Transformative price shifts and innovative technology combined with an aging existing infrastructure leave the US energy sector looking more like that of an emerging economy than a traditional developed one: And that’s a good thing.
Infrastructure in the energy sector is still built to serve an economy that looks more like the 1950s than 2012, with a transport sector almost entirely dependent on oil products and a centralized hub-and-spoke electricity system dependent on a blend of coal and nuclear with natural gas and renewable generation still in the minority.
By 2030, closures of coal-fired plants and a boost to natural gas generation means the generation sector will be transformed, with natural gas and coal each fueling 30% of the country’s electricity production, Duke Energy CEO Jim Rogers said at the Wall Street ECO:nomics conference in Santa Barbara, California this week.
That shift, alongside increased usage of renewable generation like wind and solar, as well as potential adoption of increased use of natural gas and electricity for transportation purposes, could render much of the existing US energy infrastructure outdated and require huge job-creating investment into new pipelines, transmission wires and power plants that better reflect the realities of an efficiency-obsessed early twenty-first century economy.
The potential for increased US production of oil from shale could also spark a reworking of the US oil distribution networks, a future that companies are planning for with new refinery and other infrastructure investments.
The Student Becomes the Teacher
Those changes makes the US energy sector more like that of large emerging economies in China and India, where growth in demand is already underpinning huge investment by companies and governments in new infrastructure.
The US has an advantage over those countries in that it also has a deep pool of available capital and an innovative financial industry, Atlas Energy CEO Edward Cohen and Chesapeake Energy CEO Aubrey McClendon said at the ECO:nomics event.
Infrastructure needs in the US can be met by a mixture of capital availability with the entrepreneurial approach of American energy companies, Cohen said: “That’s one thing Wall Street can do.”
New natural gas infrastructure to serve emerging demand based on low prices for the fuel, including CNG stations for trucks and cars, is already being built in the US McClendon said.
Exporting natural gas shale drilling technology, including hydraulic fracturing, to countries like India and China, is the fastest and best way to help them grow their economies and limit emissions, McClendon said. Chesapeake has signed partnerships with a number of foreign firms, including China’s CNOOC.
I’m not going to put all my chips on any one technology – Rogers
The focus on natural gas in the industry, reflected by a focus on the fuel’s prospects in early sessions at the ECO:nomics conference, can be overdone from the generation sector perspective, Duke’s Rogers said. With 30 to 40 year investment and operation timelines, electricity firms cannot afford to make a long bet on any one fuel type; diversification remains essential.
“It is one of the biggest challenges we face; convincing regulators and consumers that we should build anything but natural gas generation,” said Rogers. “I’m not going to put all my chips on any one technology.”