Before you begin this course, make sure you have completed the Course Orientation
(see the Course Orientation [4] menu at left).
As the saying goes, “the only constant is change.” This statement can be used to describe the energy industry over the past few decades. “Booms” and “Busts” have occurred numerous times as prices rose and then fell back again. Companies have come and gone. Enron shook the very foundation of energy trading. Investigations of supply and price manipulation have occurred, resulting in fines and imprisonment. The new exploration, drilling, and completion techniques (so called “fracking”) have not only led to a substantial increase in the production of crude oil and natural gas, but have also led to great controversy and new regulation over the methods themselves. The “how” and “why” these occurred will be presented throughout the course, and you will come to understand the ever-changing landscape that is the energy industry in the United States.
This course will be focused largely on the five fossil fuels that are traded both physically and financially in energy markets. These are natural gas, crude oil, unleaded gasoline, heating oil, and natural gas liquids (NGLs). These fuels, along with coal, comprise the “non-renewable” energy sources. They are so named since their supply is seen as finite over the long-term.
Each of these products has a profound affect on the United States and global economies. Billions and billions of dollars of infrastructure and hundreds of thousands of jobs are involved in the exploration, production, transportation and distribution of these forms of energy. And, price volatility for these commodities has increased dramatically over the past several years going back to the historic run to $147 per barrel (Bbl) for oil in 2008. Since that time, crude oil has been recognized as a truly global commodity with a host of new factors influencing price.
However, before we proceed into the details of these fossil fuels, we need to understand how these fit into the overall profile of energy production and consumption in the United States. In order to do this, we must also include the various other forms of energy produced and consumed in the United States known as “alternative” and “renewable” energy.
At the successful completion of this lesson, students should be able to:
This lesson will take us one week to complete. There are a number of required activities in this module. The chart below provides an overview of the activities for Lesson 1. For assignment details, refer to the location noted.
All assignments will be due Sunday, 11:59 p.m. Eastern Time.
REQUIREMENT | LOCATION | SUBMITTING YOUR WORK |
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Mini-lecture: Alternate and Renewables | Mini-Lecture: Alternate and Renewables page | No submission |
Lesson 1 Activity | Lesson 1 Activity page | Submitted through the course blog |
Discussion forum participation | Course Blog | Submitted through the course blog |
If you have any questions, please post them to our Questions? discussion forum (not e-mail), located under the Communicate tab in ANGEL. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.
“Non-renewable” energy sources, as well as “renewable” energy and “alternative fuels” help to satisfy the nation’s energy needs. Coal, a non-renewable fossil fuel, plays a large role in the generation of electricity as well as in industrial processes such as the manufacturing of steel. Nuclear, hydro, solar, wind, biomass, and geothermal are all considered “renewable” forms of energy and comprise varying levels of supply in this country. They are classified as renewables since their source is seen as being virtually unlimited. Of these, solar, wind, biomass, biodiesel, and geothermal are all considered “alternative” energy sources since they are not the “traditional” kind (fossil fuels, nuclear and, hydro).
Figure 1 below shows the break-out of fuel sources used in the generation of electricity. As you can see, the single largest fuel is coal, although this is changing as historically low natural gas prices are causing some “fuel switching.” This is followed by natural gas, nuclear, hydro, and “other.” This final category is comprised of energy sources such as fuel oil (a crude distillate), wind, solar, biomass, and geothermal. Note the very small percentage currently represented by all of these combined. It will literally take decades for alternative fuels to make a substantial contribution to the energy portfolio in the United States. Thus, there is a need to continue to use fossil fuels and nuclear power to “bridge” the gap. How the former are delivered to market and how they are priced is the main focus of this course.
Now that we have clarified the difference between renewable and non-renewable sources of energy, let’s have a look at the production and consumption of energy in the United States on a macro level.
The United States is the world’s largest consumer of energy in general and of oil and refined products in particular. However, our current, and forecasted, energy production and consumption balance is improving towards a position of declining imports and more efficient use of all energy sources. The vast new supplies of oil and natural gas coming from domestic shale are radically altering our outlook for eventual self-sustainability. And, the continuing development of “renewable” and “alternate” energy sources will decrease our reliance on traditional “fossil” fuels. We will now take a look at the current state of energy production and consumption in the US followed by a brief examination of the renewable and alternative energy sources.
Figure 2 illustrates the history of actual energy consumption in the United States beginning in 1775 and with an estimated projection moving forward to 2035. Note the forecasted decline in the use of both petroleum and coal, while natural gas and nuclear consumption are expected to increase. The increase in natural gas consumption has much to do with the following: the current historically low prices resulting from the huge amount of new shale gas being produced, and new tighter emissions standards being imposed on coal-fired power plants. The rise in nuclear-generated electricity is a result of the increased number of permits issued for new plants for the first time in decades.
