The biggest downside was with such an unsustainable burst of capitol, costs came far below sustainable prices, which pushed out a bunch of nuclear plants, and stopped new builds almost entirely. Then of course the capitol investment dropped, pushing prices back up but leaving new nuclear crippled. This will be the most damaging legacy of the shale gas boom.
I joined this Substack so I could have access to articles of this quality - and be able to read them after a couple of weeks or so as their value doesn't decline with time much.
Nice piece. “ best complement for solar and wind is natural gas. “
This won’t be the case for too much longer. With utility scale storage on the rise, currently lithium based, but newer battery technologies as well (iron air, iron flow), and strong incentives in the IRA for clean firm power, it seems that in the not so distant future, “peaker plants” will be the primary way natural gas will be utilized. And it will fall out of favor over time since it it will be cost prohibitive. If carbon capture eventually becomes more widely adopted due to incentives in IRA and as a result of the new EPA rules, then natural gas will continue to play a significant role into the future (unfortunately).
I think it's possible to note that wind/solar aren't dispatchable without repeating glib anti-renewable talking points like "they can’t generate electricity when the sun isn’t shining or the wind isn’t blowing".
When looking at the energy production chart, keep in mind that a 100% renewable scenario does not require clean energy to replace *all* of the dirty energy, only the portion of the dirty energy that gets converted into a form that actually does something useful, such as electricity or motion in a vehicle.
Any time you burn a fuel to do literally anything other than generate heat, only about 1/3 of the energy in the burned fuel, at best, goes to what you're actually trying to do, and the rest just gets thrown away as waste heat. By contrast, measures of energy production for wind, solar, and hydro already account for energy losses during generation, so the number shown in the chart is actual, useful electricity. This is why, from a standpoint of useful energy rather than total energy, solar and wind combined have already passed coal, even if the chart seems to suggest otherwise.
I am curious if this is convention or law. I suspect the former. That is, I don't think anything literally prevents one supplier or another from lowering the price to sell more quantity? There's a fear of retribution from the cartel, but that should only matter to actual members of the cartel, which the US is not one of.
I think what you mean is that the price is set by the laws (in the natural sense, not the legal one) of supply and demand, and that the elasticity (or lack thereof) in these factors globally are going to outweigh any local considerations. But maybe there is something about the geo-politics here that I do not get.
Oil is largely fungible. Especially once refined. There are basically 2 prices to follow - WTI and Brent, US and Europe. You can do the "crack spread" if you really care a lot - essentially the refiner premium. Following anything more is unnecessary unless you're an industry specialist.
Sure, I know, but this still resolves to "supply and demand dictates commodity prices"
I think "the price is set globally" implies the idea that there is some global entity "in charge" of the price of oil, and I don't think that is how it works.
Excellent post Milan! The combination of the Recovery Act clean energy R&D funding plus the domestic natural gas boom turned out to be a big f-ing deal and changed the course of American energy in enduring (and positive) ways.
Being a bit older than you, I remember that when I was growing up it was hard to imagine coal being anything less than dominant in our energy mix. That tide really turned back when you were in first grade and those bad old days of higher pollution are never coming back.
I agree that fracking has been a game changer for oil and natural gas production. However, I have to take issue with Matt's statement that "fracking made America a net oil exporter." This is only true if you define "oil" as all petroleum products, which includes many products other than crude oil. In fact, according to the USEIA, the US remains a net importer of crude oil. In 2022, the US imported 6.28 million barrels per day of crude oil and exported 3.6 million barrels per day of crude. It is a crucial distinction that shows that the US is not yet energy independent when it comes to crude oil.
And also, not that you need me to say so, you're a great writer and I'm glad you write on this Substack! If you ever start your own, please let us know because I am sure we would join it, and I hope Matt starts letting you write more frequently (maybe adding a Saturday piece?)
