy moving forward, and further reductions in the SPR beyond those already authorized would hinder those abilities;
  • If the SPR were to expand in inventory, new storage capacity would need to be developed;
  • Expansion beyond the current four-site configuration of the SPR would violate operational requirements; and
  • Certain improvements to the management and operations of the SPR could be made with limited amendments to EPCA.

However, the debate surrounding the SPR, the U.S. oil markets, and the worldwide energy landscapes are in a constant state of flux, so knowing what will come next for the SPR requires constant attention.

Keeping up with the SPR

If you’re interested in seeing the level of the reserves or watching the movement of oil into and out of the SPR, that information is publicly available to you. The Energy Information Administration’s website will let you look at the historical monthly/annual numbers for SPR stock. Additionally, the SPR website gives updates on the current inventory, broken out by sweet vs. sour crude.

The sale of oil from the SPR is uncommon enough that it will always be a newsworthy event. To be sure you keep up to date on any sales, you can sign up for email updates from the Office of Fossil Energy.  Subscribe to their email list here, making sure to select that you want information on “Petroleum Reserves.”

Sources and additional reading

History of SPR Releases– Office of Fossil Energy

History of the Strategic Petroleum Reserve

New legislation affects U.S. Strategic Petroleum Reserve– Today in Energy

Long-Term Strategic Review of the U.S. Strategic Petroleum Reserve– Report to Congress

Northeast Home Heating Oil Reserve (NEHHOR)

Statutory Authority for an SPR Drawdown

Strategic Petroleum Reserve- Office of Fossil Energy

Strategic Petroleum Reserve sales expected to start this month– Today in Energy

The Strategic Petroleum Reserve: History, Perspective, and Issues– Congressional Research Service

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

Correlating Energy Data Sets: The Right Way and the Wrong Way

Determining the correlation between multiple sets of data—a measure of whether data sets fluctuate with one another—is one of the most useful tools of statistical analysis. Correlating data sets can be the endgame itself, or it can be what cracks open the door on a full statistical investigation to determine the how and why of the correlation. No matter the reason, knowing what data correlation is, how to correlate data sets, what a confirmed correlation might mean are all necessary ideas to have in your tool belt.

 What is data correlation?

Generally speaking, correlation examines and quantifies the relationship between two variables, or sets of data. In statistics, data correlation is typically measured by the Pearson correlation coefficient (PCC), which ranges from -1 to +1. Whether the PCC is positive or negative indicates whether the relationship is a positive correlation (i.e., as one variable increases, the other variable generally increases as well) or a negative correlation (i.e., as one variable increases, the other variable generally decreases). The absolute value of the PCC indicates the strength of the relationship, where the closer it is to 1 the more strongly related the two variables are, while a PCC of 0 indicates no relationship whatsoever.

Source

 

How do you calculate data correlations?

The PCC of two variables can be easily calculated with a built-in function of Microsoft Excel (if you want to know how to calculate the PCC according to hand—first, kudos to you, scholar; second, see either this resource or this one for more detailed instructions on the calculation itself).



To start, list out your two variables in two columns of an excel sheet. For this example, we’ll pull the West Texas Intermediate (WTI) oil prices and the U.S. regular grade gasoline prices during a four-month period in the Fall of 2016 from the website for the Energy Information Administration (EIA) (for guidance on pulling data from EIA, see this previous blog post).

Link to Gasoline Price Data; Link to WTI Spot Price data

Note that the weekly prices here reflect the average price calculated for the week ending in the date listed. Also the Cushing, OK WTI spot price reflects the price of raw crude oil in Cushing, OK, a major trading hub for crude oil that is used as the price settlement point for WTI oil on the New York Mercantile Exchange (NYMEX).

Now to find the PCC, use the excel function CORREL. This function takes the form of the following:

=CORREL(ARRAY1, ARRAY2)

where ARRAY1 and ARRAY2 are the two data sets you are seeking to correlate.

Using this excel function, we get a PCC of 0.545. Remember that a positive PCC indicates that the two arrays tend to increase with each other,and that the closer the PCC is to 1 then the more closely related they are. This result of 0.545 would seem to indicate a fairly decent correlation between the price of WTI oil and the price of regular gasoline over these several months. Not only does a positive correlation between the prices of these two products make intuitive sense (because the price of crude oil is the largest factor in the retail price of gasoline), but we can confirm with a data visualization as well.