Figure 3 indicates current and projected United States energy consumption overall by source. Notice the increase in renewables and liquid bio-fuels. These alternative energy sources will continue to grow as long as economically feasible, and especially if government subsidies are available to support their production (e.g. – ethanol). However, realize that the EIA (Energy Information Administration) is projecting only a modest increase of 4% by 2035. There is a general misconception that this category, which includes wind and solar power, will eventually contribute a substantial portion of our energy needs. Clearly, such is not the case.
Nuclear production is shown as being stable, however, we know that new plants are being permitted, and with the negligible emissions they produce, look for an increase in power output from this source.
As far as natural gas goes, a steady consumption pattern is indicated. This too, has to be questioned as the residential use of heating oil and propane is steadily declining as conversions to natural gas steadily continue. (50% of US homes use natural gas for space heating and hot water.) Add to that the retirement of coal plants, or the outright switching from coal to natural gas, and growth in the consumption of natural gas will occur.
The future consumption of oil and “other liquids” will be interesting to observe as well. With automobile efficiency improving and electric cars gaining in popularity, this segment should decline. Also, there are decades-old power plants, mostly in the Northeastern US, that use fuel oil. These, too, will become obsolete or convert to natural gas. (The Northeast US is also the world’s largest consumer of heating oil.)
There should also be a more dramatic decline in the use of coal than is shown above as emissions restrictions and lower natural gas prices make coal less economic to use.
The fuels we will study in-depth, natural gas and “oil and other liquids,” comprise 57% of the projected total US energy consumption profile, thus making it crucial to understand the logistics and “value chain” of these fuel sources.
In Figure 4, we see the energy sources matched-up with their respective categories of consumption. Both petroleum and natural gas are used in each sector of consumption, while coal is utilized in only industrial, residential, and power generation. Nuclear energy is strictly used for electric power generation, and renewables can be consumed in all categories but contribute very little to each on a percentage basis.
The sources and uses of energy are important for the overall understanding of the impact of supply, demand and pricing on the macro-economic environment. Everything depends on energy, and understanding these interrelationships can help us manage our supply needs and price exposure.
So, what are the “renewables and alternate” sources of energy? As previously mentioned, “renewable” energy sources are those which can be replenished over and over again, such as nuclear, solar, hydro, wind, biomass, biofuels, and geothermal. “Alternate” energy sources are those which are not the traditional fossil fuels or nuclear power. These include the renewables hydro, wind, solar, biomass, biofuels, and geothermal.
As stated previously, renewable and alternate energy sources will take a long time to make a significant dent in the US’ reliance on fossil fuels. In the interim, the fuels we will study, primarily natural gas and crude oil, will continue to be produced and consumed in substantial quantities. Natural gas, as the cleanest burning of the fossil fuels, represents the “bridge” fuel until renewable and alternate energy can be produced in sufficient quantities to wean us of our dependence on fossil fuels.
The following "mini-Lecture" will cover Alternate and Renewable energy sources in more detail. Mini-Lectures such as this will be provided in most Lessons and will supplement the textual lesson or, be the lesson itself.
Criteria | Possible Points |
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Research and answers to 5 questions | 15.0 |
Complete citations for research | 5.0 |
Energy consumption in the United States takes many forms. The traditional “fossil fuels,” such as coal, oil, natural gas, gasoline and other refined products and, natural gas liquids, do not have a limitless supply.
Renewables, however, such as nuclear power, hydro, wind, solar, biomass, biodiesel and geothermal, are self-replenishing.
Alternative fuels comprise the group outside of “traditional” energy sources such as nuclear and fossil fuels. They represent the smallest amount of energy consumed in the US and are not expected to expand greatly over the next (20-25) years. And, for many alternative fuels, government subsidies are essential for them to be produced economically.
In the interim, fossil fuels such as natural gas and crude oil will continue to grow in usage and importance. Their supply, demand, and pricing, will have a great impact on the US economy for decades to come.
Now that we have examined production and consumption in the United States as well as the energy “mix,” we will focus on the fuel sources that comprise over 57% of the energy used in this country. Crude oil, with refined products, and natural gas and related natural gas liquids (NGLs), make-up this large sector. The factors that influence their supply and demand are varied and ever-changing. Besides the obvious impact of weather, the economy, US dollar and the global geo-political conditions can all influence energy commodities and affect their prices.
You have reached the end of Lesson 1. Double-check the list of requirements on the first page of this lesson to make sure you have completed all of the activities listed there before beginning the next lesson. (To access the next lesson, use the link in the "Course Outline" menu at left.)