Due to the shale boom and Saudi raising production, the oil price crashed between 2014-2016 which hurt the economic growth of many complacent petro states. You can tell who the winners and losers of economic growth from 2012-2022 based on which petrostates were damaged by the 2014-2016 commodity slump:
Excellent post. And now I realize that Milan is even younger than I thought unless he failed first grade a bunch of times. My own kids of similar age are such slackers!
Although I live relatively close to places where fracking was taking place, I never quite understood how it worked until this article. I now better understand people's fear and attraction to it.
One thing I don't understand from the column - it says that red state politicians are against renewables, but that a lot of income and jobs from renewables go to red states. It sounds like these would be reasons for the politicians to be for renewables. What am I misunderstanding?
It’s the same as “what’s the matter with Kansas?” Culture war disputes trump economic benefits until the benefits get extremely big. And in states that have lots of land, usually both renewables and fossil fuels are big.
Natural gas is indeed a convenient hedge against the non-dispatchable nature of wind and solar (i.e., those renewables cannot simply be turned on and off according to demand). It is nevertheless worthy of note that over the longer term continued reliance on natural gas for electricity generation may not be compatible with emissions-reduction goals. The NREL “Earthshot” target for 2050, for instance, allows for substantial replacement of natural gas not only through increased wind and solar, but also through progressive implementation of geothermal. (That same projection does not see much of a future for nuclear, but if the nuclear cost dilemma could be resolved that might change.)
Augustine, Chad, Sarah Fisher, Jonathan Ho, Ian Warren, and Erik Witter. 2023. Enhanced Geothermal Shot Analysis for the Geothermal Technologies Office. Golden, CO: National Renewable Energy Laboratory. NREL/TP-5700-84822.
The biggest downside was with such an unsustainable burst of capitol, costs came far below sustainable prices, which pushed out a bunch of nuclear plants, and stopped new builds almost entirely. Then of course the capitol investment dropped, pushing prices back up but leaving new nuclear crippled. This will be the most damaging legacy of the shale gas boom.
I joined this Substack so I could have access to articles of this quality - and be able to read them after a couple of weeks or so as their value doesn't decline with time much.
Nice piece. “ best complement for solar and wind is natural gas. “
This won’t be the case for too much longer. With utility scale storage on the rise, currently lithium based, but newer battery technologies as well (iron air, iron flow), and strong incentives in the IRA for clean firm power, it seems that in the not so distant future, “peaker plants” will be the primary way natural gas will be utilized. And it will fall out of favor over time since it it will be cost prohibitive. If carbon capture eventually becomes more widely adopted due to incentives in IRA and as a result of the new EPA rules, then natural gas will continue to play a significant role into the future (unfortunately).
Classic slow boring article. Learned a ton and easy to read. Thanks matt 💪
I think it's possible to note that wind/solar aren't dispatchable without repeating glib anti-renewable talking points like "they can’t generate electricity when the sun isn’t shining or the wind isn’t blowing".
Sure there are things to like about EVs but the subsidies and mandates are ostensibly driven by environmental concerns.
When looking at the energy production chart, keep in mind that a 100% renewable scenario does not require clean energy to replace *all* of the dirty energy, only the portion of the dirty energy that gets converted into a form that actually does something useful, such as electricity or motion in a vehicle.
Any time you burn a fuel to do literally anything other than generate heat, only about 1/3 of the energy in the burned fuel, at best, goes to what you're actually trying to do, and the rest just gets thrown away as waste heat. By contrast, measures of energy production for wind, solar, and hydro already account for energy losses during generation, so the number shown in the chart is actual, useful electricity. This is why, from a standpoint of useful energy rather than total energy, solar and wind combined have already passed coal, even if the chart seems to suggest otherwise.
"the price of oil is set globally"
I am curious if this is convention or law. I suspect the former. That is, I don't think anything literally prevents one supplier or another from lowering the price to sell more quantity? There's a fear of retribution from the cartel, but that should only matter to actual members of the cartel, which the US is not one of.
I think what you mean is that the price is set by the laws (in the natural sense, not the legal one) of supply and demand, and that the elasticity (or lack thereof) in these factors globally are going to outweigh any local considerations. But maybe there is something about the geo-politics here that I do not get.
