A meeting of 500 international energy figures at the Oil & Money Conference in London gave the co-sponsor New York Times access to the collective wisdom of the assembled executives, policymakers and financiers.
The paper reported a sample of these individuals’ views on the biggest challenges facing the global energy industry. The overriding theme of their answers: finding new methods and technology for maximizing fossil fuel collection; generating more efficient means of alternative energy production; and modernizing energy delivery and storage systems.
That was 2019, and while none of those interviewed could have envisioned the maelstrom of challenges lying in wait with COVID-19 just around the corner, their fundamental assertions are no less valid today.
Innovation — be it operational, technological or both — is the fundamental challenge facing the energy business. The past 30 months has done nothing but underscore this fact, as the nation struggles under rising prices, shrinking available labor and the drive to pivot from traditional energy sources to alternative power.
“Recent supply chain, global events and general economic issues such as inflation have had major effects on the cost of new generation, primarily renewables,” said Will Crane, director of product management for Bluestem Energy Solutions.
“Supply chain disruption has caused pricing issues as shipping costs have shot up dramatically, but perhaps an even bigger issue with rising costs is inflation. We are seeing commodity prices rise across segments including steel, oil and lithium, which are all key components that are used in energy generation and storage.”
These economic levers plaguing the energy sector are no mere blip on a balance sheet. The historic confluence of scant labor, fractured supply chain and shaky global financial markets exacerbated by the conflict in Ukraine are painting a bleak picture that experts predict will last years, not months.
In its Commodity Markets Outlook Report, released earlier this year, the World Bank predicts energy prices will rise more than 50% in 2022 before easing in 2023 and 2024.
Oil is forecasted to top $100 a barrel this year, a 40% increase over 2021 prices. While oil prices are expected to moderate to $92 a barrel next year, that’s still well ahead of the five-year average of $60. Natural gas and coal are both expected to follow suit.
If that’s not enough, all of 2022’s woes come on the heels of 2021, which saw energy prices outpace other commodities in terms of price hikes. Prices jumped 59% last year, more than twice that of other commodities.
Price Pressures
Tracey Christensen, director of communications for Metropolitan Utilities District, put these global trends into a local context. She said while MUD has worked hard to minimize the cost of delivering natural gas in areas it can control, that doesn’t account for elements outside of the organization’s direct purview.
“There are two aspects of a customer’s gas bill — ‘pass-through’ costs and costs to operate the district,” she said. “MUD is proud that the rate components used to fund operational costs have not changed since 2017.
“However, pass-through costs, which include transportation costs to move gas to our market area as well as the cost of natural gas, have changed. The cost of natural gas fluctuates, sometimes dramatically, due to a variety of factors including production, national storage levels and weather impacts. We use strategies to lessen the impact of rising natural gas prices and to minimize price volatility, but the district cannot shelter our customers from all price increases.”
Per Christensen, the average market gas price for Q1 2022 was $5.91 per decatherm (Dth), more than twice that per Dth for the same period in 2021. Adding to the situation is lower-than-average supply; as of April 1, the Energy Information Administration reported natural gas storage levels for the U.S. were down 22.4% year over year and 17.1% below the five-year average.
Improving Technology
Energy costs, of course, do not operate in a vacuum, but rather impact the price of virtually everything else. Higher electrical costs mean higher manufacturing costs just like higher gas and diesel prices affect the logistical expense related to bringing goods to market. For this reason, the energy industry is under increased pressure to develop alternative sources of energy as well as improve current technologies.
“Our Grid Modernization Strategic Initiative is underway,” said Will Pickle, resource planner for Omaha Public Power District. “This initiative is focused on modernizing the electrical grid and working towards advanced metering infrastructure technology in the future.
“AMI is an integrated system of smart meters, communications networks and data management systems that enables two-way communication between the utilities and customers. This will open up options and services to better communicate with customers and also to better serve their changing preferences and needs.”