:

Note that the first graph is showing the change in the two prices over time, with the date on the x-axis and the prices on the two y-axes. Visualizing the data this way, we can see that the prices are climbing and falling somewhat step-in-step. The second graph shows the relationship in a different way, with the price of oil on a given week on the x-axis and the price of gas on the same week on the y-axis. Visualizing it this way, and including a trendline for that data, you again see that as one variable rises, generally so too does the other variable. However, clearly it isn’t a direct one-to-one relationship—hence why the calculated PCC is 0.5455 and not closer to 1.

As a second example, let’s now find the correlation between gas prices during this same time period with the quantity of finished motor gasoline supplied to the market—as basic economic principles give us a sense that there should be a relationship between quantity sold and price. Below we again pull the relevant data sets from EIA and use the CORREL function

Link to Gasoline Price Data; Link to Gasoline Supplied Data

Note that the weekly prices here reflect the average price calculated for the week ending in the date listed.

For these two variables, we get a PCC of -0.173. Now that the PCC is negative, this implies a negative correlation—i.e., as the gasoline price increases, the amount of gasoline sold decreases. This conclusion again makes a degree of intuitive economic sense, as when the price of something increases ,the expected consumer response would be to purchase less of it. However, with PCC so far from -1 we don’t necessarily see this as a very strong correlation. We can look at the data visualization for these data sets as well:

Looking at the first graph, we can again see visually what the PCC was indicating in general. As the gasoline price reaches local peaks, the amount of product supplied tends to reach local valleys, and vice versa. The second graph indicates that with a negative trend line, though again it’s overall just a slight, general trend and not very rigid—as indicated by the PCC being closer to 0 than it is to -1.

There’s a data correlation—what now?

So the key to answering what happens next is to know why you were looking for a data correlation in the first place. Let’s say I was examining the correlation between gas prices and oil prices because I wanted to identify the factors that best predicted gas prices going forward. For each of the two variables tested with gas prices over the four month period in 2016, the expected generally correlation was confirmed with the data, though the PCC wasn’t strong enough to definitively declare victory at having found a correlation. What would I do in this scenario?

More data

The first course of action would be to gather more information. I’ve only looked at 16 weeks of data, but it has been enough to give me a correlative hypothesis (increased gas prices correlate with increased WTI oil price and decreased gasoline supplied). You might take this hypothesis and expand your analysis to include more historical data and see if the same correlation holds or if it moves in a different direction. Further, you might reason out that there are more subtle interactions of between the data that should be explored. Perhaps looking at the price of gas and the price of oil during the same week is too simplistic, and rather you should be looking at the price of oil compared with the price of gas the following week, two weeks, or even month to account for the time needed to refine crude oil into gasoline? Or if your goal is to really find the most influential correlating factors, then it would go without saying to test many more variables to figure out the ones with the closest correlation. For gas prices, you might consider also looking at general economic data, import/export data, production and refining production data, drilling data, and much more.

Test further

Once you have exhausted the data you are looking at and determine what correlates well based on that data, it is important to make sure to test it as well to make sure any conclusions you make are based on sound correlation. As with any type of hypothesis, a correlation is essentially meaningless unless it gets tested.

A couple methods for testing the correlation are available. First, as mentioned previously, expand your data set and put the correlation to the test on a wider set of data—either by looking further in the past to see if the correlation persists, or by using the correlation as a predictive model for future data and seeing if the relationship holds when the new data becomes available.

If you have not already done so, creating a visual representation of data, as done for the two sets of variables above, is a great way to gain understanding of your correlation (and has numerous other advantages for taking in data). As you conduct your data detective work, be sure to always check yourself by creating graphs and other visualizations to confirm suspicions and/or catch some new insights. Whenever possible, as well, work with the data yourself instead of referencing the visualizations of others. In the worlds of data and statistics, it is notoriously easy to ‘make’ the data appear to say whatever you want to say to a lesser informed audience (stay tuned for a future post on this topic).

Another important ‘test’ of sorts is one we already implicitly did when selecting our examples in the previous section—reason out why a correlation might exist. For the prices of crude oil and finished motor gasoline, the reason behind a correlation is somewhat self-evident. But if you’re looking at variables that are less obviously linked, this is where you can do research or consult with experts to determine if there exists any logical rationale to explain the correlation. Otherwise you could be grasping at straws, despite the apparent correlation—discussed in more detail next.

Recognize limitations

Being aware of the limitations of correlating data is the best defense against falling victim to the shortcomings of the technique. This idea is best illustrated in another example.

Let’s say I was continuing the above effort to find factors that I could use in the future to predict gas prices. As discussed, the spot price of WTI oil, with a PCC of 0.545, is determined to be great candidate for correlation with a reasonable PCC, data visualizations that illuminate the relationship, and a very logical and rational reason for the two variables to be correlated. So if oil demand at a PCC of 0.545 is counted—then I should be excited when I stumble upon a mystery variable with a PCC of 0.592!