Oil is largely fungible. Especially once refined. There are basically 2 prices to follow - WTI and Brent, US and Europe. You can do the "crack spread" if you really care a lot - essentially the refiner premium. Following anything more is unnecessary unless you're an industry specialist.
Sure, I know, but this still resolves to "supply and demand dictates commodity prices"
I think "the price is set globally" implies the idea that there is some global entity "in charge" of the price of oil, and I don't think that is how it works.
Excellent post Milan! The combination of the Recovery Act clean energy R&D funding plus the domestic natural gas boom turned out to be a big f-ing deal and changed the course of American energy in enduring (and positive) ways.
Being a bit older than you, I remember that when I was growing up it was hard to imagine coal being anything less than dominant in our energy mix. That tide really turned back when you were in first grade and those bad old days of higher pollution are never coming back.
I agree that fracking has been a game changer for oil and natural gas production. However, I have to take issue with Matt's statement that "fracking made America a net oil exporter." This is only true if you define "oil" as all petroleum products, which includes many products other than crude oil. In fact, according to the USEIA, the US remains a net importer of crude oil. In 2022, the US imported 6.28 million barrels per day of crude oil and exported 3.6 million barrels per day of crude. It is a crucial distinction that shows that the US is not yet energy independent when it comes to crude oil.
How much of that crude oil importation is for refinement for the export market?
Excellent post! But admit it, Milan, you wrote this -- "[w]ay back in my first-grade days in 2009" -- with a smirk. Or maybe a rueful smile.
And also, not that you need me to say so, you're a great writer and I'm glad you write on this Substack! If you ever start your own, please let us know because I am sure we would join it, and I hope Matt starts letting you write more frequently (maybe adding a Saturday piece?)
Couldn't reducing oil flows from Saudi Arabia just make their situation worse by convincing more American suppliers to drill for more oil?
Better or worse depends on the amount of CO2 emitted. Where fossil fuel is produced has little to do with that.
I was referring to Saudi Arabia’s position
Due to the shale boom and Saudi raising production, the oil price crashed between 2014-2016 which hurt the economic growth of many complacent petro states. You can tell who the winners and losers of economic growth from 2012-2022 based on which petrostates were damaged by the 2014-2016 commodity slump:
https://open.substack.com/pub/yawboadu/p/world-bank-data-2022-update?r=garki&utm_campaign=post&utm_medium=web
That’s a great article, but I wish it’s charts were actually fully listed!
I added a chart for the oil and listed each oil price phase :)
Excellent post. And now I realize that Milan is even younger than I thought unless he failed first grade a bunch of times. My own kids of similar age are such slackers!
Although I live relatively close to places where fracking was taking place, I never quite understood how it worked until this article. I now better understand people's fear and attraction to it.
One thing I don't understand from the column - it says that red state politicians are against renewables, but that a lot of income and jobs from renewables go to red states. It sounds like these would be reasons for the politicians to be for renewables. What am I misunderstanding?
It’s the same as “what’s the matter with Kansas?” Culture war disputes trump economic benefits until the benefits get extremely big. And in states that have lots of land, usually both renewables and fossil fuels are big.
Natural gas is indeed a convenient hedge against the non-dispatchable nature of wind and solar (i.e., those renewables cannot simply be turned on and off according to demand). It is nevertheless worthy of note that over the longer term continued reliance on natural gas for electricity generation may not be compatible with emissions-reduction goals. The NREL “Earthshot” target for 2050, for instance, allows for substantial replacement of natural gas not only through increased wind and solar, but also through progressive implementation of geothermal. (That same projection does not see much of a future for nuclear, but if the nuclear cost dilemma could be resolved that might change.)
Augustine, Chad, Sarah Fisher, Jonathan Ho, Ian Warren, and Erik Witter. 2023. Enhanced Geothermal Shot Analysis for the Geothermal Technologies Office. Golden, CO: National Renewable Energy Laboratory. NREL/TP-5700-84822.