Energy Recap 2011: A Year of Massive Change

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1. The Fukushima Daiichi nuclear disaster

fukushima blastOn March 11, 2011 the tsunami that flooded Japan’s Fukushima Daiichi nuclear plant resulted in the worst nuclear crisis since Chernobyl. The tragedy spurred heated debates over whether nuclear power could ever be totally risk-free. Several countries decided that the potential consequences were just too great, and reversed their plans for new nuclear plants and in some cases shuttered existing plants. The incident will likely slow the global development of nuclear power for years, just as the Chernobyl accident did in the late 80’s and early 90’s.

2. The Keystone Pipeline debate

keystone pipelineEnvironmentalists scored a major victory when the Obama Administration announced a delay in approving the controversial Keystone Pipeline that would have delivered oil from Canada’s Athabasca oil sands deposits to refineries in the U.S. But the issue is still very much alive, and promises to be an important energy news story to follow in 2012.

3. Brent and WTI prices soar; price spread blows out

brent wti prices soarFor the first time since 2008, Brent and West Texas Intermediate headed back above $100 a barrel. Brent in fact spent much of the year above $100 as a historic spread in price relative to WTI opened up. Eventually Brent traded at a $25 premium to WTI, primarily due to two factors: WTI prices moderated because of growing production in North Dakota and from Canada’s oil sands, and Brent prices were higher due to the conflict in Libya. But globally, Brent is the more important benchmark, and gasoline prices in 2011 were mostly dictated by the price of Brent.

4. US import dependence falls on surge in US product exports

U.S. refiners exported a lot of jet fuel, heating oil, and gasoline this year; so much so that they actually exported more finished products than the country imported for the first time since 1949. However, this development also highlighted the energy illiteracy among some in the media, who incorrectly reported that the U.S. had become a net exporter of oil. This was not remotely true; the U.S. is still highly dependent on oil imports. They have just been using more of that oil to make finished products for exports.

5. Solar prices plummet

solar panelThe price of solar panels fell dramatically in 2011; down an estimated 50% from 2010 levels. While this was good news for consumers, it put intense pressure on U.S. solar panel manufacturers, causing some — like Solyndra — to declare bankruptcy.

6. Ethanol tariffs and tax credit expire; EPA approves 15% ethanol blends

More than three decades of ethanol tax credits came to an end at the end of 2011. Also expiring was the tariff on imported ethanol, but unlike the tax credit, this one may come back to life in 2012. Ethanol producers needn’t fear the expiration, however, as they are still well-protected by the mandates in the Renewable Fuel Standard. The EPA also approved 15% ethanol blends in some car models, but this was mostly a non-story as there was very little demand for the product.

7. Electric Cars Slow Sales

chevy volt nissan leafElectric cars began hitting the roads for real, but sales were disappointing. Not only were sales of GM’s Volt lower than expected, but electric car sales were disappointing in the U.K. and in China. If this trend continues, then we won’t need conspiracy theories to determine who killed the electric car.

8. U.S. oil and gas output grow strongly

Aided by rapidly growing output from North Dakota’s Bakken field, oil production in the U.S. rose for the third year in a row. Natural gas production also continued the growth trend that started in 2005, and in 2011 was on the verge of breaking the U.S. Dry Natural Gas Production record set in 1973.

9. Fracking revolution expands

Natural gas from fracking continued to make up an increasing portion of U.S. natural gas supplies, even as battles raged about the possible environmental implications. China — believed to have the world’s largest reserves of shale gas — is preparing to begin shale gas development soon, and is being assisted with technology sharing from the U.S.

10. IEA orders release of oil from inventories to counter tight market brought on by Libya

oil fieldIn response to Libyan oil being removed from the world oil markets due to the conflict there, the U.S. released oil from the Strategic Petroleum Reserve in conjunction with a release from IEA member countries. At the time the release was announced, world oil prices were above $100/bbl. They initially fell a bit, but then within a week were higher than they were before the release was announced, and six months later are still above $100/bbl.

Honorable Mentions

There were a number of stories that arguably could have been in the Top 10. These include the bankruptcies of Solyndra and Range Fuels, the Obama Administration’s decision to delay implementation of new ozone standards (among other decisions to delay new rules and regulations), China’s continued insatiable appetite for energy, another year of cellulosic ethanol failing to deliver, or the Obama Administration’s continued evolution of their stance on domestic and offshore drilling.

Predictions for 2012

I will offer up four energy predictions for 2012’s top stories:

  • President Obama will easily win reelection, which means that energy policies will likely continue along the current trajectory.
  • The Keystone Pipeline project will be approved (although that decision may still slide into 2013).
  • Natural gas prices will remain low, averaging below $5/MMBTU for the year.
  • Oil prices — both West Texas Intermediate and Brent — will average above $100/barrel in 2012.

And one political prediction: We will look back on the fact that Newt Gingrich was once the leading Republican contender for president and have a good laugh about it.

In closing, I hope 2011 was a good year for readers, and that you will have much success and happiness in 2012.

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About Robert Rapier

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