Link to Gasoline Price Data; Source of Mystery Variable (Spoiler Alert!)

Note—Mystery Variable had no available data for the week of November 7, 2016

With a PCC of 0.592, I could feel great that I have another factor to add to my model. Looking at the data visualizations below does nothing to dispel that notion, either.

The issue is, however, not realizing that if you wade through large enough sets of data you are virtually guaranteed to find coincidental correlations. In this example, I was able to find just such a coincidental correlative data set by looking through the only other vast set of data I spend as much (or sometimes, shamefully, more) time with than energy-related data—fantasy football! Yes, the mystery variable that appeared to correlate decently well with U.S. gas prices from September to December of 2016 was actually the standard fantasy points scored by Washington player, Chris Thompson (missing data for the week of November 7 was due to his bye week).

The man that correlates with gas prices

After revealing the actual source of my mystery variable, you would obviously have me pump my brakes on any correlation. There is no possible explanation for why these two variables would be correlated (unless perhaps you would like to make the argument that when the price of gas goes up, Chris Thompson drives less and walks to and from practice—thus improving his cardiovascular endurance and improving his performance that subsequent week; I unfortunately could find no information on his in-season transportation habits).

The fallacy of connecting my mystery variable to gas prices would almost certainly have been exposed were you to test the correlation through expanding the data set and logical reasoning, as previously discussed. Unfortunately, other factors will not always be so obvious to rule out—which is why having as large of data sets as possible is key. Even then, however, you are bound to stumble upon these coincidental correlations (for some thoroughly entertaining and statistically vigorous examples, check out the Spurious Correlations blog) when casting a wide enough net. That fact is just one of the quirky statistical truths with very large sets of data (if interested on this topic specifically, I’d highly recommend reading either or both of these two fabulous books: The Drunkard’s Walk: How Randomness Rules Our Lives & The Improbability Principle: Why Coincidences, Miracles, and Rare Events Happen Every Day)

Beyond that, even if the correlation might seem sound, keep in one of the firs things taught in introductory statistics, and also one of the first things forgotten, that correlation is not causation (credit to Thomas Sowell). So while our fantasy football to gas prices comparison is a false correlation, even a true correlation does not automatically let you leap to the conclusion that one variable must be causing the other– a topic that this section of the blog will assuredly revisit in a future post. For now, though, I’ll leave it to America’s favorite statistician to summarize:

“Most of you will have heard the maxim “correlation does not imply causation.” Just because two variables have a statistical relationship with each other does not mean that one is responsible for the other. For instance, ice cream sales and forest fires are correlated because both occur more often in the summer heat. But there is no causation; you don’t light a patch of the Montana brush on fire when you buy a pint of Haagan-Dazs.”
― Nate Silver, The Signal and the Noise: Why So Many Predictions Fail–but Some Don’t

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

The Quest: Energy, Security, and the Remaking of the Modern World

To start out this review honestly, I finished reading The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin over a year ago so this is not a particularly ‘fresh’ review from me. However, I found that it was the perfect book with which to begin my book review series because it is considered by many in the energy industry to be the seminal book tracking the historical and geopolitical forces that shaped today’s landscape of energy markets and systems (and I was able to reference the notes I made to myself when reading through it for the first time).

This is book is incredibly rich with information about EVERYTHING related to energy. Obviously at over 800 pages, it’s not a light or quick read– but the depth of information and amount you can learn from it, regardless of it you’re learning about the state of world energy affairs for the first time or you’re a seasoned veteran of the industry, makes taking the time to read it more than worthwhile.



The first section of The Quest starts with a deep dive into the world of oil– the history and politics that have shaped today’s oil landscape, from the fall of the Soviet Union to the formation of the various nations in the Middle East. I really enjoyed learning more about this political and geographic background, as without proper historical context it can be difficult to fully understand the posturing, trade deals, and tensions that are found in the daily headlines regarding oil-rich countries and their conflicts. I also greatly enjoyed the background information on how the current ‘electric age’ came to be, detailing the genius of Thomas Edison and Nikola Tesla, the early rivalry and battles between their nascent companies in setting up an electric system, and how the legacy of those decisions in the early 20th century still affect how we use energy over a hundred years later.

The book continues on to detail the future of oil, as well as a vast amount of background on the technologies that went into discovering, trading, and utilizing non-oil energy sources such as natural gas, coal, nuclear, and renewable energy. Yergin finishes the story by relating the wealth of background information and historical context of the international energy landscape to how it will come shape our world in the future– politically, economically, socially, and technologically– by way of climate change, public policy, the future of transportation, the security of the energy grid, and continuing competition between nations for resources.