Companies are also being scrutinized for their environmental responsibility, generally referred to as decarbonization, an eco-buzzword term that’s quickly become a matter of public policy. The industrial sector currently accounts for 30% of greenhouse gas emissions, per the U.S Department of Energy’s Office of Energy Efficiency and Renewable Energy, second only to the transportation sector, which accounts for 35% of GHG.
As such, the Biden Administration has set the goal for American companies to achieve net-zero carbon emissions by 2050, moving some states to pass laws concerning adoption of electric vehicles and other green-focused requirements for the business community. As forward-looking companies are moved to take action, they’re looking to local utilities to row alongside them.
In addition to broadening customers’ energy usage to more than 35% from renewable resources last year, OPPD has embraced this challenge in other ways.
The utility has initiated a battery storage pilot project, for instance, which is expected to go into commercial operation later this year. The pilot is one example of the technological innovation called for in the company’s Pathways to Decarbonization Strategic Initiative.
That study identifies the growing role of electrification and the challenges of moving communities toward a net-zero carbon footprint while providing innovative solutions around energy storage, load flexibility and other efficiencies.
Christensen said MUD is working with OPPD on its decarbonization plan, specifically in addition to two new natural gas-fueled generation facilities to support growth and ensure resiliency in the region.
“Adding natural gas backup to the solar facilities is an important component that will improve reliability and quickly provide power when the sun isn’t shining,” she said. “This project also emphasizes the environmental benefits of natural gas toward reducing emissions and will have a positive long-term impact on the community.
Making Headway
Such initiatives are already achieving the desired effect. Christensen noted energy-related carbon emissions are at their lowest levels in nearly three decades, she said thanks in large part to switching from coal to natural gas to fire electric plants.
“We believe natural gas and its infrastructure play a critical role in further lowering these levels. Working together, natural gas and renewables can hasten our reduction of emissions while keeping energy affordable and reliable,” she said.
There’s also considerable investment being made for the use of compressed natural gas (CNG) and renewable natural gas (RNG) as a replacement fuel for gasoline.
“The district continues to lead in the market development of compressed natural gas as a vehicular fuel and has been experimenting with renewable natural gas through the Douglas County landfill gas project for the past several years,” Christensen said.
“A portion of the RNG from the landfill is assigned to local CNG fueling stations and helps fuel the district’s entire natural gas fleet of more than 160 light, medium and heavy-duty vehicles. In 2021, MUD also dispensed more than 3.3 million gasoline gallon equivalents of CNG across the service territory, the highest amount in the district’s history.
“Additionally, MUD has partnerships with local and regional fleets, including Metro, the Omaha area’s mass transit provider, which operates more than 20 CNG buses in its regular fleet and nine ORBT articulating buses. FCC Environmental operates its fleet of more than 70 CNG trucks as part of the City of Omaha’s refuse contract. These trucks utilize approximately 100,000 Dth annually, or the equivalent of 1,200 residential homes’ annual gas usage.”
Meanwhile, Bluestem Energy continues to improve the technology associated with solar and wind energy, specifically in the area of storage.
“Energy storage will be crucial to allowing more renewables to be built, while maintaining a reliable and resilient grid,” Will Crane said. “As wind and solar have become mature technologies and have proliferated onto the grid, storage is becoming a key tool we are using to increase the grid’s capability to handle more renewable power.
“With wind and solar being intermittent generating sources, energy storage can help ‘flatten’ the generating profile of these technologies by storing power when there is excess generation, then discharging when the demand on the grid grows and the generation from the renewables falls.”
Crane also noted improvement to the electrical grid is required to achieve greater efficiency on the transmission side. He said current grid capacity is not sufficient for the smooth delivery of power generated by these alternative sources, something improved batteries and other storage technology can’t address entirely.
“Currently, most of the transmission system is built around the idea of having large energy-generating facilities that deliver power to the end user,” he said. “However, as wind and solar penetration has grown, the needs of the transmission system have changed as well.
“There is a shortage of transmission capacity available for new generating sources. Energy storage can help mitigate this to an extent, but thoughtful new-build transmission infrastructure will be crucial to the continued implementation of renewable generating sources.”