Rating:

  • Content—5/5: This book is nothing if not extremely informative. Yergin does a phenomenal job at shining a spotlight at the relation between state of the modern world and the allocation of various sources of energy and how the balances have shifted over time. If you are interested in learning a broad but in depth background on the state of worldwide energy affairs, you would be hard-pressed to find another book with this much information and analysis crammed into it.
  • Readability3/5: Be forewarned, this is not a book to be picked up lightly unless you’re ready to commit to a thorough read. Obviously the intent was not for this to be a poolside, pop science read, but rather a thorough volume that extensively covers the topic. That is, of course, a good thing as Yergin wrote this book to be studied moreso than consumed. However, at over 800 pages it did at times feel like a homework assignment to pick up again and slough through another dense chapter—and because of this it ended up taking me pretty much all of last summer to read.
  • Authority—5/5: Yergin is a renowned energy researcher, market analyst, economist, and many other accolades that there aren’t room to list here. Not only does his name itself carry enough weight to make this book an authority on the topic, but the research and analysis that went into it is plainly evident. You are reading from one of the authorities in modern energy markets.
  • FINAL RATING—4.3/5: Again, this book is by no means a light read– and I had to take a break from it at times so I didn’t get overwhelmed on the topic (which is saying something, given that the future of energy is the social/political topic about which I’m most passionate). But if you can commit the time and really want to contextualize the past, present, and future of energy– do yourself a favor and pick up this book.

 

If you’re interested in following what else I’m reading, even outside of energy-related topics, feel free to follow me on Goodreads. Should this review compel you to pick up The Quest by Daniel Yergin, please consider buying on Amazon through this link.

 

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

Navigating the Vast EIA Data Sets

The Energy Information Administration (EIA) is an independent arm the Department of Energy (DOE) that is tasked with surveying, analyzing, and disseminating all forms of data regarding energy in the United States. Further, EIA is a politically isolated wing of the DOE– meaning it is there to provide independent and factual data and analysis, completely independent from the partisan decision makers in Washington or the political inclinations of those in charge of at the top of DOE. Because that is the case, you can be confident the data put out by EIA is not driven by any agenda or censored in favor of a desired conclusion.

Thus for anyone with even a passing interest in the national production and use of energy, EIA really is a treasure trove of valuable information. However, those who are unfamiliar with navigating the EIA resources can easily get overwhelmed by the vastness of the data at their fingertips. Additionally, even seasoned veterans of the federal energy landscape might find it difficult to find the exact piece of data for which they are digging within the various reports and data sets made publicly available on the EIA website. So regardless of your experience level, what follows is a brief guide to what type of information is available as well as some advice as to how to make the best use of your time surfing around EIA.gov.



Types of data available

One of the really fabulous things about the EIA data sets is that they cover every kind of energy you can imagine. The energy categories you can focus into include, but are not limited to, the following:

Within these energy categories, you can look at the trends of production, consumption, imports/exports, and carbon dioxide emissions going back years (oftentimes even decades) and also modeled as a forecast into the coming years. Most data sets will have tools to automatically manipulate the data to change between units (e.g., total barrels of oil vs. barrels of oil per day), or even manipulate data trends (e.g., go from weekly data to 4-week moving averages to 10-year seasonal averages). Depending on the type of data, these numbers are regularly updated weekly, monthly, and/or yearly. If there’s a topic of particular interest, there’s a good chance there’s a report with the data on it being released at regular intervals– some of the more prominent reports are highlighted below.

Regularly updated reports

EIA releases a regular stream of reports that serve to update the publicly available data at given intervals. Some of the more prominent reports are listed below, and they are typically used to update all of the energy categories previously mentioned:

  • The Monthly Energy Review (MER) is a fairly comprehensive report on energy statistics, both from the past month and historically back a number of decades. Published during the last week of every month, the MER includes data on national energy production, consumption, and trade across petroleum, natural gas, coal, electricity, nuclear, renewables– as well as energy prices, carbon dioxide emissions, and international petroleum.
  • The Short-Term Energy Outlook (STEO) is another monthly EIA report, this one released on the first Tuesday following the first Thursday of the month. The STEO includes data on much the same topics as the MER, with the inclusion of some international energy data, and it also includes monthly and yearly projections for the rest of the current year and all of  the next year based on EIA’s predictive models. The inclusions of these forecasts makes for particularly useful data sets for anyone who might be trying to stay a step ahead of the energy markets. Also of particular interest for statistically-minded people out there is a regular comparison of numbers between the current STEO forecast and the previous month’s forecast. These comparisons show which way the model shows data to be trending, with the more significant ones called out in the report and noted with reasoning behind the changes.
  • The Annual Energy Outlook (AEO), like the STEO, provides modeled projections of energy markets– though the AEO focuses just on U.S. energy markets, models these annual forecasts long-term through the year 2050, and is released every January. The other aspect of the AEO that makes it particularly interesting is that its modeled forecasts, in addition to a reference case forecast, include different assumptions on economic, political, and technological conditions and calculate how those various assumptions might affect the outlook. For example, the 2017 AEO includes projections based on high economic growth vs. low economic growth, high oil price vs. low oil price, high investment in oil and gas resources and technology vs. low investment, and a projection that assumes a complete roll-back of the Clean Power Plan.
  • The International Energy Outlook (IEO) provides forecast energy market data consistent with the AEO, but regarding the international energy market through 2040.
    • With forecasts in both the STEO and the AEO, an understanding of exactly what is meant by the forecasts is imperative. The forecasts and projections do not necessarily reflect what a human prognosticator within EIA thinks could, should, or will happen– rather it demonstrates what the predictive models calculate given the best possible and unbiased inputs available. This difference is a subtle one, but if you ever find yourself questioning “does the person behind this report really think this is going to happen?”, recognize that some nuance exists and the reason you are skeptical might have not yet been able to be statistically included in the model.
  • The State Energy Data System (SEDS) is published once annually and breaks down national energy use, price, spending, and production by sector and by individual states. Within each of these categories, you can also break down the data by energy type (e.g., coal vs. natural gas) and by primary energy use vs. electric power generation. Having this granularity is useful to further dig into if certain energy trends are regional, restricted to certain climates, or are in response to specific state policies.

While they are not necessarily releasing new and specific data on a regular basis, two other EIA articles of note are worth pointing out because of the interesting stories and analyses they tell:

  • Today in Energy (TIE) comes out every weekday and gives a quick and readable article with energy news, analyses, and updates designed to educate the audience on the relevant energy issues. TIE frequently features graphs and charts that elegantly demonstrate the data in an easy to understand but also vastly elucidating way. One of the real advantages to reading TIE each day, though, is they often include tidbits from all the previously mentioned regularly updated reports, as well as other major releases or EIA conferences, enabling you to keep up with the newest information from EIA (click here for a post on the best TIE articles of 2017 to get you started).
  • This Week in Petroleum (TWIP) is an article that comes out every Wednesday that is very similar to the TIE articles, but focuses on the world of petroleum specifically and provides crucial insights on topics such as drilling, oil company investments, retail prices, inventories, transportation of crude and refined petroleum products, and more.

If any of these regular reports are of interest to you, you can sign up to get email alerts anytime these (or a number of other) reports are released by EIA by visiting this page. If you don’t know which reports you’d want but you want to keep an eye on what EIA is putting out, you can also simply subscribe to the “This Week at EIA” list that will once a week send you an email to notify you of ALL the new EIA productions from that week.

Finding specific data

While keeping up with all the regular reports from EIA is immensely useful, what brings many people to the EIA website is the search for a specific piece of data. You might want to see a history of average gasoline prices in a certain region of the country, find the projection of how much solar capacity is expected to be added in the next few years, track how much petroleum product is being refined in the Gulf Coast, or countless other facts and figures. Below you’ll find a few strategies you can employ to track down the information you seek.

Navigating the menus

EIA.gov has a useful menu interface through which you can usually navigate to your desired dataset easily.

Source: Homepage of EIA.gov
  • The “Sources & Uses” drop down will be where you can navigate to data sets about specific fuel sources and energy use;
  • The “Topics” drop down highlights the analysis on data by EIA as well as economic and environmental data; and
  • The “Geography” drop down is where you can navigate data by state or look at international data.
Source: Homepage of EIA.gov

Navigating from these menus is fairly self-explanatory, but let’s walk through the example of finding the recent history of gasoline prices in the Gulf Coast region of the United States. Gasoline is a petroleum product, so we would click on “Petroleum & Other Liquids” under the “Sources & Uses” menu.

Once on the “Petroleum & Other Liquids” page, the information we’re interested in would be under the data menu with the “Prices” link.

Source: Landing page for EIA.gov/petroleum

You’ll then see a listing of various regular releases of petroleum product price reports and data sets. Since we’re interested in Gulf Coast gasoline prices, we’ll click the third link for “Weekly retail gasoline and on-highway diesel prices.”

Source: EIA’s Petroleum and Other Liquids Prices

Clicking on this report will bring up the below interactive table. The default view will be to show U.S. prices averaged weekly. The time frame can be adjusted to monthly or annual prices (we’ll keep it at weekly). The location of the prices can be changed to allow viewing of data by region of the country or by select states and cities (we’ll change it to the Gulf Coast). The interactive table then displays the most recent week’s data as well as the previous five weeks (note: for ‘gas prices’ as is most often reported in the media and related to people filling up the gas tanks in their cars, we’re interested in the row titled ‘Regular’).

Source: EIA’s Weekly Retail Gasoline and Diesel Prices

If you’re interested in going further back in time then shown in the interactive table, the ‘View History’ links can be clicked to bring up an interactive table and graph going as far back as EIA has data (1992, in this case), shown below. Alternatively, if you want to have the raw data to manipulate yourself in Microsoft Excel, then click the ‘Download Series History’ link in the upper left (I’ll download and keep this data, perhaps handy for later in this post).

Source: EIA’s Weekly Gulf Coast Regular All Formulations Retail Gasoline Prices

Note in the above interactive chart there is the built-in abilities to view history by weekly/monthly/annual data, to download the source data, or the adjust the data to be a moving average or seasonal analysis.

If you find a page with the type of information you’ll want to reference regularly or check in on the data as they update, be sure to bookmark the URL for quick access!

STEO Custom Table Builder

Another useful tool is the STEO Custom Table Builder, which can be found here. The Custom Table Builder allows you to find all of the data that is included in the monthly STEO report (e.g., U.S. and international prices, production, and consumption for petroleum products, natural gas, electricity, coal, and renewable energy; CO2 emission data based on source fuel and sector; imports and exports of energy commodities; U.S. climate and economic data broken down by region; and more). This data can be tracked back to 1997 or projected forward two years on a monthly, quarterly, or annual basis. All you need to do is go to the Custom Table Builder, shown below, and select the options you wish to display.

Source: EIA’s Custom Table Builder

As an example, let’s use the STEO Custom Table Builder to determine the projected of how much solar power capacity in the near term. Solar would fall under the ‘U.S. Renewable Energy’ category, so click to expand that category, then expand the ‘Renewable Energy Capacity,’ and you’ll see the STEO has data for data for the capacity of large-scale solar for power generation, large-scale solar for other sectors, and small-scale solar for other sectors.

Source: EIA’s Custom Table Builder

Select all the data relevant to solar data, select the years you want (we’ll look at 2017 thus far through the end of 2018), and what frequency you want the data (we’ll look at monthly). Then hit submit, and the following will be the custom table built for you.

Source: EIA’s Custom Table Builder

Note: The forecast data is indicated in the Custom Table Builder with the numbers shown in italics. The above data was pulled before the September 2017 STEO was published, so the projections begin with the month of August 2017.

For this example, we’ll want to then download all the data to excel so the total solar capacity can be added up and analyzed. Click the ‘Download to Excel’ button at the upper right to get the raw data, and with a few minutes in Microsoft Excel you can get the below chart:

Source of Data: EIA.gov, pulled on September 10, 2017

This graph, made strictly from STEO Custom Table Builder data, shows the following:

  • As of July 2017, large-scale solar generation capacity was only 0.3 GW outside of the power sector and 23.7 GW, while small-scale solar generation capacity was 14.8 GW.
  • Together, solar power capacity in the United States added up to 39.1 GW as of July 2017.
  • By the end of 2018, total solar power capacity is projected to rise to 53.7 GW (an increase of 14.5 GW, or 37%), according to the EIA’s August 2017 STEO.

Search function

Using a search bar on some websites can be surprisingly frustrating, but luckily the EIA search function is very accurate and useful. So, I have found that, when in doubt, simply doing a search on EIA.gov is the best option.

Perhaps I want to track the amount of petroleum products in production on the Gulf Coast. This information is not in the STEO report, so the Custom Table Builder won’t be of use. And maybe I don’t immediately see how to navigate to this specific information on the menus. I would type into the search bar the data I’m seeking as specific as possible—‘weekly gulf coast refiner gasoline production’:

Source: Homepage of EIA.gov

Doing the above search yields the below results, of which the first one looks like just what we need.

Source: EIA.gov

Click on that first link, and ta-da! We’re taken to the weekly gasoline refinery report for the Gulf Coast (referred to as PADD 3). Again, you see the options here to look at the history back to 1994 both on a weekly and a 4-week average basis, use the chart tools to analyze moving averages or seasonal analyses, or download the data to utilize in your own way.

Source: Weekly Gulf Coast Refiner and Blender Net Production of Conventional Motor Gasoline

Contact experts

As a last resort, the EIA website offers resources to contact should you have questions or issues navigating the data. The people behind the EIA data are civil servants who are intelligent and very dedicated to their job and making sure you get the accurate and relevant information you need. So in a pinch, head to the Contact Us page and find the topic on which you need help from a subject matter expert.

If you want an alternative to going straight to the people at EIA, however, feel free to contact me as well and I’d be happy to try and help you track down information on EIA.gov as well. Use any of the contact methods mentioned in the Contact Page of this site, or leave a comment on this post.

Using the data

I have found that it is not at all an exaggeration to say that the world (of energy data, at least) is at your fingertips with EIA’s publicly available data. To demonstrate, I’ll walk through a quick example of what you can find.

If we take the previously gathered weekly data for Gulf Coast gasoline prices and gasoline production, we can plot them on the same graph:

Source of Data: EIA.gov, pulled on September 10, 2017

By taking advantage of the publicly data on EIA’s website, we can notice some trends on our own. In the above, there is a drastic increase in Gulf Coast gasoline prices, coincident with a large decrease in Gulf Coast refiner production of gasoline that bucks the month-long trend of production generally increasing. This is a curious change and would prompt investigation as to the reason why. Luckily, several of EIA’s Today in Energy articles already points out this trend and offers explanation—all related to the effects of Hurricane Harvey on the Gulf Coast petroleum systems (Article 1, Article 2, Article 3). Just goes to show that one of the best way to stay abreast of trends and information in the energy world is to follow EIA’s various reports and analyses.

 

Updated on September 28, 2017

 

 

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.  

President Obama’s Energy and Environmental Legacy

In the Fall 2016 issue of The Current, the quarterly online magazine from the Women’s Council on Energy and the Environment (WCEE), I wrote a retrospective on now-former President Obama’s energy and environmental legacy as compared with his campaign promises. The main conclusion of that article was that Obama was leaving office with mixed results when it came to delivering on his stated goals in the energy and environmental spheres, and that the long-term legacy of those achievements would rest on the action or inaction of his yet-to-be-determined successor. With about a year having passed since publication of that article, and almost eight months for President Trump to have set the course for his energy and environmental agenda, I thought it would be interested to see how some of the initial conclusions have held up and how the new administration has followed up on those specific issues.



A quick note that this article will be slightly more politically based than I intend to take typically in this outlet. The goal of this blog will be to provide more straightforward information and analysis based in data, rather than take a side on any specific partisan debate. I want to give you the information and tools, and you can interpret it however you choose. However because this deals with an article that was already published, I thought it might be worth checking into the facts again after a year.

The makeup of the national energy supply

Obama campaign promise: Clean coal and nuclear power will find a place to stay

Conclusion in initial article: Mixed results— Clean coal remains elusive; nuclear was showing promise under the Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP), which ended up getting stalled until courts could review

Update: Progress has been further stalled— Pushing of clean coal to revitalize the coal industry has long been a part of President Trump’s energy plan. However there has not been appreciable increases in the implementation of clean coal—and the construction of a first-of-its-kind clean coal power plant in Mississippi was indefinitely suspended after falling far behind schedule and beyond budget.

When it comes to the CPP, the Trump administration has moved forward on its campaign promise to roll it back. In March, EPA Administrator Scott Pruitt informed states that they are not obligated to meet the deadlines set by the CPP while was still stalled in the judicial system.

The overall result is that the push to increase the portion of the nation’s energy supply made up by clean coal and nuclear power has stalled. The energy-related carbon dioxide intensity of coal has remained steady for years, indicating the proportion of ‘clean coal’ to total coal has not made significant gains. Similarly the below graph shows that the total power generation from nuclear, as well as the percentage of overall American energy generation attributed to nuclear, has remained steady for the last decade.

Based on Short-Term Energy Outlook data from Energy Information Administration (EIA) as of September 6, 2017—annual data for 2017 and 2018 are projections.

Based on Short-Term Energy Outlook data from Energy Information Administration (EIA) as of September 6, 2017—annual data for 2017 and 2018 are projections.

Clean tech investment and job growth

Obama campaign promise: Invest $150 billion over 10 years to deploy clean technologies and create millions of new jobs

Conclusion in initial article: Partially successful— the investment was exceeded by 2014, but the number of jobs created in the space fell well short of millions

Update: Inconclusive—For the entirety of Obama’s second term and since the Trump administration has taken office, the U.S. economy has consistently added jobs every month. Unfortunately, the Bureau of Labor Statistics stopped providing data on “green jobs” in 2013. In absence of this monthly data, the best source to track jobs in the clean tech space is the Department of Energy’s (DOE’s) U.S. Energy and Employment Report, issued annually in January. As such, it is impossible to know if the new jobs added to the economy are in the clean technologies, though some industry and government leaders have expressed concern that the Trump decision to pull out of the Paris climate change agreement will negatively impact the prospects for clean tech growth and employment.

Renewable electricity

Obama campaign promise: Increase percentage of electricity generated from renewable sources to 10% by 2012 and 25% by 2025

Conclusion in initial article: Mostly successful— reached 12% by 2012 but plateaued at about 13% through 2015

Update: Progress being made—While the Trump Administration has not focused on policies to specifically encourage renewable energy policies, market forces continue to encourage the penetration of renewable electricity generation. Annual data showed renewable energy generation reaching 15% in 2016 with EIA forecasting that to increase to 17% in 2017 and 16% in 2018.

Based on Short-Term Energy Outlook data from Energy Information Administration (EIA) as of September 6, 2017—annual data for 2017 and 2018 are projections.

 

Industrial energy efficiency

Obama campaign promise: Promote energy efficiency with industrial manufacturers

Conclusion in initial article: Awaiting results— Obama issued an executive order in 2010 that would achieve $100 billion in energy savings, but the results were to be measured over the following 10 years

Update: Still waiting—Obviously a one year update won’t change the conclusion that these results were still be measured over 10 years, which have not yet passed, so we’ll still await the outcome of this one. While no actions have been taken by President Trump to undue the executive order fulfilling Obama’s campaign promise focusing on national energy efficiency, it is noteworthy that President Trump’s approach to national energy issues has instead been to roll back regulations seen as impeding the development of U.S. energy resources (focusing on oil, natural gas, coal, and nuclear energy).

Government support of oil companies

Obama campaign promise: Eliminate tax breaks to big oil companies

Conclusion in initial article: No progress— Obama’s attempt to eliminate oil tax breaks were rejected by Congress for all of Obama’s proposed budgets

Update: No expected progress– President Trump’s priorities are notably different than Obama’s were, so the status quo of the tax breaks for oil companies are wholly expected to persist, as doing otherwise would not be seen as progress by Trump. On the contrary, there has been speculation of Trump expanding government aid to prop up the coal industry as well. These actions would keep with a worldwide trend according to a recent report by the International Monetary Fund that concluded fossil fuel subsidies, at $5.5 trillion annually, account for 6.5% of the global GDP.

Carbon emissions

Obama campaign promise: Make significant progress to reduce the national carbon dioxide (CO2) emissions

Conclusion in initial article: Jury still out— CPP would reduce CO2 emissions from power plants for the first time, but the Supreme Court placed a hold on the implementation

Update: As noted earlier, one of Obama’s signature energy accomplishments in the CPP is on life support after the Trump administration signaled to states that they would not be held to the emission requirements. However, U.S. CO2 emissions might be another area where the market forces are already in play to affect the outcome regardless of executive action or inaction. The below two graphs from EIA show a forecast continued drop in CO2 emissions per capita and a drastic drop in total CO2 emissions from a peak in 2019 to a minimum in 2033 (before again increasing due to growing population levels). This drop in CO2 emissions in the absence of federal policy comes because of the continuously falling price of less carbon intensive fuels such as natural gas, nuclear, and renewable energy sources compared with coal and petroleum, in addition to individual states and companies pledging to reduce emissions regardless of whether or not the CPP becomes law.

EIA’s Annual Energy Outlook
EIA’s Annual Energy Outlook

Conclusion

Obama was elected after campaigning on addressing climate change and promising federal action to reduce impacts of the energy sector. Upon his imminent departure from office, giving him a grade on fulfilling his campaign promises proved difficult due to some of the long-term nature of potential results as well as the impact his successor could potentially have on furthering or rolling back parts of his agenda. With the benefit of another year to reflect upon, the conclusion of Obama’s legacy as being overall mixed seems even more entrenched due to the contrasting views held by President Trump. While the dominoes of some of his actions (such as federal investment in clean tech and industrial energy efficiency) are still falling, some of his more ambitious attempts (namely the Clean Power Plan and the Paris climate agreement) have been thwarted by the Trump administration.

If you’re interested in watching the energy makeup of the United States, the relative carbon emissions, or the overall total energy used across the nation, stay tuned for a primer I’m planning on the EIA’s vast public datasets to show you how you can find that raw data yourself.

 

 

 

About the author: Matt Chester is an energy analyst in Washington DC, studied engineering and science & technology policy at the University of Virginia, and operates this blog and website to share news, insights, and advice in the fields of energy policy, energy technology, and more. For more quick hits in addition to posts on this blog, follow him on Twitter @ChesterEnergy.